APAC TELESERVICES INC, 424B4, 1996-11-05

APAC TELESERVICES INC
424B4, 1996-11-05
BUSINESS SERVICES, NEC

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<PAGE> 1

PROSPECTUS

4,000,000 SHARES

APAC TELESERVICES, INC.
COMMON SHARES LOGO
------------------------

Of the 4,000,000 Common Shares of APAC TeleServices, Inc., an Illinois
corporation (the "Company" or "APAC"), being offered hereby, 3,180,000 shares
are being offered in the United States and Canada by the U.S. Underwriters (the
"U.S. Offering") and 820,000 shares are being offered in a concurrent
international offering outside the United States and Canada by the International
Managers (the "International Offering", and together with the U.S. Offering, the
"Offerings"). The public offering price and the aggregate underwriting discount
per share are identical for each of the Offerings. See "Underwriting."

All of the Common Shares offered hereby are being sold by certain
shareholders of the Company (the "Selling Shareholders"). The Company will not
receive any proceeds from the sale of Common Shares by the Selling Shareholders.

The Common Shares are quoted on the Nasdaq National Market under the symbol
"APAC." The last reported sale price of the Common Shares on the Nasdaq National
Market on November 4, 1996 was $42 1/4 per share. See "Price Range for Common
Shares and Dividend Policy."

SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES OFFERED
HEREBY.
------------------------

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

PROCEEDS TO
PRICE UNDERWRITING SELLING
TO PUBLIC DISCOUNT(1) SHAREHOLDERS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Per Share......................... $42.00 $1.68 $40.32
- ------------------------------------------------------------------------------------------------
Total(2).......................... $168,000,000 $6,720,000 $161,280,000
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."

(2) A Selling Shareholder has granted the U.S. Underwriters and the
International Managers options, exercisable within 30 days of the date
hereof, to purchase up to an aggregate of 477,000 and 123,000 additional
Common Shares, respectively, on the same terms as set forth above, to cover
over-allotments, if any. If all such additional shares are purchased, the
total Price to Public, Underwriting Discount and Proceeds to Selling
Shareholders will be $193,200,000, $7,728,000 and $185,472,000,
respectively. See "Underwriting."
------------------------

The Common Shares are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to the approval of
certain legal matters by counsel for the Underwriters and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Shares will be made in New York, New York on or about
November 8, 1996.
------------------------

MERRILL LYNCH & CO.
LEHMAN BROTHERS
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
------------------------

The date of this Prospectus is November 4, 1996.
<PAGE> 2
[Graphic Description: A series of six pictures depicting various individuals
performing teleservice operations.]

IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------

IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON SHARES OF THE COMPANY ON THE NASDAQ
NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT
OF 1934. SEE "UNDERWRITING."
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements
and notes thereto appearing elsewhere in, or incorporated by reference into,
this Prospectus. Except as otherwise indicated, all information in this
Prospectus (a) has been adjusted to reflect a 2-for-1 stock split in the form of
a stock dividend that was completed on May 15, 1996 and (b) assumes no exercise
of the Underwriters' over-allotment options. See "Underwriting."

This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, or in the
documents incorporated by reference herein, the words "anticipate," "believe,"
"estimate," "intend" and "expect" and similar expressions are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results expressed
in or implied by these forward-looking statements. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors."

THE COMPANY

APAC is one of the largest and fastest growing providers of outsourced
telephone-based sales, marketing and customer management services. The Company's
client base is comprised of large companies with growing needs for
cost-effective means of contacting and servicing current and prospective
customers. The Company operates approximately 8,000 workstations in 57 telephone
call centers located primarily in the Midwest. The call centers are centrally
managed through the application of extensive telecommunications and computer
technology to promote the consistent delivery of quality service. The Company
believes its innovative approach to providing quality service distinguishes it
from its competitors and has led to the Company's rapid growth rate and its
retention of key clients. The Company's net revenue and net income for the first
twenty-six weeks of fiscal 1996 were $113.2 million and $11.8 million,
representing increases of 179% and 258%, respectively, when compared to the
Company's net revenue and pro forma net income for the first twenty-six weeks of
fiscal 1995.

The Company has two primary service offerings: Outbound Sales and Marketing
Solutions ("Sales Solutions") and Inbound Customer Service Solutions ("Service
Solutions").

Sales Solutions. Sales Solutions provides telephone-based sales to
consumers and businesses, database analysis and management, market research,
targeted marketing plan development and customer lead generation, acquisition
and retention. Sales Solutions generated approximately $62.2 million of net
revenue, or approximately 55% of the Company's total net revenue, in the first
twenty-six weeks of fiscal 1996, an increase of 92% when compared to the first
twenty-six weeks of fiscal 1995. Sales Solutions currently specializes in three
industries:

Telecommunications--APAC provides Sales Solutions services to the
telecommunications industry, primarily servicing long distance, regional
and wireless telecommunication companies. The Company's services include
new account acquisition, direct sales of custom calling features,
personalized "800" and long distance services and other customer retention
services in both the business and consumer market segments. The Company's
most significant relationship in this industry is with AT&T Corporation
("AT&T"), which accounted for approximately 35.4% of the Company's Sales
Solutions net revenue in the first twenty-six weeks of fiscal 1996.

Insurance--APAC is a major marketer of insurance products throughout
the United States. The Company works with large consumer insurance
companies and their agents, marketing products such as life, accident,
health, and property and casualty insurance. The Company employs
approximately 250 insurance agents licensed to sell insurance in a total of
49 states. APAC has sold approximately 4.0 million insurance policies for
its clients since 1991. Significant relationships in this industry include
Mass Marketing Insurance Group, J.C. Penney Life Insurance Company and
American Bankers Insurance Group, which clients accounted for approximately
14.5%, 8.8% and 4.5%, respectively, of the Company's Sales Solutions net
revenue in the first twenty-six weeks of fiscal 1996.

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<PAGE> 4

consolidation, cardholder retention and sales of other banking products and
services. Significant relationships in this industry include Discover Card
Services, which client accounted for approximately 2.0% of the Company's
Sales Solutions net revenue in the first twenty-six weeks of fiscal 1996.

Sales Solutions also offers business-to-business sales source services.
These services include obtaining customer record updates, conducting customer
satisfaction and preference surveys and cross-selling client products. Sales
source services are designed to provide pro-active customer management with the
objective of account expansion and enhanced customer retention. Sales source
services accounted for approximately 3.0% of the Company's Sales Solutions net
revenue in the first twenty-six weeks of fiscal 1996.

Service Solutions. Service Solutions provides inbound customer service,
direct mail response, "help" line support and catalog order processing. The
target market for Service Solutions is large companies with inbound annual call
volume in excess of 500,000 calls and inefficient or expensive customer service
operations. Certain Service Solutions clients rely upon the Company to provide
specialized telephone service representatives such as insurance agents and
computer technicians, capable of responding to specific customer inquiries.
Service Solutions, which became a full-scale offering in late fiscal 1993,
generated approximately $51.0 million of net revenue, or approximately 45% of
the Company's total net revenue, in the first twenty-six weeks of fiscal 1996,
an increase of 522% when compared to the first twenty-six weeks of fiscal 1995.
Significant relationships include United Parcel Service ("UPS"), Western Union
and Quill Corporation, which clients accounted for approximately 75.7%, 3.4% and
3.3%, respectively, of the Company's Service Solutions net revenue in the first
twenty-six weeks of fiscal 1996. As of July, 1995, the Company entered into an
agreement to operate and manage four of UPS' customer service facilities on an
outsourced basis until January, 2000. In August, 1996 the Company entered into a
five-year agreement to receive and process customer orders for John H. Harland
Corporation, a leading supplier of checks, database marketing services and loan
automation software to the financial services industry. APAC believes
significant opportunities to generate new business in Service Solutions exist as
more companies outsource all or a portion of their telephone-based customer
service functions.

BUSINESS STRATEGY

APAC's strategy is to be the premier provider to the large and growing
market for outsourced telephone-based services. The Company seeks to
differentiate itself from other providers by offering customized solutions that
address the specialized needs of its clients, while improving the effectiveness
and reducing the cost of their marketing and customer service operations. APAC
seeks to continue to expand its business by leveraging the following competitive
strengths:

Specialized Technology--The Company's technological capabilities and
expertise allow APAC to serve as a "seamless extension" of each client's
business while handling approximately 9.5 million inbound and outbound
calls per week. The Company has developed a UNIX-based, open architecture
computer system which provides APAC with the flexibility to integrate its
system with the variety of systems maintained by its clients. Through such
integration, APAC is able to receive calls and data directly from clients'
systems, forward calls to clients' in-house telephone representatives when
appropriate, and report, on a real-time basis, the status and results of
the Company's services. By utilizing APAC's services, clients are able to
cost-effectively access the Company's specialized technological
capabilities.

Call Center Development--The Company has developed a systematic
approach to locating, equipping and staffing call centers, enabling it to
have a typical call center operational in approximately 90 days. APAC
locates call centers primarily in small to mid-sized communities in an
effort to lower its operating costs and attract a high quality, dedicated
work force. Since the beginning of fiscal 1996, APAC has opened 24 new call
centers and expanded certain existing call centers adding approximately
3,800 new workstations. The Company intends to continue to add call centers
and workstations as required by demand for its services.

Human Resource Management--APAC's ability to hire, train and manage
employees is critical to its ability to provide high quality service to its
clients. Once hired, each new telephone representative

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<PAGE> 5

receives on-site training lasting from three to 17 days, depending on the
complexity of the sales or service offering. APAC believes that by
employing a significant number of full-time personnel it is able to
maintain a more stable work force and reduce the Company's recruiting and
training expenditures.

GROWTH OPPORTUNITIES

The Company has grown rapidly over the past several years by utilizing its
competitive strengths to participate in the growth in its industry and the
ongoing trend towards outsourcing. Industry sources estimate telephone-based
direct marketing expenditures have doubled over the last ten years and were
approximately $81 billion in 1995. Telephone-based contact with customers is
increasing as more companies realize its benefits, which include high response
rates, low cost per transaction, direct interaction with customers and on-line
access to detailed customer or product information allowing immediate responses
to customer inquiries. Additionally, with the proliferation of toll-free "800"
and "888" numbers, the telephone is becoming a principal means of providing
customer service. APAC believes that large companies increasingly will outsource
these activities in order to focus internal resources on their core
competencies, while improving quality, increasing productivity and reducing
costs. Moreover, the Company believes that well-capitalized, experienced
organizations such as APAC will benefit due to increasing demand for
multi-location, high volume, technologically-advanced call center operations.

The Company seeks to capitalize on these trends through expanding existing
client relationships, adding new clients, developing new markets and promoting
new services. The Company believes that the telecommunications industry will
continue to provide significant opportunities for Sales Solutions as a result of
on-going industry deregulation, the emergence of personal communications
services ("PCS") technology and new industry participants. The Company also
believes opportunities exist to provide additional Sales Solutions services to
the financial services and insurance industries. Furthermore, the Company plans
to continue to market its business-to-business sales source services to new and
existing clients. The Company believes Service Solutions will continue to grow
significantly as certain contracts come fully on-line through fiscal 1996 and
fiscal 1997. APAC intends to pursue additional Service Solutions opportunities
as more companies expand and outsource their telephone-based customer service
functions.

THE OFFERINGS

Common Shares offered by the Selling
Shareholders(1)................... 4,000,000 shares

Common Shares to be outstanding
after the Offerings(2).............. 46,421,260 shares

Use of proceeds..................... All proceeds from the Offerings will be
received by the Selling Shareholders.

Nasdaq National Market symbol....... APAC
- ------------
(1) Assumes no exercise of the over-allotment options granted by a Selling
Shareholder to the Underwriters. Of the 4,000,000 Common Shares to be sold
in the Offerings, 3,180,000 Common Shares are being offered in the United
States and Canada by the U.S. Underwriters and 820,000 Common Shares are
being offered in a concurrent offering outside the United States and Canada
by the International Managers.

(2) Does not include (a) 2,419,532 Common Shares issuable upon exercise of
outstanding options, and (b) 3,128,855 Common Shares available for future
grants under the Company's Stock Plans and for future issuance under the
Company's Employee Stock Purchase Plan. See "Management--Employee Stock
Plan and Director Stock Plan."

The Company's principal executive office is located at One Parkway North
Center, Suite 510, Deerfield, Illinois 60015 and its telephone number is (847)
945-0055.

5
<PAGE> 6

SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED
FISCAL YEAR(1) --------------------
---------------------------------------------------- JULY 2, JUNE 30,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue............... $13,748 $13,529 $28,912 $46,618 $101,667 $40,642 $113,243
Income from operations.... 1,320 1,335 4,052 6,630 13,287 6,060 19,285
Net income as
reported(2)............ 1,791 1,204 3,849 5,966 8,153 5,498 11,836
======= ======= ======= ======= ======== ======= ========
PRO FORMA DATA(2)(3):
Income before taxes as
reported............... 1,791 1,204 3,849 5,966 12,483 5,498 19,564
Provision for
income taxes........... 700 360 1,500 2,070 5,000 2,153 7,728
------- ------- ------- ------- -------- ------- --------
Net income................ $ 1,091 $ 844 $ 2,349 $ 3,896 $ 7,483 $ 3,345 $ 11,836
======= ======= ======= ======= ======== ======= ========
Net income per share...... $ 0.03 $ 0.02 $ 0.06 $ 0.10 $ 0.18 $ 0.08 $ 0.25
======= ======= ======= ======= ======== ======= ========
Weighted average common
shares outstanding..... 40,086 40,086 40,086 40,086 41,624 40,086 47,869
OPERATING DATA (AT END OF
PERIOD):
Number of workstations.... 368 480 934 1,630 4,210 2,244 7,602
Number of call centers.... 5 6 12 17 33 25 55
</TABLE>

<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------
<S> <C>
BALANCE SHEET DATA:
Cash and short-term investments............................................... $ 5,714
Working capital............................................................... 24,265
Total assets.................................................................. 92,119
Long-term debt, less current maturities....................................... 1,380
Shareholders' equity.......................................................... 65,840
</TABLE>

- ------------
(1) The Company has a 52/53 week fiscal year that ends on the Sunday closest to
December 31. Fiscal 1992 is the only period presented that consisted of 53
weeks. As used in this Prospectus, the terms "fiscal 1991," "fiscal 1992,"
"fiscal 1993," "fiscal 1994", "fiscal 1995" and "fiscal 1996" refer to the
Company's fiscal years ended December 29, 1991, January 3, 1993, January 2,
1994, January 1, 1995, December 31, 1995 and December 29, 1996,
respectively.

(2) Prior to the Company's initial public offering of Common Shares (the
"Initial Public Offering"), the Company was an S corporation and not subject
to Federal (and some state) corporate income taxes. On October 16, 1995, the
Company changed its tax status from an S corporation to a C corporation,
recorded deferred income taxes totalling $3,780,000 and began providing for
Federal and state corporate income taxes.

(3) Net income and net income per share for periods prior to October 16, 1995
presented under Pro Forma Data include a pro forma provision for income
taxes determined as if the Company had been taxed as a C corporation. The
provision for income taxes represents a combined Federal and state tax rate
of 43%, less applicable Federal and state job creation tax credits, which
resulted in effective rates ranging from 30% to 40%. See Note 2 to the
Company's Financial Statements included elsewhere in this Prospectus.

See "Recent Developments" for a discussion of the Company's financial
results for each of the thirteen weeks and thirty-nine weeks ended September 29,
1996.

6
<PAGE> 7

RISK FACTORS

In addition to the other information set forth in, or incorporated by
reference into, this Prospectus, the following risk factors should be considered
carefully in evaluating the Company and its business before purchasing any of
the Common Shares offered hereby.

RELIANCE ON MAJOR CLIENTS AND KEY INDUSTRIES

Because a substantial portion of the Company's revenue is generated from
relatively few clients, the loss of a significant client or clients could have a
materially adverse effect on the Company. The Company's ten and four largest
clients collectively accounted for approximately 72.0% and 46.4%, respectively,
of the Company's net revenue in fiscal 1995, and approximately 81.5% and 68.0%,
respectively, of the Company's net revenue in the first twenty-six weeks of
fiscal 1996. The Company's largest clients in the first twenty-six weeks of
fiscal 1996 were UPS and AT&T. UPS and AT&T accounted for approximately 14.1%
and 7.9%, respectively, of the Company's net revenue in fiscal 1995 and
approximately 35.7% and 19.5%, respectively, of the Company's net revenue in the
first twenty-six weeks of fiscal 1996. The Company's largest client in fiscal
1995 and third largest client in the first twenty-six weeks of fiscal 1996 was
Mass Marketing Insurance Group, which accounted for approximately 15.6% and 8.0%
of the Company's net revenue during these periods, respectively. The insurance
products sold by Mass Marketing Insurance Group are currently underwritten by
J.C. Penney Life Insurance Company. During fiscal 1995 and the first twenty-six
weeks of fiscal 1996, J.C. Penney Life Insurance Company was the third and
fourth largest client of the Company, respectively, accounting for approximately
8.8% and 4.8% of the Company's net revenue, respectively. Many of the Company's
clients are concentrated in the parcel delivery, telecommunications, consumer
insurance and financial services industries. A significant downturn in any of
these industries or a trend in any of these industries not to use, or to reduce
their use of, telephone-based sales, marketing or customer management services
could have a materially adverse effect on the Company's business. The Company
generally operates under contracts which may be terminated on short notice, some
of which do not have minimum volume requirements. See "Business."

FACTORS AFFECTING ABILITY TO MANAGE AND SUSTAIN GROWTH

The Company has experienced rapid growth over the past several years and
anticipates continued growth to be driven primarily by industry trends towards
outsourcing of telephone-based sales, marketing, and customer service operations
and increased penetration by the Company of new and existing clients and
markets. Future growth will depend on a number of factors, including the
effective and timely initiation and development of client relationships, opening
of new call centers, and recruitment, motivation and retention of qualified
personnel. Sustaining growth will also require the implementation of enhanced
operational and financial systems and will require additional management,
operational and financial resources. There can be no assurance that the Company
will be able to manage its expanding operations effectively or that it will be
able to maintain or accelerate its growth. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."

COMPETITIVE AND FRAGMENTED INDUSTRY; POTENTIAL FUTURE COMPETING TECHNOLOGIES AND
TRENDS

The industry in which the Company competes is very competitive and highly
fragmented. APAC's competitors range in size from very small firms offering
special applications or short term projects to large independent firms and the
in-house operations of many clients and potential clients. A number of
competitors have capabilities and resources equal to, or greater than, the
Company's. Some of the Company's services also compete with direct mail,
television, radio and other advertising media. There can be no assurance that,
as the Company's industry continues to evolve, additional competitors with
greater resources than the Company will not enter the industry (or particular
segments of the industry) or that the Company's clients will not choose to
conduct more of their telephone-based sales, marketing or customer service
activities internally. See "Business--Competition."

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<PAGE> 8

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

RELIANCE ON TECHNOLOGY

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

DEPENDENCE ON KEY PERSONNEL

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

DEPENDENCE ON LABOR FORCE

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

DEPENDENCE ON TELEPHONE SERVICE

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

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<PAGE> 9

GOVERNMENT REGULATION

The Company's business is subject to various Federal and state laws and
regulations. The Company's industry has become subject to an increasing amount
of Federal and state regulation in the past five years. The Federal
Communications Commission's (the "FCC") rules under the Federal Telephone
Consumer Protection Act of 1991 (the "TCPA") limit the hours during which
telemarketers may call consumers and prohibit the use of automated telephone
dialing equipment to call certain telephone numbers. The Federal Telemarketing
and Consumer Fraud and Abuse Prevention Act of 1994 (the "TCFAPA") broadly
authorizes the Federal Trade Commission (the "FTC") to issue regulations
prohibiting misrepresentation in telephone sales. In August, 1995, the FTC
issued regulations under the TCFAPA which, among other things, require
telemarketers to make certain disclosures when soliciting sales. The Company's
operating procedures comply with the telephone solicitation rules of the FCC and
FTC. However, there can be no assurance that additional Federal or state
legislation, or changes in regulatory implementation, would not limit the
activities of the Company or its clients in the future or significantly increase
the cost of regulatory compliance.

Several of the industries in which the Company's clients operate are
subject to varying degrees of government regulation, particularly the insurance
and financial services industries. Generally, compliance with these regulations
is the responsibility of the Company's clients. However, the Company could be
subject to a variety of enforcement or private actions for its failure or the
failure of its clients to comply with such regulations. APAC telephone
representatives who sell insurance products are required to be licensed by
various state insurance commissions and participate in regular continuing
education programs, thus requiring the Company to comply with the extensive
regulations of these state commissions. As a result, changes in these
regulations or their implementation could materially increase the Company's
operating costs. See "Business--Government Regulation."

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

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

POTENTIAL VOLATILITY OF PRICE OF COMMON SHARES

The market price of the Common Shares has risen substantially since the
Initial Public Offering in October, 1995. The Common Shares are quoted on the
Nasdaq National Market, which market has experienced, and is likely to
experience in the future, significant price and volume fluctuations which could
adversely affect the market price of the Common Shares without regard to the
operating performance of the Company. In addition, the trading price of the
Common Shares could be subject to significant fluctuations in response to actual
or anticipated variations in the Company's quarterly operating results and other
factors, such as the introduction of new services or technologies by the Company
or its competitors, changes in other conditions or trends in the Company's
industry or in the industries of any of the Company's significant clients,
changes in governmental regulation, changes in securities analysts' estimates of
the Company's, or its competitors' or industry's, future performance or general
market conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results." General market price
declines or market volatility in the future, or future declines or volatility in
the prices of stocks for companies in the Company's industry or sector, could
also affect the market price of the Common Shares.

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<PAGE> 10

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Sales of a substantial number of Common Shares in the public market
following the Offerings, or the perception that such sales could occur, could
adversely affect the market price of the Common Shares. After completion of the
Offerings, an aggregate of 46,421,260 Common Shares will be outstanding, of
which 20,881,260 will be freely tradeable. All remaining shares may be sold
under Rule 144 under the Securities Act of 1933 (the "Securities Act"), subject
to the volume, manner of sale and other restrictions of Rule 144. The Company
and the Selling Shareholders have, subject to certain exceptions, agreed not to,
directly or indirectly, sell, offer to sell, grant any option for sale of, or
otherwise dispose of, any capital stock of the Company, or any security
convertible or exchangeable into, or exercisable for, such capital stock, or, in
the case of the Company, file any registration statement with respect to any of
the foregoing, for a period of 180 days after the date of this Prospectus,
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch International. Pursuant to an agreement between
Mr. Schwartz, the trustees of certain trusts and the Company, Mr. Schwartz and
the trusts are entitled to certain registration rights with respect to their
Common Shares, one of which registration rights is being exercised in connection
with the Offerings. If such shareholders, by exercising such remaining
registration rights upon expiration of the lock-up agreement described above,
cause a large number of shares to be registered and sold in the public market,
such sales could have an adverse effect on the market price of the Common
Shares. In addition, the Company has filed a registration statement under the
Securities Act registering an aggregate of 5,915,034 Common Shares reserved for
issuance in connection with outstanding options, the Company's Stock Plans and
the Company's Employee Stock Purchase Plan. See "Management--Employee Stock Plan
and Director Stock Plan," "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Underwriting."

CONTROL BY PRINCIPAL SHAREHOLDER

Following completion of the Offerings, Mr. Schwartz, the Company's
Chairman, President and Chief Executive Officer, will beneficially own
approximately 42.5% of the outstanding Common Shares. As a result, Mr. Schwartz
will continue to be able to exercise significant control over the outcome of
substantially all matters requiring action by the Company's shareholders. Such
voting concentration may have the effect of discouraging, delaying or preventing
a change in control of the Company. In addition, following completion of the
Offerings, two trusts will each beneficially own approximately 5.6% of the
outstanding Common Shares. See "Management" and "Principal and Selling
Shareholders."

EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS

The Company's Amended and Restated Articles of Incorporation (the "Amended
Articles") and Amended and Restated Bylaws (the "Amended Bylaws") contain
certain provisions that could discourage potential takeover attempts and make
attempts by the Company's shareholders to change management more difficult. Such
provisions include the requirement that the Company's shareholders follow an
advance notification procedure for certain shareholder nominations of candidates
for the Board of Directors and for new business to be conducted at any meeting
of the shareholders. In addition, the Amended Articles allow the Board of
Directors to issue up to 50 million preferred shares and to fix the rights,
privileges and preferences of those shares without any further vote or action by
the shareholders. The rights of the holders of Common Shares will be subject to,
and may be adversely affected by, the rights of the holders of any preferred
shares that may be issued by the Company in the future. While the Company has no
present intention to issue preferred shares, any such issuance could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company. In addition, the Company is subject
to certain anti-takeover provisions of the Illinois Business Corporation Act,
which could have the effect of discouraging, delaying or preventing a change of
control of the Company. See "Description of Capital Stock--Certain Charter and
Bylaw Provisions" and "--Certain Statutory Provisions."

10
<PAGE> 11

USE OF PROCEEDS

The Company will not receive any of the proceeds from the sale of Common
Shares in the Offerings. All such proceeds will be received by the Selling
Shareholders.

PRICE RANGE FOR COMMON SHARES AND DIVIDEND POLICY

The Company completed the Initial Public Offering on October 10, 1995 at a
price of $8.00 per share. Since the Initial Public Offering, the Company's
Common Shares have been quoted on the Nasdaq National Market under the symbol
"APAC." Prior to the Initial Public Offering, the Common Shares were not listed
or quoted on any organized market system. The following table sets forth for the
periods indicated the high and low sale prices of the Common Shares as reported
on the Nasdaq National Market during such period.

<TABLE>
<CAPTION>
HIGH LOW
----- -------
<S> <C> <C>
Fiscal 1995:
Fourth Quarter (from October 11, 1995)................. $17 7/16 $ 8 15/16
Fiscal 1996:
First Quarter.......................................... 36 1/8 13 5/16
Second Quarter......................................... 43 7/8 30 1/4
Third Quarter.......................................... 58 32 1/4
Fourth Quarter (through November 4, 1996).............. 59 42
</TABLE>

On November 4, 1996, the last reported sale price of the Common Shares
reported on the Nasdaq National Market was $42 1/4 per share. As of October 28,
1996, there were 107 holders of record of the Common Shares.

The Company currently intends to retain future earnings to finance its
growth and development and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's Credit Facility
restricts the payment of cash dividends by the Company. Payment of any future
dividends will depend upon the future earnings and capital requirements of the
Company and other factors which the Board of Directors considers appropriate.
The Company has previously made shareholder distributions related to its S
corporation status. See Notes 2 and 11 to the Company's Financial Statements
included elsewhere in this Prospectus.

11
<PAGE> 12

CAPITALIZATION

The following table sets forth the current maturities of long-term debt and
capitalization of the Company at June 30, 1996. This table should be read in
conjunction with the Company's Financial Statements and notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
--------------
(IN THOUSANDS)
<S> <C>
Current maturities of long-term debt........................................... $ 393
=======
Long-term debt, less current maturities........................................ $ 1,380
Shareholders' equity:
Preferred shares, $0.01 par value per share, 50,000,000 shares authorized,
none issued and outstanding............................................... --
Common Shares, $0.01 par value per share, 200,000,000 shares authorized;
46,276,708 shares issued and outstanding(1)............................... 463
Additional paid-in capital................................................... 50,368
Retained earnings............................................................ 15,009
-------
Total shareholders' equity................................................ 65,840
-------
Total capitalization...................................................... $ 67,220
=======
</TABLE>

- ------------
(1) Does not include 2,447,337 Common Shares issuable upon exercise of
outstanding options. See "Management--Employee Stock Plan and Director Stock
Plan."

12
<PAGE> 13

SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

The following selected financial and operating data should be read in
conjunction with the Financial Statements of the Company and notes thereto
included elsewhere in this Prospectus. The income statement and balance sheet
data for and as of the end of each of the fiscal years in the five-year period
ended December 31, 1995, are derived from the audited Financial Statements of
the Company. The income statement and balance sheet data for and as of the end
of each of the twenty-six week periods ended July 2, 1995 and June 30, 1996 have
been derived from the unaudited Financial Statements of the Company and in the
opinion of management include all adjustments (consisting of normal and
recurring adjustments) which are necessary to present fairly the results of
operation and financial position of the Company for the periods and at the dates
presented. The selected financial and operating data for the twenty-six weeks
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the full year.

<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED
FISCAL YEAR(1) ------------------
------------------------------------------------ JULY 2, JUNE 30,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue............................. $13,748 $13,529 $28,912 $46,618 $101,667 $40,642 $113,243
Cost of services........................ 10,256 9,662 19,790 30,666 71,982 27,190 80,174
Selling, general and administrative
expenses.............................. 2,172 2,532 5,070 9,322 16,398 7,392 13,784
------- ------- ------- ------- -------- ------- --------
Total operating expenses................ 12,428 12,194 24,860 39,988 88,380 34,582 93,958
------- ------- ------- ------- -------- ------- --------
Income from operations.................. 1,320 1,335 4,052 6,630 13,287 6,060 19,285
Other income(2)......................... 675 -- -- -- -- -- --
Interest income (expense), net.......... (204) (131) (203) (664) (804) (562) 279
Provision for income taxes(3)........... -- -- -- -- 4,330 -- 7,728
------- ------- ------- ------- -------- ------- --------
Net income as reported(3)............... 1,791 1,204 3,849 5,966 8,153 5,498 11,836
======= ======= ======= ======= ======== ======= ========
PRO FORMA DATA(3)(4):
Income before taxes as reported......... 1,791 1,204 3,849 5,966 12,483 5,498 19,564
Provision for income taxes.............. 700 360 1,500 2,070 5,000 2,153 7,728
------- ------- ------- ------- -------- ------- --------
Net income.............................. $ 1,091 $ 844 $ 2,349 $ 3,896 $ 7,483 $ 3,345 $ 11,836
======= ======= ======= ======= ======== ======= ========
Net income per share.................... $ 0.03 $ 0.02 $ 0.06 $ 0.10 $ 0.18 $ 0.08 $ 0.25
======= ======= ======= ======= ======== ======= ========
Weighted average common shares
outstanding........................... 40,086 40,086 40,086 40,086 41,624 40,086 47,869
SELECTED OPERATING DATA (AT END OF
PERIOD):
Number of workstations.................. 368 480 934 1,630 4,210 2,244 7,602
Number of call centers.................. 5 6 12 17 33 25 55
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR (END OF PERIOD)
------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments................ $ 270 $ 699 $ 58 $ 1 $30,186 $ 5,714
Working capital................................ 594 1,064 454 2,877 33,045 24,265
Total assets................................... 4,374 6,026 11,501 21,181 74,332 92,119
Long-term debt, less current maturities........ 691 1,094 3,073 8,218 1,474 1,380
Shareholders' equity........................... 2,294 2,745 4,183 5,722 52,707 65,840
</TABLE>

- ------------
(1) The Company has a 52/53 week fiscal year that ends on the Sunday closest to
December 31. Fiscal 1992 is the only period presented that consisted of 53
weeks.

(2) Other income recorded in fiscal 1991 represents the settlement of a dispute
over services performed in fiscal 1990.

(3) Prior to the Initial Public Offering, the Company was an S corporation and
not subject to Federal (and some state) corporate income taxes. On October
16, 1995, the Company changed its tax status from an S corporation to a C
corporation, recorded deferred taxes totalling $3,780,000 and began
providing for Federal and state corporate income taxes.

(4) Net income and net income per share for periods prior to October 16, 1995
presented under Pro Forma Data include a pro forma provision for income
taxes determined as if the Company had been taxed as a C corporation. The
provision for income taxes represents a combined Federal and state tax rate
of 43%, less applicable Federal and state job creation tax credits, which
resulted in effective rates ranging from 30% to 40%. See Note 2 to the
Company's Financial Statements included elsewhere in this Prospectus.

13
<PAGE> 14

RECENT DEVELOPMENTS

On October 17, 1996, the Company announced record revenue of $75.4 million
for the thirteen weeks ended September 29, 1996, an increase of 213% from $24.1
million in the same period in fiscal 1995. Net income increased 514% to $8.6
million for the third quarter of fiscal 1996 compared to $1.4 million on a pro
forma basis for the third quarter of fiscal 1995. Earnings per share in the
third quarter of fiscal 1996 increased 500% to $0.18 from $0.03 in the third
quarter of fiscal 1995.

For the thirty-nine weeks ended September 29, 1996, the Company reported
record revenue of $188.6 million, an increase of 191% from the prior year's
revenue of $64.8 million for the same period. Net income for the first three
quarters of fiscal 1996 was $20.5 million, compared to $4.7 million for the same
period in fiscal 1995, a 336% increase. Earnings per share for the three
quarters ended September 29, 1996 was $0.43, an increase of 258% from $0.12 for
the same period in fiscal 1995.

The following table sets forth certain summary information regarding the
Company's results of operations for each of the thirteen weeks and thirty-nine
weeks ended September 29, 1996 and October 1, 1995. The summary information is
unaudited, and in the opinion of management includes all adjustments (consisting
of normal and recurring adjustments) which are necessary to present fairly the
Company's results of operations. The operating results for each of the thirteen
weeks and thirty-nine weeks ended September 29, 1996 are not necessarily
indicative of results to be expected for the full year.

<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED THIRTEEN WEEKS ENDED
--------------------------- ---------------------------
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1,
1996 1995 1996 1995
------------- ---------- ------------- ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenue..................................... $ 188,604 $ 64,785 $75,361 $ 24,143
Income from operations.......................... 33,295 8,557 14,010 2,497
-------- ------- ------- -------
Income before income taxes...................... 33,535 7,729 13,971 2,231
Provision for income taxes(1)................... 13,079 3,030 5,351 877
-------- ------- ------- -------
Net income(1)................................... $ 20,456 $ 4,699 $ 8,620 $ 1,354
======== ======= ======= =======
Net income per share(1)......................... $ 0.43 $ 0.12 $ 0.18 $ 0.03
======== ======= ======= =======
Weighted average Common Shares outstanding...... 47,815 40,086 48,116 40,086
======== ======= ======= =======
</TABLE>

- ------------
(1) Income taxes, net income and net income per share for the thirty-nine weeks
and thirteen weeks ended October 1, 1995, are presented on a pro forma basis
and assume that the Company was subject to Federal and state income taxes
for the periods presented.

14
<PAGE> 15

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

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

RESULTS OF OPERATIONS

APAC's business has grown significantly, resulting in increases in net
revenue, income from operations and pro forma net income during each of the last
two fiscal years and the first twenty-six weeks of fiscal 1996. The increase in
net revenue from $28.9 million in fiscal 1993 to $101.7 million in fiscal 1995
and to $113.2 million in the first twenty-six weeks of fiscal 1996 was largely
driven by an increase in call volume from existing Sales Solutions and Service
Solutions clients and the addition of new clients. Income from operations
increased from $4.1 million in fiscal 1993 to $13.3 million in fiscal 1995 and
to $19.3 million in the first twenty-six weeks of fiscal 1996. This increase was
the result of net revenue growth and the reduction of selling, general and
administrative expenses as a percentage of net revenue. Net income, which for
periods prior to October 16, 1995 (the date of the Initial Public Offering)
includes a pro forma provision for income taxes as if the Company had been
treated as a C corporation, increased from $2.3 million in fiscal 1993 to $7.5
million in fiscal 1995 and to $11.8 million in the first twenty-six weeks of
fiscal 1996.

The following table sets forth income statement and other data as a
percentage of net revenue from services provided by the Company for the periods
indicated.

<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
FISCAL YEAR --------------------
------------------------- JULY 2, JUNE 30,
1993 1994 1995 1995 1996
----- ----- ----- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenue
Sales Solutions................................ 97.5% 86.3% 71.5% 79.8% 54.9%
Service Solutions.............................. 2.5 13.7 28.5 20.2 45.1
----- ----- ----- ----- -----
Total net revenue........................... 100.0 100.0 100.0 100.0 100.0
Cost of services................................. 68.4 65.8 70.8 66.9 70.8
Selling, general and administrative expenses..... 17.6 20.0 16.1 18.2 12.2
----- ----- ----- ----- -----
Income from operations........................... 14.0 14.2 13.1 14.9 17.0
Interest income (expense), net................... (0.7) (1.4) (0.8) (1.4) 0.3
----- ----- ----- ----- -----
Net income before taxes.......................... 13.3 12.8 12.3 13.5 17.3
Provision for income taxes(1).................... 5.2 4.4 4.9 5.3 6.8
----- ----- ----- ----- -----
Net income(1)............................. 8.1% 8.4% 7.4% 8.2% 10.5%
===== ===== ===== ===== =====
</TABLE>

- ------------
(1) Prior to the Initial Public Offering, the Company was an S corporation and
not subject to Federal (and some state) corporate income taxes. The income
statement data for all periods prior to the twenty-six weeks ended June 30,
1996 reflects a pro forma provision for income taxes as if the Company were
subject to Federal and state corporate income taxes during such periods. The
provision for income taxes for periods prior to October 16, 1995 reflected
above includes a pro forma provision for income taxes determined as if the
Company had been taxed as a C corporation. The provision for income taxes
represents an effective combined Federal and state tax rate of 43%, net of
applicable Federal and state job creation tax credits, which resulted in
effective rates ranging from 34% to 40%. See Note 2 to the Company's
Financial Statements included elsewhere in this Prospectus.

TWENTY-SIX WEEKS ENDED JUNE 30, 1996 COMPARED TO TWENTY-SIX WEEKS ENDED JULY 2,
1995

Net Revenue. Net revenue increased to $113.2 million in the twenty-six
weeks ended June 30, 1996 from $40.6 million in the twenty-six weeks ended July
2, 1995, an increase of $72.6 million, or 179%. Sales Solutions net revenue
increased to $62.2 million in the 1996 period from $32.4 million in the 1995
period, an

15
<PAGE> 16

increase of $29.8 million, or 92%, as a result of higher Sales Solutions call
volume from existing clients and the addition of new clients from within the
telecommunications industry. Service Solutions net revenue increased to $51.0
million in the 1996 period from $8.2 million in the 1995 period, an increase of
$42.8 million, or 522% primarily as a result of the commencement of services
under the Company's agreement with UPS in the fourth quarter of fiscal 1995 and
the first quarter of 1996. As a result of this growth, Service Solutions
represented 45.1% of the Company's total net revenue in the 1996 period, as
compared to 20.2% in the 1995 period.

Cost of Services. Cost of services increased to $80.2 million in the
twenty-six weeks ended June 30, 1996 from $27.2 million in the twenty-six weeks
ended July 2, 1995, an increase of $53.0 million, or 195%. As a percentage of
net revenue, cost of services increased to 70.8% in the 1996 period from 66.9%
in the 1995 period. The increase reflects additional business with UPS which has
a lower gross margin compared to the Company's other service offerings.
Recruiting, training and facility costs incurred in advance of full-scale
operations on the start up of twenty-one new Sales Solutions call centers during
the first half of fiscal 1996 also contributed to the higher service costs.

Selling, General & Administrative. Selling, general and administrative
expenses increased to $13.8 million in the twenty-six weeks ended June 30, 1996
from $7.4 million in the twenty-six weeks ended July 2, 1995, an increase of
$6.4 million, or 86%. Approximately seventy-five percent of the increase was due
to investments in systems and management to support the Company's increased
revenue base, with the balance due primarily to expenses associated with the new
UPS business. As a percentage of net revenue, selling general and administrative
expenses decreased to 12.2% in the 1996 period from 18.2% in the 1995 period,
primarily as a result of economies of scale associated with spreading fixed and
semi-variable costs over a larger revenue base.

Interest Income (Expense). The Company generated $0.3 million in net
interest income in the twenty-six weeks ended June 30, 1996 compared to $0.6
million of net interest expense in the twenty-six weeks ended July 2, 1995. This
change resulted from income earned on short-term investments in fiscal 1996 and
the reduction of average outstanding borrowings as a result of debt retired in
fiscal 1995 with cash raised from the Initial Public Offering.

Net Income. Net income increased to $11.8 million for the twenty-six weeks
ended June 30, 1996 compared to net income of $3.3 million for the twenty-six
weeks ended July 2, 1995, an increase of $8.5 million, or 258%. The $7.7 million
provision for income taxes recognized in the 1996 period is based upon the
Company's effective tax rate of 39.5% in fiscal 1996. Net income for the 1995
period includes a pro forma provision for Federal and state income taxes at an
effective rate of 39.2%. The effective tax rate reflects Federal taxes at the
statutory rate of 35% plus state taxes, net of Federal benefit and state job
creation credits.

FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED JANUARY 1,
1995

Net Revenue. Net revenue increased to $101.7 million in fiscal 1995 from
$46.6 million in fiscal 1994, an increase of $55.1 million, or 118%. Sales
Solutions net revenue increased to $72.7 million in fiscal 1995 from $40.2
million in fiscal 1994, an increase of $32.5 million, or 81%, primarily as a
result of increased call volume from existing clients and the addition of new
clients, principally in the telecommunications industry. Service Solutions net
revenue increased to $29.0 million in fiscal 1995 from $6.4 million in fiscal
1994, an increase of $22.6 million, or 353%, the result of both new client
relationships and expansion of call volumes with existing clients. As a result
of this growth, Service Solutions represented 28.5% of the Company's total net
revenue in fiscal 1995, as compared to 13.7% in fiscal 1994.

Cost of Services. Cost of services increased to $72.0 million in fiscal
1995 from $30.7 million in fiscal 1994, an increase of $41.3 million, or 135%.
As a percentage of net revenue, cost of services increased to 70.8% in fiscal
1995 from 65.8% in fiscal 1994. This increase was primarily the result of costs
incurred prior to the commencement of full-scale operations under the Company's
new agreement with UPS.

Selling, General & Administrative. Selling, general and administrative
expenses increased to $16.4 million in fiscal 1995 from $9.3 million in fiscal
1994, an increase of $7.1 million, or 76%. The increase was

16
<PAGE> 17

principally the result of additional administrative personnel and related
corporate expenses associated with the Company's growth. However, as a
percentage of net revenue, selling, general and administrative expenses
decreased to 16.1% in fiscal 1995 from 20.0% in fiscal 1994, primarily as a
result of the spreading of certain fixed costs over a larger revenue base.

Interest expense. Net interest expense increased to $0.8 million in fiscal
1995 from $0.7 million in fiscal 1994. This increase reflects higher average
outstanding borrowings during the first half of fiscal 1995, which were used to
finance working capital needs, to open new facilities and to purchase new
equipment. As a percent of net revenue, interest expense decreased to 0.8% in
fiscal 1995 from 1.4% in fiscal 1994, primarily as a result of the repayment of
all amounts outstanding under the Company's then existing credit facilities and
certain bank installment notes from the proceeds of the Initial Public Offering.

Net Income. Net income increased to $7.5 million in fiscal 1995 from $3.9
million in fiscal 1994, an increase of $3.6 million, or 92%. Net income includes
a pro forma provision for Federal and state income taxes at an effective rate of
40.1% and 34.7%, respectively. These rates reflect the combined Federal and
state income tax rate of 43% as if the Company had been treated as a C
corporation, less applicable Federal and state job creation tax credits.

FISCAL YEAR ENDED JANUARY 1, 1995 COMPARED TO FISCAL YEAR ENDED JANUARY 2, 1994

Net Revenue. Net revenue increased to $46.6 million in fiscal 1994 from
$28.9 million in fiscal 1993, an increase of $17.7 million, or 61%. Sales
Solutions net revenue increased to $40.2 million in fiscal 1994 from $28.2
million in fiscal 1993, an increase of $12.0 million, or 43%, primarily as a
result of increased calling volume from existing clients and the addition of new
clients, principally in the financial services industry. Service Solutions net
revenue increased to $6.4 million in fiscal 1994 from $0.7 million in fiscal
1993, an increase of $5.7 million, or 814%, due to the full-scale introduction
of Service Solutions in late 1993.

Cost of Services. Cost of services increased to $30.7 million in fiscal
1994 from $19.8 million in fiscal 1993, an increase of $10.9 million, or 55%. As
a percentage of net revenue, cost of services decreased to 65.8% in fiscal 1994
from 68.4% in fiscal 1993. This decrease was primarily the result of an increase
in billable hours as a percentage of total telephone representative hours.

Selling, General & Administrative. Selling, general and administrative
expenses increased to $9.3 million in fiscal 1994 from $5.1 million in fiscal
1993, an increase of $4.2 million, or 82%. The increase was principally the
result of additional administrative personnel and related corporate expenses
associated with the Company's growth and the full-scale introduction of Service
Solutions. As a percentage of net revenue, selling, general and administrative
expenses increased to 20.0% in fiscal 1994 from 17.6% in fiscal 1993.

Interest Expense. Interest expense increased to $0.7 million in fiscal 1994
from $0.2 million in fiscal 1993. This increase reflects higher average
outstanding borrowings which were used to finance working capital needs, to open
new facilities and to purchase related equipment. The rate paid on these
borrowings averaged 8.4% and 8.0% during fiscal 1994 and fiscal 1993,
respectively.

Net Income. Net income increased to $3.9 million in fiscal 1994 from $2.3
million in fiscal 1993, an increase of $1.6 million, or 70%. Net income includes
a pro forma provision for Federal and state income taxes at effective rates of
34.7% and 39.0% for fiscal 1994 and fiscal 1993, respectively. These rates
reflect the combined Federal and state income tax rate of 43% as if the Company
had been treated as a C corporation, less applicable Federal and state job
creation tax credits.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity have historically been cash flow
from operating activities and available borrowing capacity under credit
facilities. In fiscal 1995, the Company obtained additional liquidity from the
net proceeds of the Initial Public Offering. At June 30, 1996, the Company had
cash and short-term investments totalling $5.7 million.

17
<PAGE> 18

The following table sets forth certain information from the Company's
statement of cash flows for the periods indicated.

<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
------------------
FISCAL YEAR JUNE
------------------------------ JULY 2, 30,
1993 1994 1995 1995 1996
------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating
activities.................................. $ 4,260 $ 2,871 $ 15,200 $ 6,154 $(2,023)
Net cash used by investing activities......... (2,314) (6,526) (42,626) (9,552) (4,874)
Net cash provided (used) by financing
activities.................................. (2,588) 3,599 31,610 3,442 2,726
</TABLE>

From the beginning of fiscal 1993 through June 30, 1996, the Company
generated $20.3 million in cash from operating activities. During this period,
$42.0 million of cash was generated from net income plus depreciation and
amortization, which was reduced by $21.7 million of cash used for working
capital (excluding cash and current maturities of long-term debt). The
additional working capital was principally related to the increase in accounts
receivable resulting from the increase in net revenue over the same period. The
net cash used by operating activities for the twenty-six weeks ended June 30,
1996 was primarily due to an increase in accounts receivable generated through
larger sales volumes.

Historically, cash used in investing activities has been expended for
equipment and other capital to support expansion of the Company's call center
operations, including additions to the Company's data management systems,
telephone systems and management information systems. From the beginning of
fiscal 1993 through June 30, 1996, APAC has opened 49 new call centers and
expanded certain existing call centers adding approximately 7,100 workstations.
Capital expenditures during this period of $50.6 million were funded with excess
cash from operations, borrowings and proceeds from the Initial Public Offering.

Financing activities have included distributions to shareholders, borrowing
activity under the Company's equipment and revolving credit facilities, the sale
of Common Shares through the Initial Public Offering and the exercise of
outstanding stock options. Cash distributions to shareholders from the beginning
of fiscal 1993 through June 30, 1996 of $16.2 million represented dividends to
cover shareholder taxes related to the Company's S corporation status and the
payment of the Company's previously undistributed S corporation taxable income.

In June, 1996, APAC entered into new unsecured credit facilities with a
group of three banks. These facilities consist of a $20 million committed
revolving credit facility (the "Revolving Facility") and a $20 million revolving
credit facility which may be converted into a term loan (the "Convertible
Revolving Facility" and together with the Revolving Facility, the "Credit
Facility"). The Credit Facility is available for general working capital
purposes. The Credit Facility contains certain covenants, including financial
covenants and restrictions on the Company's ability to pay dividends on the
Common Shares. As of September 29, 1996, no amounts were outstanding under the
Credit Facility.

Advances under the Credit Facilities bear interest at optional borrowing
rates based on the agent bank's domestic rate or LIBOR. A basis point spread
(ranging from 0% to 1 3/4%) is determined by the maintenance of certain levels
of the Company's ratio of total liabilities to its book net worth. The Revolving
Facility terminates on May 31, 1999, with two one-year options to extend subject
to lender acceptance. The Convertible Revolving Facility terminates on May 31,
2000. If the Convertible Revolving Facility is converted to a Term Loan, the
Term Loan matures in quarterly installments beginning on the last day of the
calendar quarter during which the Term Loan was made and continuing until the
earlier of the third anniversary date of the relevant commencement date or May
31, 2001.

During fiscal 1993, 1994 and 1995, APAC purchased approximately 66,000
square feet of office space in a 12 story building in downtown Cedar Rapids,
Iowa. The purchases were financed substantially through the assumption of
Industrial Revenue Bonds and the issuance of certain bank installment notes (the
"Notes") secured by the building. The Industrial Revenue Bonds mature in varying
installments through 2008, bearing interest adjustable semi-annually to 71% of
the average yield of U.S. Treasury bonds with a floor of 7.0%. As

18
<PAGE> 19

of June 30, 1996, the Industrial Revenue Bonds had an outstanding balance of
$1.4 million. The Notes were repaid with a portion of the net proceeds of the
Initial Public Offering.

During the periods prior to fiscal 1994, the Company financed certain
equipment purchases through capital leases with various lending institutions
secured by the related equipment. These obligations are payable in varying
installments through fiscal 1998 with a weighted average interest rate of 8.5%.
Outstanding obligations under these capital leases as of June 30, 1996, totaled
$0.3 million. See "Business--Facilities" for a description of the Company's real
property leases.

The Company intends to use funds generated from operations and available
credit under its Credit Facility to finance its planned capital expenditure
requirements of approximately $27.5 million for the remainder of fiscal 1996.

INFLATION

Inflation has not had a material impact upon operating results, and the
Company does not expect it to have such an impact in the future. To date, in
those instances where the Company has experienced cost increases, it has been
able to increase its rates to offset the costs. There can be no assurance,
however, that the Company's business will not be so affected by inflation or
that it can continue to increase its rates and remain competitive.

QUARTERLY RESULTS

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

19
<PAGE> 20

BUSINESS
GENERAL

APAC is one of the largest and fastest growing providers of outsourced
telephone-based sales, marketing and customer management services. The Company's
client base is comprised of large companies with growing needs for
cost-effective means of contacting and servicing current and prospective
customers. The Company operates approximately 8,000 workstations in 57 telephone
call centers located primarily in the Midwest. The call centers are centrally
managed through the application of extensive telecommunications and computer
technology to promote the consistent delivery of quality service. The Company
believes its innovative approach to providing quality service distinguishes it
from its competitors and has led to the Company's rapid growth rate and its
retention of key clients. The Company's net revenue and net income for the first
twenty-six weeks of fiscal 1996 were $113.2 million and $11.8 million,
representing increases of 179% and 258%, respectively, compared to the Company's
net revenue and pro forma net income for the first twenty-six weeks of fiscal
1995.

BUSINESS STRATEGY

Specialized Technology--The Company's technological capabilities and
expertise allow APAC to serve as a "seamless extension" of each client's
business. The Company has developed a UNIX-based, open architecture
computer system which provides APAC with the flexibility to integrate its
system with the variety of systems maintained by its clients. Through such
integration, APAC is able to receive calls and data directly from clients'
systems, forward calls to clients' in-house telephone representatives when
appropriate, and report, on a real-time basis, the status and results of
the Company's services. In addition, the Company utilizes relational
database management systems, automated call distributors, computer-
telephone integration, interactive voice response, fax-on-demand,
predictive dialer and universal (combined inbound and outbound) workstation
technologies that are integrated into a centrally managed wide-area
network. These technologies combine to manage the flow of approximately 9.5
million inbound and outbound calls per week; pass appropriate script and
database information to telephone representatives; and capture, transmit
and report data collected during each call. By utilizing APAC's services,
clients are able to cost-effectively access the Company's specialized
technological capabilities.

Call Center Development--The Company has developed a systematic
approach to locating, equipping and staffing call centers. APAC locates
call centers primarily in small to mid-sized communities in an effort to
lower its operating costs and attract a high quality, dedicated work force.
In addition, the geographic proximity of these call centers allows the
Company to centrally manage and expand its call center system. APAC's
ability to have a typical call center fully operational in approximately 90
days enables the Company to provide a rapid response to a client's needs.
Since the beginning of fiscal 1996, APAC has opened 24 new call centers and
expanded certain existing call centers adding approximately 3,800 new
workstations. The Company intends to continue to add call centers and
workstations as required by demand for its services.

Human Resource Management--APAC's ability to hire, train and manage
employees is critical to its ability to provide high quality service to its
clients. Once hired, each new telephone representative receives on-site
training lasting from three to 17 days, depending on the complexity of the
sales or service offering. APAC believes that by employing a significant
number of full-time personnel it is able to maintain a more stable work
force and reduce the Company's recruiting and training expenditures.
Employee performance is continuously monitored through on-site supervision,
remote and on-site call monitoring and on-line performance tracking. In
addition, the Company has developed a three-month management training
program designed to provide a timely source of well-trained managers.

20
<PAGE> 21

INDUSTRY OVERVIEW

The telephone-based marketing and customer service industry is comprised of
a large number of captive and independent organizations. The industry is highly
fragmented and many organizations in the industry provide only a limited number
of services. Industry sources estimate that telephone-based direct marketing
expenditures have doubled over the last ten years and were approximately $81
billion in 1995. Until the mid-1980's, telephone-based services were primarily
performed in single center, low technology environments. With the aid of
significant developments in computer and telephone technologies, independent
full-service organizations have emerged and grown by developing multi-location,
high volume telephone operations. Many large companies are outsourcing their
telephone-based marketing and customer service activities in order to access the
experience and specialized capabilities of large-scale,
technologically-sophisticated service providers such as APAC. Utilizing such
providers enables these companies to concentrate on their core businesses and
improve the quality and cost-effectiveness of their telephone-based customer
contact functions. APAC believes that the economics of outsourcing
telephone-based services are compelling and will lead to an acceleration of the
outsourcing trend in the industry.

GROWTH OPPORTUNITIES

The Company has grown rapidly over the past several years by utilizing its
competitive strengths to participate in the growth in its industry and the
ongoing trend towards outsourcing. Telephone-based contact with customers is
increasing as more companies realize its benefits, which include high response
rates, low cost per transaction, direct interaction with customers and on-line
access to detailed customer or product information allowing immediate responses
to customer inquiries. Additionally, with the proliferation of toll-free "800"
and "888" numbers, the telephone is becoming a principal means of providing
customer service. APAC believes that large companies increasingly will outsource
these activities in order to focus internal resources on their core
competencies, while improving quality, increasing productivity and reducing
costs. Moreover, the Company believes that well-capitalized, experienced
organizations such as APAC will benefit due to increasing demand for
multi-location, high volume, technologically advanced call center operations.

The Company seeks to capitalize on these trends through expanding existing
client relationships, adding new clients, developing new markets and promoting
new services. The Company believes that the telecommunications industry will
continue to provide significant opportunities for Sales Solutions as a result of
on-going industry deregulation, the emergence of PCS technology and new industry
participants. The Company also believes opportunities exist to provide
additional Sales Solutions services to the financial services and insurance
industries. Furthermore, the Company plans to continue to market its
business-to-business sales source services to new and existing clients. The
Company believes Service Solutions will continue to grow significantly as
certain contracts come fully on-line through fiscal 1996 and fiscal 1997. APAC
intends to pursue additional Service Solutions opportunities as more companies
expand and outsource their telephone-based customer service functions.

SALES SOLUTIONS

Services. Sales Solutions provides telephone-based sales to consumers and
businesses, database analysis and management, market research, targeted
marketing plan development and customer lead generation, acquisition and
retention. Sales Solutions generated approximately $62.2 million of net revenue,
or approximately 55% of the Company's total net revenue, in the first twenty-six
weeks of fiscal 1996, an increase of 92% when compared to the first twenty-six
weeks of fiscal 1995.

Sales Solutions activities typically begin when APAC calls a consumer or
business customer targeted by one of its clients to offer the client's products
or services. Customer information, which APAC typically receives electronically
from its clients, is selected to match the demographic profile of the targeted
customer for the product or service being offered. APAC's data management system
sorts the customer information and assigns the information to one of its Sales
Solutions call centers. Computerized call management systems utilizing
predictive dialers automatically dial the telephone numbers, determine if a live
connection is made and present connected calls to a telephone sales
representative who has been trained for the client's program.

21
<PAGE> 22

When a call is presented, the customer's name, other information about the
customer and the program script simultaneously appear on the telephone sales
representative's computer screen. The telephone sales representative then uses
the script to solicit an order for the client's product or service or to request
information which will be added to the client's database. APAC's advanced
systems permit on-line monitoring of marketing campaigns allowing its clients to
refine programs while in progress.

Clients. APAC targets those companies with large customer bases and the
greatest potential to generate recurring revenues because of their ongoing
telephone-based direct sales and marketing needs. Sales Solutions currently
specializes in three industries:

Telecommunications--APAC provides Sales Solutions services to the
telecommunications industry, primarily servicing long distance, regional
and wireless telecommunication companies. The Company's services include
new account acquisition, direct sales of custom calling features,
personalized "800" and long distance services and other customer retention
services in both the business and consumer market segments. The Company's
most significant relationship in this industry is with AT&T, which
accounted for approximately 35.4% of the Company's Sales Solutions net
revenue in the first twenty-six weeks of fiscal 1996. Sales Solutions net
revenue from telecommunications industry clients represented approximately
2.3%, 12.9% and 41.6% of the Company's total Sales Solutions net revenue in
fiscal years 1994 and 1995 and the first twenty-six weeks of fiscal 1996,
respectively.

Financial Services--APAC provides sales and marketing services to many
of the largest U.S. credit card issuers. The Company's services include
customer account acquisition, credit line expansion, balance consolidation,
cardholder retention and sales of other banking products and services.
Significant relationships in this industry include Discover Card Services,
which client accounted for approximately 2.0% of the Company's Sales
Solutions net revenue in the first twenty-six weeks of fiscal 1996. Sales
Solutions net revenue from financial service industry clients represented
approximately 40.7%, 28.4% and 21.5% of the Company's total Sales Solutions
net revenue in fiscal years 1994 and 1995 and the first twenty-six weeks of
fiscal 1996, respectively.

Sales Solutions provided services to 36 clients in the first twenty-six
weeks of fiscal 1996. Sales Solutions generally operates under contracts which
may be terminated or modified on short notice. However, the Company tends to
establish long-term relationships with its clients and approximately 43% of
Sales Solutions net revenue in the first twenty-six weeks of fiscal 1996 was
generated from companies which have been clients of the Company since at least
1993. The Company is generally paid a fixed fee for each hour that it provides a
telephone sales representative under its Sales Solutions contracts. Except for
Mass Marketing Insurance Group in fiscal 1995 and AT&T in the first twenty-six
weeks of fiscal 1996, no Sales Solutions client of the Company accounted for
more than ten percent of the Company's total net revenue in fiscal 1994, fiscal
1995 or the first twenty-six weeks of fiscal 1996. See "Risk Factors--Reliance
on Major Clients and Key Industries."

22
<PAGE> 23

SERVICE SOLUTIONS

Services. Service Solutions provides inbound customer service, direct mail
response, "help" line support and catalog order processing. Certain Service
Solutions clients rely upon the Company to provide specialized telephone service
representatives such as insurance agents and computer technicians, capable of
responding to specific customer inquiries. Service Solutions, which became a
full-scale offering in late fiscal 1993, generated approximately $51.0 million
of net revenue, or approximately 45% of the Company's total net revenue, in the
first twenty-six weeks of fiscal 1996, an increase of 522% when compared to the
first twenty-six weeks of fiscal 1995. APAC believes significant opportunities
to generate new business in Service Solutions exist as more companies move to
outsource all or a portion of their telephone-based marketing and customer
service functions.

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

Clients. Service Solutions directs its marketing efforts toward large
companies with inbound annual call volume in excess of 500,000 calls. Within
this market segment, APAC targets those companies that operate in high-cost
metropolitan areas or that are currently utilizing inefficient or expensive
technology in their customer service operations. Service Solutions provided
services to 26 clients in the first twenty-six weeks of fiscal 1996. The
Company's significant relationships include UPS, Western Union and Quill
Corporation, which clients accounted for approximately 75.7%, 3.4% and 3.3%,
respectively, of the Company's Service Solutions net revenue in the first
twenty-six weeks of fiscal 1996. As of July 1995, the Company entered into an
agreement to operate four of UPS's new customer service facilities on an
outsourced basis. The Company began operating three such facilities in Newport
News, Virginia, Fort Worth, Texas and High Point, North Carolina pursuant to
this agreement in fiscal 1995, and began operating the fourth such facility in
Boynton Beach, Florida in February, 1996. In August, 1996 the Company entered
into a five-year agreement to receive and process customer orders for John H.
Harland Corporation, a leading supplier of checks, database marketing services
and loan automation software to the financial services industry.

Service Solutions operates under contracts with terms up to 5 years.
Typically, these contracts may be terminated or modified on short notice. The
Company is generally paid a fixed fee for each hour that it provides a telephone
service representative under its Service Solutions contracts, regardless of the
number of calls handled. The client works with the Company to determine the
number of telephone representatives which are necessary to efficiently handle
the expected volume of inbound calls. As of July 10, 1995, the Company entered
into a four and one-half year contract with UPS which differs substantially from
its other Service Solutions contracts. The UPS agreement required significantly
greater up-front expenditures by the Company which were not specifically
reimbursed. The UPS agreement is not terminable except upon breach by the
Company or upon a change of control (as defined) of the Company. The Company
provides services under the contract in dedicated facilities which are located
and owned by UPS and used exclusively to service this contract. Employees who
provide services under this contract are trained by both APAC and UPS personnel.
Certain employees are exclusively dedicated to this contract and may not be used
by the Company for any other purpose. Upon termination or expiration of the
contract, UPS has the option to offer employment to all APAC employees dedicated
to the contract. If UPS does not hire these employees and APAC decides to
continue their employment, it would be necessary to relocate and retrain these
employees at a substantial cost in order for such employees to effectively
perform services for other clients. The Company is paid a fixed fee for each
hour that it provides a telephone service representative under the UPS
agreement, regardless of the number of calls handled. However, the amount of net
revenues which will be generated under this agreement cannot be projected by the
Company with certainty. Except for UPS in fiscal 1995 and the first twenty-six

23
<PAGE> 24

weeks of fiscal 1996, no Service Solutions client of the Company accounted for
more than ten percent of the Company's total net revenue in fiscal 1994, fiscal
1995 or the first twenty-six weeks of fiscal 1996. See "Risk Factors--Reliance
on Major Clients and Key Industries."

TECHNOLOGY RESOURCES

APAC's management information and call and database management systems have
been designed to provide quality service to its clients and to effectively
manage and control all aspects of APAC's business. APAC utilizes approximately
170 technicians who are dedicated to maintaining, expanding and upgrading the
Company's systems. The Company has invested approximately $30.4 million to
purchase these systems since the beginning of fiscal 1993.

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

In order to provide efficient and effective services, the Company's calling
systems also utilize sophisticated technology such as automated and predictive
dialers, automated call delivery systems, call management systems and
interactive voice response systems which are integrated with minicomputer-based
database management systems, universal workstations, local area networks and
wide area networks. The Company believes its computer security system and
off-site disaster back-up storage sufficiently protect the integrity and
confidentiality of its computer systems and data. See "Risk Factors--Reliance on
Technology."

SALES AND MARKETING

The Company seeks to differentiate itself from other providers of
telephone-based services by offering customized solutions that address the
specialized needs of its clients. The Company has developed a targeted approach
to identifying new clients and the potential additional needs of existing
clients. Often, APAC initially develops a pilot program for a new client to
demonstrate the Company's abilities and the effectiveness of telephone-based
marketing and customer service. The Company's sales personnel also assist
clients in identifying target customers and developing programs to reach those
customers, communicate results of the program and assist clients in modifying
programs for future use. The Company also acquires new clients and markets its
services by attending trade shows, advertising in industry publications,
responding to requests for proposals, pursuing client referrals and
cross-selling to existing clients. The Company believes its increasingly
consultative approach will enhance its ability to successfully identify
additional business opportunities and secure new business.

PERSONNEL AND TRAINING

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

The Company offers extensive classroom and on-the-job training programs for
its personnel including instruction on the industries which APAC serves and
proper telephone-based sales or customer service

24
<PAGE> 25

techniques. Once hired, each new telephone representative receives on-site
training lasting from three to 17 days. The amount of initial training each
employee receives varies depending upon whether the employee will be performing
outbound or inbound services and the nature of the services being offered. In
addition, the Company offers one and two week courses to its telephone
representatives who are preparing for the insurance agent license exam. The
Company has also developed a three-month management training program designed to
provide a timely source of well-trained managers. The Company continues to
develop "APAC University," an educational program for employees which will
provide a variety of supplemental training classes.

The number of telephone representatives employed by the Company has
increased from approximately 2,400 on January 1, 1995 to approximately 9,500 on
October 25, 1996. On October 25, 1996, the Company had over 11,000 full and
part-time employees. None of APAC's employees are subject to a collective
bargaining agreement. The Company considers its relations with its employees to
be good.

QUALITY ASSURANCE

Because APAC's services involve direct contact with its client's customers,
the Company's reputation for quality service is critical to acquiring and
retaining clients. Therefore, the Company and its clients monitor the Company's
telephone representatives for strict compliance with the client's script and to
maintain quality and efficiency. The Company also regularly measures the quality
of its services by benchmarking such factors as sales per hour, level of
customer complaints, call abandonment rates and average speed of answer. The
Company's information systems enable APAC to provide clients with reports on a
real-time basis as to the status of an ongoing campaign and can transmit summary
data and captured information electronically to clients. Access to this data
enables APAC's clients to modify or enhance an ongoing campaign to improve its
effectiveness. In addition to daily contact with its clients, APAC asks each
client to rate the Company's performance quarterly using numerous quality
measures.

COMPETITION

The industry in which the Company operates is very competitive and highly
fragmented. APAC's competitors range in size from very small firms offering
specialized applications or short term projects, to large independent firms and
the in-house operations of many clients and potential clients. A number of
competitors have capabilities and resources equal to, or greater than, the
Company's. The market includes non-captive telemarketing and customer service
operations such as MATRIXX Marketing, SITEL Corporation, ITI Marketing Services,
West Teleservices Corporation, TeleService Resources, Precision Response
Corporation, Electronic Data Systems Corporation and TeleTech Holdings, Inc., as
well as in-house telemarketing and customer service organizations throughout the
United States. In-house telemarketing and customer service organizations
comprise by far the largest segment of the industry. In addition, some of the
Company's services also compete with other forms of direct marketing such as
mail, television and radio. The Company believes the principal competitive
factors in the telephone-based marketing and customer service industry are
reputation for quality, sales and marketing results, price, technological
expertise, and the ability to promptly provide clients with customized solutions
to their sales, marketing and customer service needs.

GOVERNMENT REGULATION

Telephone sales practices are regulated at both the Federal and state
level. The FCC's rules under the TCPA prohibit the initiation of telephone
solicitations to residential telephone subscribers before 8:00 a.m. or after
9:00 p.m., local time, and prohibit the use of automated telephone dialing
equipment to call certain telephone numbers. In addition, the FCC rules require
the maintenance of a list of residential consumers who have stated that they do
not want to receive telephone solicitations and avoidance of making calls to
such consumers' telephone numbers.

The TCFAPA broadly authorizes the FTC to issue regulations prohibiting
misrepresentation in telephone sales. In August, 1995, the FTC issued rules
under the TCFAPA. These rules generally prohibit abusive telephone solicitation
practices and impose disclosure and record keeping requirements.

25
<PAGE> 26

The Company believes that it is in compliance with the TCPA and the FCC
rules thereunder and with the FTC's rules under the TCFAPA. The Company trains
its telephone sales representatives to comply with the FTC and FCC rules and
programs its call management system to avoid telephone calls during restricted
hours or to individuals maintained on APAC's "do-not-call" list. Subject to
certain limitations, APAC generally undertakes to indemnify its clients against
claims and expenses resulting from any failure by APAC to comply with federal
and state laws regulating telephone solicitation practices.

A number of states have enacted or are considering legislation to regulate
telephone solicitations. For example, telephone sales in certain states cannot
be final unless a written contract is delivered to and signed by the buyer and
may be cancelled 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 and post bonds. From time to
time, bills are introduced in Congress which, if enacted, would regulate the use
of credit information. The Company cannot predict whether this legislation will
be enacted and what effect, if any, it would have on the Company or its
industry.

The industries served by the Company are also subject to varying degrees of
government regulation. Generally, the Company relies on its clients and their
advisors to develop the scripts to be used by APAC in making consumer
solicitations. The Company generally requires its clients to indemnify APAC
against claims and expenses arising in connection with a client's failure to
provide products or services to customers, any defect or deficiency in such
products and services or any written or oral presentation furnished by the
client to APAC. The Company has never been held responsible for regulatory
noncompliance by a client. APAC employees who complete the sale of insurance
products are required to be licensed by various state insurance commissions and
participate in regular continuing education programs, which are currently
provided in-house by the Company.

FACILITIES

The Company's corporate headquarters are located in Deerfield, Illinois in
leased facilities consisting of approximately 16,500 square feet of office
space. The term of this lease expires in March, 2001. The Company's operational
headquarters are located in approximately 80,000 square feet of office space in
Cedar Rapids, Iowa. This office space is located on seven floors which are owned
and/or leased by the Company and is part of an office condominium. The Company
also leases office space in Atlanta, Dallas and Denver.

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<PAGE> 27

The Company also leases the facilities listed below, except for the Newport
News, Fort Worth, High Point and Boynton Beach facilities which are not leased
by the Company, but are managed, staffed and operated by the Company on behalf
of a client.

SALES SOLUTIONS CALL CENTERS

<TABLE>
<CAPTION>
CURRENT NUMBER OF
LOCATION DATE OPENED WORKSTATIONS
--------------------------------------- ------------------ -----------------
<S> <C> <C>
Dubuque, Iowa.......................... September, 1990 80
Clinton, Iowa.......................... October, 1990 80
Burlington, Iowa....................... October, 1991 80
Oskaloosa, Iowa........................ September, 1992 96
Waterloo, Iowa......................... February, 1993 96
Cedar Falls, Iowa...................... February, 1993 64
Iowa City, Iowa........................ March, 1993 64
Mt. Pleasant, Iowa..................... September, 1993 64
Ottumwa, Iowa.......................... November, 1993 144
Decorah, Iowa.......................... January, 1994 80
Marshalltown, Iowa..................... February, 1994 80
Fort Madison, Iowa..................... March, 1994 96
Keokuk, Iowa........................... May, 1994 80
Mason City, Iowa....................... December, 1994 80
Newton, Iowa........................... March, 1995 64
Knoxville, Iowa........................ March, 1995 80
Fort Dodge, Iowa....................... March, 1995 80
Woodlawn, Maryland..................... April, 1995 96
Muscatine, Iowa........................ April, 1995 96
Estherville, Iowa...................... April, 1995 64
Spencer, Iowa.......................... May, 1995 64
Indianola, Iowa........................ July, 1995 80
Hiawatha, Iowa......................... July, 1995 176
Algona, Iowa........................... September, 1995 64
Webster City, Iowa..................... September, 1995 64
Davenport, Iowa........................ February, 1996 448
Maquoketa, Iowa........................ February, 1996 80
Kewanee, Illinois...................... February, 1996 96
Dixon, Illinois........................ February, 1996 96
Quincy, Illinois....................... February, 1996 96
Kalamazoo, Michigan.................... February, 1996 48
Danville, Illinois..................... February, 1996 96
Freeport, Illinois..................... March, 1996 96
Normal, Illinois....................... March, 1996 80
Rock Falls, Illinois................... March, 1996 96
Waverly, Iowa.......................... March, 1996 64
Decatur, Illinois...................... April 1996 80
Jacksonville, Illinois................. April, 1996 96
Canton, Illinois....................... May, 1996 80
Lincoln, Illinois...................... May, 1996 80
Pekin, Illinois........................ May, 1996 80
Peoria, Illinois....................... May, 1996 96
Galesburg, Illinois.................... June, 1996 80
Mount Vernon, Illinois................. June, 1996 80
Vincennes, Indiana..................... June, 1996 80
Washington, Indiana.................... June, 1996 80
-----
Total Sales Solutions................................. 4,240
=====
</TABLE>

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<PAGE> 28

SERVICE SOLUTIONS CALL CENTERS

<TABLE>
<CAPTION>
CURRENT NUMBER OF
LOCATION DATE OPENED WORKSTATIONS
-------------------------------------- ------------------ -----------------
<S> <C> <C>
Cedar Rapids, Iowa--22nd Avenue....... January, 1994(1) 145
Cedar Rapids, Iowa--3rd Avenue........ August, 1994 203
Cedar Rapids, Iowa--Park Place I...... January, 1995 126
Cedar Rapids, Iowa--Park Place II..... November, 1995 162
Newport News, Virginia................ August, 1995 746
Fort Worth, Texas..................... October, 1995 787
High Point, North Carolina............ November, 1995 591
Boynton Beach, Florida................ February, 1996 506
Kalamazoo, Michigan................... February, 1996 144
Marion, Iowa.......................... February, 1996(1) 96
Waterloo, Iowa........................ October, 1996(2) 208
Corpus Christi, Texas................. October, 1996(3) 50
Columbia, South Carolina.............. December, 1997(4) 32
-----
Total Service Solutions.............................. 3,796
=====
</TABLE>

- ------------
(1) The Cedar Rapids-22nd Avenue and Marion call centers were originally opened
as Sales Solutions centers in June, 1990 and December, 1993 respectively.
The Cedar Rapids center was converted to a Service Solutions center in
January 1994 while the Marion center was converted in September, 1996.

(2) Waterloo is expected to operate approximately 300 workstations when fully
staffed by the end of 1996.

(3) Corpus Christi is expected to contain approximately 725 workstations when
fully staffed in 1997.

(4) At its anticipated date of opening, the Columbia call center is expected to
staff 32 workstations. Columbia is expected to contain approximately 550
workstations when fully staffed in 1997.

The leases of these facilities have an average length of three years and
typically contain early termination buyouts and renewal options. The Company
believes that its existing facilities are suitable and adequate for its current
operations, but additional facilities will be required to support growth. The
Company intends to continue to add call centers and workstations as required by
demand for its services. APAC believes that suitable additional or alternative
space will be available as needed to expand its business on commercially
reasonable terms.

LITIGATION

From time to time, the Company is involved in litigation incidental to its
business. In the opinion of the Company, no litigation to which the Company is
currently a party is likely to have a materially adverse effect on the Company's
results of operations or financial condition.

28
<PAGE> 29

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

All directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. Executive officers
are elected by, and serve at the discretion of, the Board of Directors. The
executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- --------------------------------------------------
<S> <C> <C>
Theodore G. Schwartz 43 Chairman, President, Chief Executive Officer
and Director
Marc S. Simon 48 Chief Financial Officer and Director
Donald B. Berryman 38 Senior Vice President/General Manager--Operations
Kenneth G. Culver 51 Senior Vice President--Facilities
John C. Dontje 52 Senior Vice President/General Manager--Operations
Robert C. Froetscher 38 Senior Vice President/General Manager--Operations
Beverly S. McIntosh 50 Senior Vice President--Business Development
James M. Nikrant 57 Senior Vice President/General Manager--Operations
Thomas M. Collins 68 Director
Morris R. Shechtman 54 Director
George D. Dalton 68 Director
Paul G. Yovovich 42 Director
</TABLE>

Theodore G. Schwartz has served as the Company's Chairman, President and
Chief Executive Officer since its formation in May 1973.

Marc S. Simon joined the Company as Chief Financial Officer in June 1995
and was elected as a Director of the Company in August 1995. Prior to joining
the Company, Mr. Simon was a partner practicing corporate and business law at
the law firm of Neal, Gerber & Eisenberg for more than 7 years. Mr. Simon is a
certified public accountant.

Donald B. Berryman joined the Company as Vice President/General
Manager--Service Solutions in March 1993 and became Senior Vice
President/General Manager--Operations in October 1995. From August 1990 until
March 1993, Mr. Berryman was the Director of National Reservations and Customer
Service at Ryder Truck Rental, Inc. Prior to joining Ryder Truck Rental, Mr.
Berryman was employed by Gannett Co., Inc. where he served as Director of
National Customer Service for USA Today.

John C. Dontje joined the Company as Senior Vice President/General
Manager--Operations in May, 1996. From November 1994 to May 1996 Mr. Dontje was
Regional Manager of a division of Electronic Data Systems Corporation ("EDS")
that operated multi-location inbound and outbound call centers. From March 1991
to November 1994, Mr. Dontje was a managing director of Bernard C. Harris
Publishing Company, Inc.

Robert C. Froetscher joined the Company as Senior Vice President/General
Manager--Operations in August, 1996. Prior to joining the Company, Mr.
Froetscher was Vice President of Sales and Service for Ameritech's Consumer
Service business unit from May 1994 to August 1996. From August 1993 to May
1994, Mr. Froetscher was the National Director of Operator Services at MCI
Communications Corporation, where he had served as Director of Consumer Sales
and Services (East Region) from May 1992 to August 1993. From May 1991 to May
1992, Mr. Froetscher served as Vice President--Marketing and Client Services at
Videocart, Inc.

Kenneth G. Culver joined the Company as Vice President--Operations and
Marketing in March 1990 and became Senior Vice President--Facilities in October
1995. Prior thereto, he served as Senior Director/Product Manager at Western
Union for its electronic mail service offering.

Beverly S. McIntosh joined the Company as Senior Vice President--Business
Development in January 1996. Prior to joining the Company, Ms. McIntosh was the
principal for the Customer Care/Call Center Consulting Practice at A.T. Kearney,
an EDS company. From April 1994 until January 1996, Ms. McIntosh served as Vice
President of Sales and Marketing for Customer Service Technologies, a division
of EDS' Core

29
<PAGE> 30

Capabilities. From June 1980 to April 1994, Ms. McIntosh was the Vice President
of Sales and Marketing for the Telemarketing Division of TeleService Resources,
a subsidiary of American Airlines.

James M. Nikrant joined the Company as Senior Vice President/General
Manager--Operations in May 1996. From July 1993 to February 1996 Mr. Nikrant was
with Montgomery Ward and Company, Inc. where he most recently served as Senior
Vice President Logistics/Product Service. From 1989 to July 1993 Mr. Nikrant was
President and Chief Executive Officer of SafeMasters Company Inc. From 1962 to
1989, Mr. Nikrant was with General Electric where he most recently served as
Head of Eastern U.S. Customer Service functions.

Thomas M. Collins became a director of the Company in August 1995. He has
been Chairman of Shuttleworth & Ingersoll, P.C., a law firm in Cedar Rapids,
Iowa, for more than five years and has practiced with the firm for more than 40
years. Mr. Collins was Chairman of the Board of Life Investors, Inc., a
financial services holding company, from 1980 to 1988. Mr. Collins serves on the
board of directors of McLeod, Inc.

Morris R. Shechtman became a director of the Company in September 1995. He
has been the Chief Executive Officer and Managing Director of The Shechtman
Group, a management consulting firm, since January 1996. From December 1993
through December 1995, Mr. Shechtman was the Managing Director of the Insite
Institute, a management consulting firm and prior to joining the Insite
Institute, he was an independent management consultant through his company,
Morris R. Shechtman & Associates Ltd.

George D. Dalton became a director of the Company in July 1996. Mr. Dalton
has been Chairman of the Board and Chief Executive Officer of Fiserv, Inc., a
provider of account processing and integrated information management systems for
financial institutions, since its founding in 1984. Mr. Dalton also serves on
the board of directors of ARI, Inc.

Paul G. Yovovich became a director of the Company in July 1996. At this
time Mr. Yovovich was also hired as an employee of the Company to assist
management in the Company's strategic efforts. From June 1993 to May 1996, Mr.
Yovovich was President of Advance Ross Corporation, which merged with CUC
International Inc. in January 1996. Prior to joining Advance Ross Corporation,
Mr. Yovovich was employed by Centel Corporation and was President of Centel
Corporation's Central Telephone Company from January 1990 to December 1992. Mr.
Yovovich serves on the boards of U.S. Robotics Corporation, Comarco, Inc., and
Illinois Superconductor Corporation. Mr. Yovovich is a certified public
accountant.

BOARD COMMITTEES

The Board of Directors has established two standing committees: the Audit
Committee and the Compensation Committee. The Audit Committee, which consists of
Messrs. Collins, Shechtman and Simon, recommends the appointment of auditors and
oversees the accounting and audit functions of the Company. The Compensation
Committee, which consists of Messrs. Collins and Dalton, determines executive
officers' salaries and bonuses and administers the Employee Stock Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During its last fiscal year, the Company established a Compensation
Committee chaired by Mr. Shechtman. The compensation of the Company's executive
officers was determined by Mr. Schwartz through fiscal 1995.

DIRECTOR COMPENSATION

Directors who are not employees or officers of the Company receive an
annual retainer of $12,000 and an option to purchase 5,000 Common Shares upon
initial election and annually upon each re-election as a Director at the
Company's annual meeting of shareholders. Directors may also be reimbursed for
certain expenses in connection with attendance at Board and committee meetings.
Other than with respect to reimbursement of expenses, Directors who are
employees or officers of the Company will not receive additional compensation
for service as a director. See "Employee Stock Plan and Director Stock Plan"
below.

30
<PAGE> 31

EXECUTIVE COMPENSATION

The following table sets forth information with respect to all compensation
paid or earned for services rendered to the Company in 1993, 1994 and 1995 by
the chief executive officer and four of the Company's other executive officers
(together, the "Named Executive Officers"). The Company does not have a pension
plan or a long-term incentive plan and has not issued any restricted stock
awards.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
-------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS AWARDED COMPENSATION
- ---------------------------------------------- -------- -------- --------------------- ------------
<S> <C> <C> <C> <C>
Theodore G. Schwartz
Chairman, President and Chief Executive
Officer
1995...................................... $312,000 $ 0 0 $2,170(1)
1994...................................... 312,000 0 0 1,269
1993...................................... 312,000 0 0 1,269
Marc S. Simon
Chief Financial Officer
1995...................................... 139,423 140,000 565,034 174(2)
1994...................................... 0 0 0 0
1993...................................... 0 0 0 0
Donald B. Berryman
Senior Vice President/
General Manager--Operations
1995...................................... 169,231 38,875 182,470 647(3)
1994...................................... 119,231 50,000 0 0
1993...................................... 76,731 15,000 0 0
Kenneth G. Culver
Senior Vice President--Facilities
1995...................................... 126,923 25,000 182,470 108(2)
1994...................................... 120,385 37,500 0 0
1993...................................... 85,000 112,587 0 0
Thomas E. Chaplin(5)
1995...................................... 173,077 42,000 182,470 670(4)
1994...................................... 112,346 50,000 0 0
1993...................................... 17,446 0 0 0
</TABLE>

- ------------
(1) Represents $1,246 with respect to group life insurance premiums paid and
$924 contributed by the Company on behalf of Mr. Schwartz to the Company's
401(k) plan.

(2) Represents group life insurance premiums paid.

(3) Represents $41 with respect to group life insurance premiums paid and $606
contributed by the Company on behalf of Mr. Berryman to the Company's 401(k)
plan.

(4) Represents $64 with respect to group life insurance premiums paid and $606
contributed by the Company on behalf of Mr. Chaplin to the Company's 401(k)
plan.

(5) Mr. Chaplin resigned as Senior Vice President--Sales Solutions as of May 31,
1996.

EMPLOYEE STOCK PLAN AND DIRECTOR STOCK PLAN

The Company has adopted a 1995 Incentive Stock Plan (the "Employee Stock
Plan") and a 1995 Nonemployee Director Stock Option Plan (the "Director Stock
Plan;" together with the Employee Stock Plan, the "Stock Plans"). Officers, key
employees and non-employee consultants may be granted non-qualified stock
options, incentive stock options, stock appreciation rights and stock awards
under the Employee Stock Plan. The Company has reserved 4,600,000 Common Shares
for issuance under the Employee Stock

31
<PAGE> 32

Plan and 150,000 Common Shares for future issuance under the Director Stock
Plan, subject in each case to anti-dilution adjustments.

The Director Stock Plan provides for initial and subsequent annual grants
of a non-qualified stock option to each non-affiliated Director of the Company.
The option will allow such Directors to purchase 5,000 Common Shares at an
exercise price equal to the fair market value of a Common Share on the date of
grant. These options have a term of ten years and vest in equal installments
over three years.

The Employee Stock Plan is administered by the Compensation Committee of
the Board of Directors (the "Committee"). The Committee is authorized to
determine, among other things, the key employees to whom, and the times at
which, options and other benefits are to be granted, the number of shares
subject to each option, the applicable vesting schedule and the exercise price
(provided that the exercise price may not be less than 85% of fair market value
of the Common Shares at the date of grant). The Committee also determines the
treatment to be afforded to a participant in the Employee Stock Plan in the
event of termination of employment for any reason, including death, disability
or retirement. Under the Employee Stock Plan the maximum term of an incentive
stock option is ten years and the maximum term of a nonqualified stock option is
fifteen years.

The Board of Directors has the power to amend the Employee Stock Plan from
time to time. Shareholder approval of an amendment is only required to the
extent that it is necessary to maintain the Employee Stock Plan's status as a
protected plan under applicable securities laws.

As of the date of this Prospectus, 1,819,498 stock options are outstanding
under the Employee Stock Plan at a weighted average exercise price of $16.65 per
share and 35,000 stock options are outstanding under the Director Stock Plan at
a weighted average exercise price of $20.95 per share.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth the number of incentive stock options
granted to the Named Executive Officers during 1995.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED
SECURITIES OPTIONS EXERCISE ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO OR BASE APPRECIATION FOR OPTION TERM (4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5% ($) 10% ($) 0% ($)
- -------------------------- ------------- -------------- --------- ---------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Theodore G. Schwartz...... -- -- -- -- -- -- --
Marc S. Simon............. 471,428 25.1% 3.74 5/31/05 1,110,312 2,813,749 N/A
Marc S. Simon............. 93,606 5.0% 0 5/31/05 1,219,791 1,942,317 748,848
Donald B. Berryman........ 182,470 9.7% 6.31 8/23/05 724,674 1,836,466 N/A
Thomas E. Chaplin......... 182,470 9.7% 6.31 8/23/05 724,674 1,836,466 N/A
Kenneth G. Culver......... 182,470 9.7% 6.31 8/23/05 724,674 1,836,466 N/A
</TABLE>

- ------------
(1) Options are not exercisable during the first twelve months from the date the
options are granted. Thereafter, the options become exercisable at the rate
of 20% of the total shares subject to the option on and after the first day
of each anniversary of the date on which option was awarded. The term of the
options is ten years.

(2) Based on 1,877,818 total options granted to employees, including the Named
Executive Officers, in 1995.

(3) The exercise price was equal to the estimated fair market value of the
Common Stock on the date of grant except for 93,606 shares for Mr. Simon
which were granted pursuant to the terms of his option with no increase in
the aggregate exercise price.

(4) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated by assuming the stock
price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price.

32
<PAGE> 33

FISCAL YEAR END OPTION VALUES

The following table provides information regarding exercisable and
unexercisable incentive stock options held by the Named Executive Officers as of
December 31, 1995.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END(#) FISCAL YEAR-END($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Theodore G. Schwartz........................... -- -- -- --
Marc S. Simon.................................. -- 565,034 -- 7,664,300
Donald B. Berryman............................. -- 182,470 -- 1,892,670
Thomas E. Chaplin.............................. -- 182,470 -- 1,892,670
Kenneth G. Culver.............................. -- 182,470 -- 1,892,670
</TABLE>

- ------------
(1) Value is calculated by subtracting the exercise price per share from the
estimated fair market value at December 31, 1995 of $16.688 per share and
multiplying by the number of shares subject to the stock option. See
"--Option Grants in Last Fiscal Year" above.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Amended Articles contain a provision eliminating the personal
liability of its directors for monetary damages resulting from breaches of their
fiduciary duty to the extent permitted by the Business Corporation Act of
Illinois. This provision in the Amended Articles does not eliminate the duty of
care and, in appropriate circumstances, equitable remedies such as an injunction
or other forms of non-monetary relief would remain available under Illinois law.
Each director will continue to be subject to liability for breach of a
director's duty of loyalty to the Company or its shareholders, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit and for improper distributions to shareholders. This
provision also does not affect a director's responsibilities under any other
laws, such as the Federal securities laws or state or Federal environmental
laws.

The Company's Amended Bylaws provide that the Company will indemnify its
directors, and may indemnify its officers, employees and other agents, to the
fullest extent permitted by law. The Company's Amended Bylaws also permit it to
secure insurance on behalf of any person it is required or permitted to
indemnify for any liability arising out of his or her actions in such capacity,
regardless of whether the Amended Bylaws would permit indemnification. The
Company maintains liability insurance for its directors and officers.

The Company has entered into agreements to indemnify its directors and
certain of its executive officers, in addition to the indemnification provided
for in the Company's Amended Bylaws. These agreements, among other things, will
indemnify the Company's directors and such officers for all direct and indirect
expenses and costs (including, without limitation, all reasonable attorneys'
fees and related disbursements, other out of pocket costs and reasonable
compensation for time spent by such persons for which they are not otherwise
compensated by the Company or any third person) and liabilities of any type
whatsoever (including, but not limited to, judgments, fines and settlement fees)
actually and reasonably incurred by such person in connection with either the
investigation, defense, settlement or appeal of any threatened, pending or
completed action, suit or other proceeding, including any action by or in the
right of the corporation, arising out of such person's services as a director,
officer, employee or other agent of the Company, any subsidiary of the Company
or any other company or enterprise to which the person provides services at the
request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain talented and experienced
directors and officers.

33
<PAGE> 34

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.

EMPLOYMENT AGREEMENTS

In May 1995, the Company entered into an employment agreement with Mr.
Simon providing for payment of an annual base salary of $250,000. Mr. Simon will
be eligible to receive bonuses from the Company through the Company's Management
by Objective Bonus Plan ("MBO Bonus Plan"). In addition, Mr. Simon will receive
an additional payment for each calendar year during the term of the agreement
equal to the excess, if any, of $500,000 over Mr. Simon's salary plus bonus. If
Mr. Simon's salary plus bonus in any given year exceeds $500,000, the additional
payment for the following year shall be reduced by the amount of such excess.
The Company granted Mr. Simon an option to purchase 565,034 Common Shares. This
option has a term of 10 years and an exercise price of $1,764,705. The option
vests 20% on May 31 of each year through 2000. If Mr. Simon is terminated for
cause or resigns without substantial reason, the unvested portion of the option
is forfeited. The option fully vests upon Mr. Simon's death or disability or if
his employment agreement is terminated without cause or Mr. Simon terminates
such agreement for substantial reason. In the event of a sale of substantially
all of the Company's assets or stock, Mr. Simon has the right to sell this
option back to the Company for an amount determined with reference to the amount
received in such sale. The agreement terminates at the earlier of May 31, 2000
or any of the following events: (1) death or disability of Mr. Simon; (2) mutual
agreement; (3) the Company's election to terminate for cause; (4) Mr. Simon's
election to terminate for substantial reason with 30 days notice; or (5) Mr.
Simon's election to terminate without substantial reason. If the agreement
terminates due to death, disability or mutual agreement, the Company has agreed
to pay Mr. Simon his salary as accrued through the termination date and any
amounts accrued and vested with respect to the MBO Bonus Plan. If Mr. Simon's
employment is terminated for cause or Mr. Simon elects to terminate without
substantial reason, he will receive only his salary up to the date of
termination. If Mr. Simon terminates the agreement with substantial reason or
the Company terminates without cause, Mr. Simon shall receive his salary,
bonuses and execution payments up to the termination date and any amounts
accrued and vested, but not covered by the bonus, under the MBO Bonus Plan.
These amounts will be paid in equal monthly installments, without interest,
through the scheduled termination date of the agreement. During such period, Mr.
Simon has agreed to assist the Company in transitioning his former
responsibilities to other employees and shall serve as advisor and consultant to
the Company for approximately 10 hours per week. The agreement also contains
non-competition and confidentiality commitments.

In March 1994, the Company entered into an employment agreement with Mr.
Berryman providing for payment of a minimum annual base salary of $125,000. Mr.
Berryman will be eligible to receive bonuses from the Company through its MBO
Bonus Plan. The employment agreement terminates at the earlier of December 31,
1998 or any of the following events: (1) death or disability of Mr. Berryman;
(2) mutual agreement; (3) the Company's election to terminate for cause; or (4)
60 days prior written notice by either party. If the agreement terminates due to
death, disability, mutual agreement or 60 days written notice by Mr. Berryman,
the Company has agreed to pay Mr. Berryman his salary as accrued through the
termination date and any amounts accrued and vested with respect to the MBO
Bonus Plan. If Mr. Berryman's employment is terminated with or without cause, he
will receive only his salary up to the date of termination. The agreement also
contains non-competition and confidentiality commitments.

The Company has also entered into non-competition and confidentiality
agreements with Messrs. Culver, Dontje, Froetscher and Nikrant and Ms. McIntosh.

34
<PAGE> 35

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information as of October 28, 1996
regarding the beneficial ownership of Common Shares by: (i) each shareholder
beneficially owning more than five percent of the outstanding Common Shares;
(ii) each director of the Company; (iii) each Named Executive Officer; (iv) all
directors and executive officers of the Company as a group and (v) each Selling
Shareholder. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Shares listed below, based on information
provided by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable. The address of
each of the shareholders named below is the Company's principal executive
office.

<TABLE>
<CAPTION>
SHARES NUMBER OF SHARES
BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERINGS BEING OFFERED AFTER THE OFFERINGS(1)
----------------------- ------------- -----------------------
NAME NUMBER PERCENT(2) NUMBER NUMBER PERCENT(2)
- --------------------------------------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Theodore G. Schwartz,
Chairman, President, Chief
Executive Officer and
Director........................ 20,610,000 44.4% 900,000 19,710,000 42.5%
Schwartz 1996
Charitable Remainder Unitrust... 1,700,000 3.7 1,100,000 600,000 1.3
Trust Seven Hundred Thirty U/A/D
4/2/94(3)....................... 3,615,000 7.8 1,000,000 2,615,000 5.6
Trust Four Hundred Thirty U/A/D
4/2/94(4)....................... 3,615,000 7.8 1,000,000 2,615,000 5.6
M. Christine Schwartz(3)(4)(5).... 8,932,680 19.2 3,100,000 5,832,680 12.6
Marc S. Simon(6)(7)............... 121,007 * -- 121,007 *
Donald B. Berryman(7)............. 27,994 * -- 27,994 *
Kenneth Culver(7)................. 31,699 * -- 31,699 *
Thomas M. Collins(7).............. 6,333 * -- 6,333 *
Morris R. Shechtman(7)............ 3,883 * -- 3,883 *
George D. Dalton.................. 2,000 * -- 2,000 *
Paul D. Yovovich.................. 5,000 * -- 5,000 *
Thomas E. Chaplin(8).............. 45,854 * -- 45,854 *
All directors and executive
officers as a group (12
persons)(7)..................... 20,809,416 44.7% 900,000 19,909,416 42.7%
</TABLE>

- ------------
* less than 1%.
(1) The Schwartz 1996 Charitable Remainder Unitrust has granted the
Underwriters options to purchase up to 600,000 additional Common Shares
to cover over-allotments. Information set forth in the table assumes no
exercise of the Underwriters' over-allotment options.

(2) Percentage of beneficial ownership is based on 46,421,260 Common Shares
outstanding as of October 28, 1996.

(3) Includes 3,615,000 Common Shares prior to the Offerings and 2,615,000
Common Shares after the Offerings held directly by Trust Seven Hundred
Thirty U/A/D 4/2/94 ("Trust Seven Hundred Thirty"). M. Christine
Schwartz, Robert H. Wicklein, John J. Abens and Heidi Schoeffer serve
as trustees (the "Trustees") of Trust Seven Hundred Thirty. All
decisions regarding the voting and disposition of shares held by Trust
Seven Hundred Thirty must be made by a majority of all Trustees.

(4) Includes 3,615,000 Common Shares prior to the Offerings and 2,615,000
Common Shares after the Offerings held directly by Trust Four Hundred
Thirty U/A/D 4/2/94 ("Trust Four Hundred Thirty"). The Trustees of
Trust Seven Hundred Thirty also serve as trustees of Trust Four Hundred
Thirty. All decisions regarding the voting and disposition of shares
held by Trust Four Hundred Thirty must be made by a majority of all
Trustees.

35
<PAGE> 36

(5) Includes 1,700,000 Common Shares prior to the Offerings, and 600,000
Common Shares following the Offerings, held by the Schwartz 1996
Charitable Remainder Unitrust for which M. Christine Schwartz is
Trustee and has voting and investment control.

(6) Includes 3,000 Common Shares held in trust for the benefit of Mr.
Simon's children for which Mr. Simon is Co-Trustee and shares voting
and investment control. In addition, Mr. Simon has options to acquire
615,034 Common Shares.

(7) Includes Common Shares which may be acquired pursuant to options which
are exercisable within 60 days as follows: Mr. Simon (113,007 shares);
Mr. Berryman (27,994 shares); Mr. Culver (26,494 shares); Mr. Collins
(3,333 shares); Mr. Schechtman (3,333 shares); and all directors and
executive officers as a group (174,161 shares).

(8) Mr. Chaplin resigned as Senior Vice President--Sales Solutions as of
May 31, 1996.

36
<PAGE> 37

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 250 million shares,
of which 200 million shares are Common Shares, par value $.01 per share, and 50
million shares are preferred shares, par value $.01 per share. At October 28,
1996, there were 46,421,260 Common Shares outstanding, held of record by 107
shareholders, and no preferred shares outstanding.

The following description of the capital stock of the Company and certain
provisions of the Company's Amended Articles and Amended Bylaws is a summary and
is qualified in its entirety by the provisions of the Amended Articles and
Amended Bylaws, which are exhibits to the Company's Registration Statement, of
which this Prospectus is a part.

COMMON SHARES

The issued and outstanding Common Shares, including the Common Shares
offered hereby, have been validly issued and are fully paid and nonassessable.
Subject to the right of holders of preferred shares, the holders of outstanding
Common Shares are entitled to receive dividends out of assets legally available
therefore at such times and in such amounts as the Board of Directors may from
time to time determine. See "Price Range of Common Shares and Dividend Policy."
The Common Shares are neither redeemable nor convertible, and the holders
thereof have no preemptive or subscription rights to purchase any securities of
the Company. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Shares are entitled to receive, pro rata, the assets of the
Company which are legally available for distribution, after payment of all debts
and other liabilities and subject to the prior rights of any holders of
preferred shares then outstanding. Each outstanding Common Share is entitled to
one vote on all matters submitted to a vote of shareholders. There is no
cumulative voting in the election of Directors.

PREFERRED SHARES

The Company's Amended Articles authorize the Board of Directors to issue
the preferred shares in classes or series and to establish the designations,
preferences, qualifications, limitations or restrictions of any class or series
with respect to the rate and nature of dividends, the price and terms and
conditions on which shares may be redeemed, the terms and conditions for
conversion or exchange into any other class or series of shares, voting rights
and other terms. The Company may issue, without approval of the holders of
Common Shares, preferred shares which have voting, dividend or liquidation
rights superior to the Common Shares and which may adversely affect the rights
of holders of Common Shares. The issuance of preferred shares, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Shares and could have the effect of discouraging, delaying,
deferring or preventing a change in control of the Company. The Company has no
present plan to issue any preferred shares.

CERTAIN STATUTORY PROVISIONS

The Company is subject to Section 7.85 of the Business Corporation Act of
Illinois ("Section 7.85"). Section 7.85 prohibits a publicly held Illinois
corporation from engaging in a "business combination" with an "interested
shareholder," unless the proposed "business combination" receives (i) the
affirmative vote of the holders of at least 80% of the combined voting power of
the then outstanding shares of all classes and series of the corporation
entitled to vote generally in the election of directors (the "Voting Shares"),
voting together as a single class and (ii) the affirmative vote of a majority of
the combined voting power of the then outstanding Voting Shares held by
disinterested shareholders voting together as a single class. For purposes of
Section 7.85, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested shareholder, and
an "interested shareholder" is a person who, together with affiliates and
associates, owns (or within the prior two years, did own) 10% or more of the
combined voting power of the outstanding Voting Shares.

Further, the Company is subject to Section 11.75 of the Business
Corporation Act of Illinois ("Section 11.75") which prohibits "business
combinations" with "interested shareholders" for a period of 3 years

37
<PAGE> 38

following the date that such shareholder became an "interested shareholder,"
unless (i) prior to such date, the Board of Directors approved the transaction
which resulted in the shareholder becoming an "interested shareholder," or (ii)
upon consummation of such transaction, the "interested shareholder" owned at
least 85% of the Voting Shares outstanding at the time such transaction
commenced (excluding shares owned by directors who are also officers and shares
reserved under an employee stock plan), or (iii) on or after such date, the
"business combination" is approved by the Board of Directors and authorized at a
meeting of the shareholders by 66 2/3% of the outstanding Voting Shares not
owned by the "interested shareholder." For purposes of Section 11.75, an
"interested shareholder" is a person who, together with affiliates and
associates, owns (or within the prior three years, did own) 15% of the Voting
Shares.

CERTAIN CHARTER AND BYLAW PROVISIONS

The Company's Amended Articles and Amended Bylaws contain a number of
provisions related to corporate governance and to the rights of shareholders. In
particular, the Amended Bylaws provide that shareholders follow an advance
notification procedure for certain shareholder nominations of candidates for the
Board of Directors and for certain other shareholder business to be conducted at
any meeting of the shareholders. The existence of these provisions in the
Company's Amended Articles and Amended Bylaws may have the effect of
discouraging a change in control of the Company and limiting shareholder
participation in certain transactions or circumstances by limiting shareholders'
participation to annual and special meetings of shareholders and making such
participation contingent upon adherence to certain prescribed procedures. The
affirmative vote of the holders of at least 66 2/3% of the outstanding capital
stock is required to amend or repeal these provisions.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Shares is Harris Trust and
Savings Bank.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Shares in the public market, or the
perception that such sales could occur, could depress the prevailing market
price of the Common Shares.

Upon completion of the Offerings, 20,881,260 Common Shares will be freely
tradeable. All other outstanding Common Shares were issued by the Company in
private transactions not involving a public offering, are treated as "restricted
securities" for purposes of Rule 144, and may not be resold unless they are
registered under the Securities Act or are resold pursuant to an exemption from
registration, including the exemption provided under Rule 144 of the Securities
Act.

In general, Rule 144, as currently in effect, provides that a person (or
persons whose sales are aggregated) who is an affiliate of the Company or who
has beneficially owned shares which are issued and sold in reliance upon
exemptions from registration under the Securities Act ("Restricted Shares") for
at least two years is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding Common
Shares or the average weekly trading volume in the Common Shares during the four
calendar weeks preceding the filing of a notice of the sale is filed with the
Securities and Exchange Commission (the "Commission"). Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. However, a person
who is not deemed to have been an "affiliate" of the Company at any time during
the three months preceding a sale, and who has beneficially owned Restricted
Shares for at least three years, would be entitled to sell such shares under
Rule 144 without regard to volume limitations, manner of sale provisions, notice
requirements or the availability of current public information about the
Company.

The Company and the Selling Shareholders have, subject to certain
exceptions, agreed that they will not, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any capital
stock of the Company or any security convertible or exchangeable into or
exercisable for, such capital stock, or, in the case of the Company, file any
registration statement with respect to the foregoing, for a period of 180

38
<PAGE> 39

days after the date of this Prospectus, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch
International. See "Underwriting." The Company has filed a registration
statement under the Securities Act registering an aggregate of 5,915,034 Common
Shares reserved for issuance in connection with outstanding options, under the
Stock Plans and the Company's Employee Stock Purchase Plan, thus permitting the
resale of such shares by non-affiliates in the public market without restriction
under the Securities Act. Options to acquire 1,819,498 Common Shares under the
Employee Stock Plan and options to acquire 35,000 Common Shares under the
Director Stock Plan are currently outstanding. See "Management--Employee Stock
Plan and Director Stock Plan."

Pursuant to an agreement among Mr. Schwartz, the trustees of certain trusts
and the Company, Mr. Schwartz and the trusts are entitled to certain rights with
respect to the registration of their Common Shares under the Securities Act. If
the Company proposes to register any of its securities under the Securities Act,
Mr. Schwartz and the trusts are entitled to notice of such registration and are
entitled to include at the Company's expense all or a portion of their shares
therein, subject to certain conditions. Such shareholders also may, subject to
certain conditions, require the Company at the Company's expense to register
their shares on Form S-2 or S-3, as applicable, on not more than two occasions
in any fiscal year (the Offerings constituting the first such registration in
fiscal 1996).

CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS

The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership, and disposition of Common Shares by
a holder that, for United States Federal income tax purposes, is not a "United
States person" (a "Non-United States Holder"). This discussion is based upon the
United States Federal tax law now in effect, which is subject to change,
possibly retroactively. For purposes of this discussion, a "United States
person" means a citizen or resident of the United States; a corporation,
partnership, or other entity created or organized in the United States or under
the laws of the United States or of any political subdivision thereof; an estate
whose income is includible in gross income for United States Federal income tax
purposes regardless of its source; or a "United States Trust". A United States
Trust is (a) for taxable years beginning after December 31, 1996, or if the
trustee of a trust elects to apply the following definition to an earlier
taxable year, any trust if, and only if, (i) a court within the United States is
able to exercise primary supervision over the administration of the trust and
(ii) one or more U.S. trustees have the authority to control all substantial
decisions of the trust, and (b) for all other taxable years, any trust whose
income is includible in gross income for United States Federal income tax
purposes regardless of its source. This discussion does not consider any
specific facts or circumstances that may apply to a particular Non-United States
Holder. Prospective investors are urged to consult their tax advisors regarding
the United States Federal tax consequences of acquiring, holding, and disposing
of Common Shares, as well as any tax consequences that may arise under the laws
of any foreign, state, local, or other taxing jurisdiction.

DIVIDENDS

Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business within
the United States by the Non-United States Holder (or if certain tax treaties
apply, is attributable to a United States permanent establishment maintained by
such Non-United States Holder), in which case the dividend will be subject to
the United States Federal income tax on net income on the same basis that
applies to United States persons generally. In the case of a Non-United States
Holder which is a corporation, such effectively connected income also may be
subject to the branch profits tax (which is generally imposed on a foreign
corporation on the repatriation from the United States of effectively connected
earnings and profits). Non-United States Holders should consult any applicable
income tax treaties that may provide for a lower rate of withholding or other
rules different from those described above. A Non-United States Holder may be
required to satisfy certain certification requirements in order to claim treaty
benefits or otherwise claim a reduction of or exemption from withholding under
the foregoing rules.

39
<PAGE> 40

GAIN ON DISPOSITION

A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Shares unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder or, if tax
treaties apply, is attributable to a United States permanent establishment
maintained by the Non-United States Holder, (ii) in the case of a Non-United
States Holder who is a nonresident alien individual and holds the Common Shares
as a capital asset, such holder is present in the United States for 183 or more
days in the taxable year of disposition and either such individual has a "tax
home" in the United States or the gain is attributable to an office or other
fixed place of business maintained by such individual in the United States,
(iii) the Company is or has been a "U.S. real property holding corporation" for
United States Federal income tax purposes (which the Company does not believe
that it is or is likely to become) and the Non-United States Holder holds or has
held, directly or indirectly, at any time during the five-year period ending on
the date of disposition, more than 5 percent of the Common Shares or (iv) the
Non-United States Holder is subject to tax pursuant to the Internal Revenue Code
of 1986, as amended, provisions applicable to certain United States expatriates.
Gain that is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder will be subject to the
United States Federal income tax on net income on the same basis that applies to
United States persons generally (and, with respect to corporate holders, under
certain circumstances, the branch profits tax) but will not be subject to
withholding. Non-United States Holders should consult any applicable treaties
that may provide for different rules.

FEDERAL ESTATE TAXES

Common Shares owned or treated as owned by an individual who is not a
citizen or resident of the United States at the date of death will be included
in such individual's estate for United States Federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING

The Company must report annually to the Internal Revenue Service and to
each Non-United States Holder the amount of dividends paid to, and the tax
withheld with respect to, such holder, regardless of whether any tax was
actually withheld. This information may also be made available to the tax
authorities of a country in which the Non-United States Holder resides.

Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally not
apply to dividends paid on the Common Shares to a Non-United States Holder.
Payments by a United States office of a broker of the proceeds of a sale of the
Common Shares are subject to both backup withholding at a rate of 31% and
information reporting unless the holder certifies its Non-United States Holder
status under penalties of perjury or otherwise establishes an exemption.
Information reporting requirements (but not backup withholding) will also apply
to payments of the proceeds of sales of the Common Shares by foreign offices of
United States brokers, or foreign brokers with certain types of relationships to
the United States, unless the broker has documentary evidence in its records
that the holder is a Non-United States Holder and certain other conditions are
met, or the holder otherwise establishes an exemption.

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

These information reporting and backup withholding rules are under review
by the United States Treasury and their application to the Common Shares could
be changed by future regulations. On April 15, 1996, the Internal Revenue
Service issued proposed Treasury Regulations concerning the withholding of tax
and reporting for certain amounts paid to non-resident individuals and foreign
corporations. The proposed Treasury Regulations, if adopted in their present
form, would be effective for payments made after December 31, 1997. Prospective
investors should consult their tax advisors concerning the potential adoption of
such proposed Treasury Regulations and the potential effect on their ownership
of the Common Shares.

40
<PAGE> 41

UNDERWRITING

Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement") among the Company, each of the Selling Shareholders
and each of the underwriters named below (the "U.S. Underwriters"), and
concurrently with the sale of 820,000 Common Shares to the International
Managers (as defined below), the Selling Shareholders have agreed to sell to
each of the U.S. Underwriters, and each of the U.S. Underwriters severally has
agreed to purchase from the Selling Shareholders, the number of Common Shares
set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
----------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................... 545,000
Lehman Brothers Inc. ......................................... 545,000
Smith Barney Inc. ............................................ 545,000
William Blair & Company, L.L.C. .............................. 545,000
Dean Witter Reynolds Inc. .................................... 80,000
GS(2) Securities, Inc. ....................................... 80,000
Montgomery Securities......................................... 80,000
Morgan Stanley & Co. Incorporated............................. 80,000
Oppenheimer & Co., Inc. ...................................... 80,000
PaineWebber Incorporated...................................... 80,000
Robertson, Stephens & Company LLC............................. 80,000
Brean Murray & Co., Inc. ..................................... 40,000
The Chicago Corporation....................................... 40,000
Dain Bosworth Incorporated.................................... 40,000
EVEREN Securities, Inc. ...................................... 40,000
First of Michigan Corporation................................. 40,000
Furman Selz LLC............................................... 40,000
Genesis Merchant Group Securities............................. 40,000
Janney Montgomery Scott Inc. ................................. 40,000
Mesirow Financial, Inc. ...................................... 40,000
Needham & Company, Inc. ...................................... 40,000
Nesbitt Burns Securities Inc. ................................ 40,000
---------
Total............................................. 3,180,000
=========
</TABLE>

Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Lehman Brothers Inc., Smith Barney Inc. and William Blair & Company, L.L.C. are
acting as representatives (the "U.S. Representatives") of the U.S. Underwriters.

The Company and the Selling Shareholders have also entered into a purchase
agreement (the "International Purchase Agreement" and, together with the U.S.
Purchase Agreement, the "Purchase Agreements") with certain underwriters outside
the United States and Canada (collectively, the "International Managers," and
together with the U.S. Underwriters, the "Underwriters"), for whom Merrill Lynch
International, Lehman Brothers International (Europe), Smith Barney Inc. and
William Blair & Company, L.L.C. are acting as representatives (the
"International Representatives" and, together with the U.S. Representatives, the
"Representatives"). Subject to the terms and conditions set forth in the
International Purchase Agreement, and concurrently with the sale of 3,180,000
Common Shares to the U.S. Underwriters pursuant to the U.S. Purchase Agreement,
the Selling Shareholders have agreed to sell to the International Managers and
the International Managers have severally agreed to purchase from the Selling
Shareholders, an aggregate of 820,000 Common Shares. The public offering price
per Common Share and the underwriting discount per Common Share are identical
under the U.S. Purchase Agreement and the International Purchase Agreement. The
respective percentages of the Common Shares to be sold by each of the Selling
Shareholders will be identical in the U.S. Offering and the International
Offering.

41
<PAGE> 42

In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the Common Shares being sold pursuant to each such
Agreement if any of the Common Shares being sold pursuant to such Agreement are
purchased. Under certain circumstances involving a default by an Underwriter,
the commitments of non-defaulting U.S. Underwriters or International Managers
(as the case may be) may be increased or the U.S. Purchase Agreement or the
International Purchase Agreement (as the case may be) may be terminated. The
sale of Common Shares to the U.S. Underwriters is conditioned upon the sale of
Common Shares to the International Managers and vice versa.

The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. The Underwriters are permitted to sell Common
Shares to each other for purposes of resale at the initial public offering
price, less an amount not greater than the selling concession. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom
they sell Common Shares will not offer to sell or sell Common Shares to persons
who are non-U.S. or non-Canadian persons or to persons they believe intend to
resell to persons who are non-U.S. or non-Canadian persons, and the
International Managers and any dealer to whom they sell Common Shares will not
offer to sell or sell Common Shares to U.S. persons or to Canadian persons or to
persons they believe intend to resell to U.S. persons or Canadian persons,
except in the case of transactions pursuant to the Intersyndicate Agreement.

The U.S. Representatives have advised the Company and the Selling
Shareholders that the U.S. Underwriters propose initially to offer the Common
Shares to the public at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $1.00 per share. The U.S. Underwriters may allow, and such dealers may
reallow, a discount not in excess of $.10 per share on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.

A Selling Shareholder has granted an option to the U.S. Underwriters,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an aggregate of 477,000 additional Common Shares at the public offering price
set forth on the cover page of this Prospectus, less the underwriting discount.
The U.S. Underwriters may exercise this option only to cover over-allotments, if
any, made on the sale of the Common Shares offered hereby. To the extent that
the U.S. Underwriters exercise this option, each U.S. Underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
Common Shares proportionate to such U.S. Underwriter's initial amount reflected
in the foregoing table. Such Selling Shareholder also has granted an option to
the International Managers, exercisable within 30 days after the date of this
Prospectus, to purchase up to an aggregate of 123,000 additional Common Shares
to cover over-allotments, if any, on terms similar to those granted to the U.S.
Underwriters. If purchased, the Underwriters will offer such additional shares
on the same terms as those on which the 4,000,000 shares are being offered.

The Company and the Selling Shareholders have, subject to certain
exceptions, agreed that they will not for a period of 180 days from the date of
this Prospectus, without the prior written consent of Merrill Lynch and Merrill
Lynch International, directly or indirectly, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, any capital stock of the
Company or any security convertible or exchangeable into, or exercisable for,
such capital stock, or, in the case of the Company, file any registration
statement with respect to any of the foregoing, except that the Company may,
without such consent, issue options and Common Shares pursuant to the Stock
Plans and the Employee Stock Purchase Plan.

In connection with the Offerings, certain Underwriters or their respective
affiliates who are qualified market makers on Nasdaq may engage in "passive
market making" in the Common Shares on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the
satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also Nasdaq market makers in the
security being distributed to engage in limited market making transactions
during the period when Rule 10b-6 under the Exchange Act would otherwise
prohibit such activity. Rule 10b-6A prohibits underwriters and selling group
members engaged in passive market making generally from entering a bid or
effecting a purchase at a price that exceeds the highest bid for those
securities

42
<PAGE> 43

displayed on Nasdaq by a market maker that is not participating in the
distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the security to be
distributed.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.

LEGAL MATTERS

Certain legal matters with respect to the validity of the Common Shares to
be sold in the Offerings are being passed upon for the Company and the Selling
Shareholders by McDermott, Will & Emery, Chicago, Illinois. Mayer, Brown &
Platt, Chicago, Illinois, is acting as counsel for the Underwriters in
connection with certain legal matters relating to the sale of the Common Shares
to be sold in the Offerings.

EXPERTS

The financial statements of the Company as of January 1, 1995 and December
31, 1995 and for each of the three fiscal years ended December 31, 1995 included
in this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 500 West Madison Street, Chicago, IL 60661, and
7 World Trade Center, New York, NY 10048. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Registration
Statement (as defined below) is also available on the Commission's web site at
http://www.sec.gov.

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, schedules and exhibits thereto, and all
documents incorporated by reference therein, the "Registration Statement") under
the Securities Act with respect to the Common Shares to be sold in the
Offerings. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Shares to be sold in the Offerings, reference is made to
the Registration Statement. Statements made in the Prospectus as to the contents
of any contract, agreement or other document are not necessarily complete; with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.

43
<PAGE> 44

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, its Quarterly Reports on Form 10-Q for the quarters ended March 31 and
June 30, 1996, its Current Report on Form 8-K dated October 17, 1996 and the
description of the Common Shares contained in the Company's Registration
Statement on Form 8-A for such securities, have been filed by the Company with
the Commission pursuant to the Exchange Act and are incorporated herein by
reference. All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the Offerings shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date such documents were filed. Any statement contained in this Prospectus, or
in a document incorporated or deemed to be incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge to
each person to whom a copy of this Prospectus is delivered, upon the written or
oral request of such person, a copy of any and all of the documents incorporated
by reference herein (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Requests for such
copies should be directed to Investor Relations, APAC TeleServices, Inc., One
Parkway North Center, Suite 510, Deerfield, Illinois 60015, telephone number
(847) 945-0055.

44
<PAGE> 45

APAC TELESERVICES, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of January 1, 1995, December 31, 1995 and June 30,
1996.................................................................... F-3
Statements of Income for the Fiscal Years Ended January 2, 1994, January
1, 1995, and December 31, 1995 and for the Twenty-Six Weeks Ended July
2, 1995 and June 30, 1996............................................... F-4
Statements of Shareholders' Equity for the Fiscal Years Ended January 2,
1994, January 1, 1995, and December 31, 1995 and for the Twenty-Six
Weeks Ended June 30, 1996............................................... F-5
Statements of Cash Flows for the Fiscal Years Ended January 2, 1994,
January 1, 1995, and December 31, 1995 and for the Twenty-Six Weeks
Ended July 2, 1995 and June 30, 1996.................................... F-6
Notes to Financial Statements............................................. F-7 through F-16
</TABLE>

F-1
<PAGE> 46

APAC TELESERVICES, INC.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of APAC TeleServices, Inc.:

We have audited the accompanying balance sheets of APAC TeleServices, Inc.
(an Illinois corporation) as of January 1, 1995 and December 31, 1995, and the
related statements of income, shareholders' equity and cash flows for the years
ended January 2, 1994, January 1, 1995, and December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 APAC TeleServices, Inc. as
of January 1, 1995 and December 31, 1995, and the results of its operations and
its cash flows for the years ended January 2, 1994, January 1, 1995, and
December 31, 1995 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 1, 1996

F-2
<PAGE> 47

APAC TELESERVICES, INC.

BALANCE SHEETS

JANUARY 1, DECEMBER 31, JUNE 30,
1995 1995 1996
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
- ------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents........................... $ 1,186 $ 4,185,916 $ 14,169
Short-term investments.............................. -- 26,000,000 5,700,000
Accounts receivable:
Trade, less allowance for doubtful accounts of
$240,000 at December 31, 1995 and $385,000 at
June 30, 1996.................................. 9,740,215 18,735,590 40,850,740
Shareholder/officer.............................. 299,073 -- --
Prepaid expenses.................................... 77,214 651,845 325,155
Deferred preoperating costs......................... -- 1,142,219 323,969
----------- ----------- -----------
Current assets................................. 10,117,688 50,715,570 47,214,033
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization....................... 11,062,926 23,616,367 44,905,068
----------- ----------- -----------
Total assets................................... $21,180,614 $ 74,331,937 $92,119,101
=========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
- ------------------------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt................ $ 2,822,258 $ 845,397 $ 393,069
Revolving credit facility........................... -- -- 2,000,000
Book overdraft...................................... 1,310,000 -- 2,784,165
Accounts payable.................................... 272,509 2,222,347 2,822,191
Income taxes payable................................ -- 1,263,000 1,629,520
Accrued expenses:
Payroll, bonuses and related items............... 1,690,482 5,209,868 9,468,056
Telecommunications............................... 223,189 1,734,036 2,326,269
Other............................................ 922,561 3,007,215 1,406,063
Deferred income taxes............................... -- 580,000 120,000
Dividends payable................................... -- 2,809,000 --
----------- ----------- -----------
Current liabilities............................ 7,240,999 17,670,863 22,949,333
----------- ----------- -----------
LONG-TERM DEBT, less current maturities............... 8,217,882 1,473,715 1,380,061
----------- ----------- -----------
DEFERRED INCOME TAXES................................. -- 2,480,000 1,950,000
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES......................... -- -- --
SHAREHOLDERS' EQUITY:
Preferred Shares, $0.01 par value; 50,000,000 shares
authorized; none issued and outstanding.......... -- -- --
Common Shares, $0.01 par value; 100,000,000 shares
authorized at January 1, 1995 and December 31,
1995 and 200,000,000 shares authorized at June
30, 1996; 39,600,000, 46,200,000 and 46,276,708
shares issued and outstanding at January 1, 1995,
December 31, 1995 and June 30, 1996,
respectively..................................... 396,000 462,000 462,767
Additional paid-in capital.......................... -- 49,071,750 50,367,831
Retained earnings................................... 5,325,733 3,173,609 15,009,109
----------- ----------- -----------
Total shareholders' equity..................... 5,721,733 52,707,359 65,839,707
----------- ----------- -----------
Total liabilities and shareholders' equity..... $21,180,614 $ 74,331,937 $92,119,101
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE> 48

APAC TELESERVICES, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE TWENTY-SIX WEEKS
FOR THE FISCAL YEARS ENDED ENDED
------------------------------------------ ---------------------------
JANUARY 2, JANUARY 1, DECEMBER 31, JULY 2, JUNE 30,
1994 1995 1995 1995 1996
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue................... $28,911,450 $46,618,487 $101,666,470 $40,642,346 $113,242,812
Operating expenses:
Cost of services............ 19,789,288 30,665,996 71,981,814 27,189,966 80,174,411
Selling, general and
administrative
expenses................. 5,070,454 9,322,212 16,397,608 7,392,167 13,783,727
----------- ----------- ------------ ----------- ------------
Total operating
expenses............... 24,859,742 39,988,208 88,379,422 34,582,133 93,958,138
----------- ----------- ------------ ----------- ------------
Income from
operations.......... 4,051,708 6,630,279 13,287,048 6,060,213 19,284,674
Investment income............. -- -- 284,252 -- 423,912
Interest expense.............. (202,223) (663,801) (1,088,196) (562,517) (145,086)
----------- ----------- ------------ ----------- ------------
Income before income
taxes............... 3,849,485 5,966,478 12,483,104 5,497,696 19,563,500
Income taxes:
Income tax provision on C
corporation income
subsequent to October 16,
1995..................... -- -- 550,000 -- 7,728,000
Deferred income taxes
recorded in conjunction
with termination of S
corporation election on
October 15, 1995......... -- -- 3,780,000 -- --
----------- ----------- ------------ ----------- ----------
Total income taxes....... -- -- 4,330,000 -- 7,728,000
----------- ----------- ------------ ----------- ------------
Net income............. $ 3,849,485 $ 5,966,478 $ 8,153,104 $ 5,497,696 $ 11,835,500
=========== =========== ============ =========== ============
Pro forma income data
(unaudited):
Income before income taxes
as reported.............. $ 3,849,485 $ 5,966,478 $ 12,483,104 $ 5,497,696
Provision for income
taxes.................... -- -- 4,330,000 --
Pro forma adjustment to
recognize C corporation
provision for income
taxes.................... 1,500,000 2,070,000 670,000 2,153,000
----------- ----------- ------------ -----------
Pro forma net income... $ 2,349,485 $ 3,896,478 $ 7,483,104 $ 3,344,696
=========== =========== ============ ===========
Net income per share (pro
forma for Fiscal 1993,
1994 and 1995)........... $0.06 $0.10 $0.18 $0.08 $0.25
=========== =========== ============ =========== ============
Weighted average number of
shares outstanding....... 40,086,000 40,086,000 41,624,000 40,086,000 47,869,000
=========== =========== ============ =========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 49

APAC TELESERVICES, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON SHARES
---------------------- ADDITIONAL TOTAL
SHARES PAID-IN RETAINED SHAREHOLDERS'
ISSUED AMOUNT CAPITAL EARNINGS EQUITY
---------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 3, 1993......... 39,600,000 396,000 -- $ 2,348,681 $ 2,744,681
Net income..................... -- -- -- 3,849,485 3,849,485
S corporation distributions
paid........................ -- -- -- (2,410,858) (2,410,858)
---------- -------- ----------- ---------- -----------
BALANCE, January 2, 1994......... 39,600,000 396,000 -- 3,787,308 4,183,308
Net income..................... -- -- -- 5,966,478 5,966,478
S corporation distributions
paid........................ -- -- -- (4,428,053) (4,428,053)
---------- -------- ----------- ---------- -----------
BALANCE, January 1, 1995......... 39,600,000 396,000 -- 5,325,733 5,721,733
Net income..................... -- -- -- 8,153,104 8,153,104
S corporation distributions
paid or accrued............. -- -- -- (9,374,489) (9,374,489)
Capitalization of undistributed
S corporation earnings in
conjunction with termination
of S corporation election on
October 15, 1995............ -- -- 897,739 (897,739) --
Issuance of common shares...... 6,600,000 66,000 48,174,011 (33,000) 48,207,011
---------- -------- ----------- ---------- -----------
BALANCE, December 31, 1995....... 46,200,000 462,000 49,071,750 3,173,609 52,707,359
Net income..................... -- -- -- 11,835,500 11,835,500
Exercise of employee stock
options, net of related tax
benefit..................... 76,708 767 1,296,081 -- 1,296,848
---------- -------- ----------- ---------- -----------
BALANCE, June 30, 1996
(Unaudited).................... 46,276,708 $462,767 $50,367,831 $15,009,109 $ 65,839,707
========== ======== =========== ========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 50

APAC TELESERVICES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE TWENTY-SIX
FOR THE FISCAL YEARS ENDED WEEKS ENDED
------------------------------------------- ---------------------------
JANUARY 2, JANUARY 1, DECEMBER 31, JULY 2, JUNE 30,
1994 1995 1995 1995 1996
----------- ----------- ------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................. $ 3,849,485 $ 5,966,478 $ 8,153,104 $ 5,497,696 $ 11,835,500
Adjustments to reconcile net income to
cash from operating activities:
Depreciation and amortization......... 1,098,947 2,265,161 4,072,370 1,713,264 4,756,577
Deferred income taxes................. -- -- 3,060,000 -- (990,000)
Change in assets and liabilities:
Accounts receivable................. (2,061,113) (5,491,525) (8,696,302) (5,548,736) (22,115,150)
Prepaid expenses.................... (29,452) 16,775 (574,631) (173,426) 326,690
Deferred preoperating costs......... -- -- (1,142,219) (273,750) (52,580)
Accounts payable.................... 42,831 (356,375) 1,949,838 1,104,887 599,844
Income taxes payable................ -- -- 1,263,000 -- 366,520
Accrued expenses.................... 1,359,156 470,168 7,114,887 3,834,045 3,249,269
----------- ----------- ------------ ----------- ------------
Net cash provided (used) by
operating activities............ 4,259,854 2,870,682 15,200,047 6,153,980 (2,023,330)
INVESTING ACTIVITIES
Sale (purchase) of short-term
investments........................... -- -- (26,000,000) -- 20,300,000
Purchase of property and equipment,
net................................... (2,313,517) (6,526,401) (16,625,811) (9,551,658) (25,174,448)
----------- ----------- ------------ ----------- ------------
Net cash used by investing
activities...................... (2,313,517) (6,526,401) (42,625,811) (9,551,658) (4,874,448)
FINANCING ACTIVITIES
Proceeds from refinanced credit
facilities............................ -- -- 11,787,520 -- --
Retirement of credit facilities......... -- -- (11,787,520) -- --
Proceeds from long-term debt............ 748,190 8,164,937 6,702,149 6,690,265 --
Payments on long-term debt.............. (674,701) (1,448,022) (15,423,177) (1,366,025) (545,982)
Net proceeds (payments) under Revolving
Facility.............................. (250,206) -- -- -- 2,000,000
Increase (decrease) in book overdraft... -- 1,310,000 (1,310,000) 184,959 2,784,165
Proceeds from sale of common shares..... -- -- 48,207,011 -- --
Exercise of employee stock options...... -- -- -- -- 1,296,848
S corporation distributions paid........ (2,410,858) (4,428,053) (6,565,489) (2,067,086) (2,809,000)
----------- ----------- ------------ ----------- ------------
Net cash provided (used) by
financing activities............ (2,587,575) 3,598,862 31,610,494 3,442,113 2,726,031
----------- ----------- ------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. (641,238) (56,857) 4,184,730 44,435 (4,171,747)
Cash and cash equivalents at beginning of
period.................................. 699,281 58,043 1,186 1,186 4,185,916
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents at end
of period....................... $ 58,043 $ 1,186 $ 4,185,916 $ 45,621 $ 14,169
=========== =========== ============ =========== ============
SUPPLEMENTAL DISCLOSURES
Cash flow information--cash paid during
the period for
Interest.............................. $ 207,163 $ 664,170 $ 1,099,309 $ 562,517 $ 208,342
Income taxes.......................... $ -- $ -- $ -- $ -- $ 7,581,408
=========== =========== ============ =========== ============
Non-cash investing activities--capital
lease obligations used to purchase
equipment............................. $ 2,811,951 -- -- -- --
=========== =========== ============ =========== ============
Non-cash financing activities--dividend
payable to S corporation shareholders
representing undistributed taxable
income prior to conversion to a C
corporation on October 16, 1995....... -- -- $ 2,809,000 -- --
=========== =========== ============ =========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE> 51

APAC TELESERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

The financial statements and related notes thereto as of June 30, 1996, and
for the twenty-six weeks ended July 2, 1995 and June 30, 1996, are unaudited and
have been prepared on the same basis as the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the information set forth herein. Operating results
for the twenty-six weeks ended June 30, 1996 are not necessarily indicative of
results that may be expected for the fiscal year ended December 29, 1996. The
principal accounting policies of APAC TeleServices, Inc. (the "Company") are as
follows:

(a) Fiscal Year. The Company has a 52/53 week fiscal year that ends on the
Sunday closest to December 31.

(b) Industry Information. The Company provides high volume telephone-based
sales, marketing and customer management solutions for corporate clients
operating in the telecommunications, insurance, financial, and business and
consumer industries throughout the United States. The nature of the industry is
such that the Company is dependent on several large clients for a significant
portion of its annual revenues. The Company had four, one, two and two client(s)
which each accounted for more than ten percent of the Company's net revenue for
the fiscal years ended January 2, 1994, January 1, 1995 and December 31, 1995
and the twenty-six weeks ended June 30, 1996, respectively. For the periods
ended (a) January 2, 1994, such four clients accounted for 20%, 12%, 10% and 10%
of the Company's net revenue, respectively, (b) January 1, 1995, such client
accounted for 24% of the Company's net revenue (c) December 31, 1995, such two
clients accounted for 16% and 14% of the Company's net revenue, and (d) June 30,
1996, such two clients accounted for 36% and 20% of the Company's net revenue,
respectively. The loss of one or more of these major clients could have a
materially adverse effect on the Company's business.

(d) Short-term Investments. The Company invests excess operating cash in
instruments with maturities of twelve months or less. The Company intends to
hold such investments, which may consist of short-term municipal preferred
securities, certificates of deposits, U.S. Treasury and Agency securities,
repurchase agreements, and others, to maturity. At December 31, 1995 and June
30, 1996, short-term investments consist of municipal preferred securities with
maturities of less than 50 days. The market value of such investments (including
interest) is equal to the cost basis.

(e) Property and Equipment. Property and equipment are stated at cost less
accumulated depreciation. Major improvements are capitalized and charged to
expense through depreciation. Repairs and maintenance are charged to expense as
incurred. General and administrative costs associated with the opening of new
Company call centers are expensed as incurred. Upon sale or retirement, the
related cost and accumulated depreciation are removed from the accounts, and any
gain or loss is recorded in the statement of income. Depreciation is determined
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. Equipment recorded under capital leases is amortized on a
straight-line basis over the shorter of the estimated useful life of the assets
or the lease term.

(f) Revenue Recognition. The Company recognizes revenue on programs as
services are performed for its clients, generally based upon hours incurred.

(g) Deferred Preoperating Costs. Effective July 10, 1995 the Company
entered into a four and one-half year contract to provide telephone-based
services from a number of client-owned facilities. The Company incurred
preoperating costs directly associated with the contract. Preoperating costs
include training and other associated costs for new personnel who will be
providing service under the contract during its term and are

F-7
<PAGE> 52

APAC TELESERVICES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

amortized over a 12-month period beginning on the date the facility to which
they relate is staffed and ready for operations.

(h) Concentration of Credit Risk. Concentration of credit risk is limited
to trade accounts receivable and is subject to the financial conditions of
certain major clients described in Industry Information 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 or other
security to support clients' receivables. The Company conducts periodic reviews
of its clients' financial conditions and vendor payment practices to minimize
collection risks on trade accounts receivable.

(i) Management's Estimates. Management has made certain estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent liabilities during the preparation of the financial
statements. Actual results could differ from these estimates. However,
management does not believe they would have a material effect on operating
results.

(j) Net Income Per Share. Pro forma and actual net income per share amounts
are computed based upon the weighted average number of common shares and common
share equivalents outstanding during each period presented after retroactive
adjustments for stock splits and all options granted. Supplementary, pro forma
net income per common share and common share equivalents would not have been
materially different than that reflected on the accompanying income statement
for the years ended January 1, 1995 and December 31, 1995 had the debt
retirement in connection with the Company's initial public offering taken place
January 2, 1994.

(k) Training costs. The Company maintains ongoing training programs for its
employees. The cost of this training is expensed when incurred. In addition,
certain contracts require clients to reimburse the Company for specific
training. These costs are billed to clients and expensed as incurred.

(l) Accounting for 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 No. 123 ("Statement 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 Statement 123.
Had the Company accounted for its stock options in accordance with Statement
123, pro forma net income and pro forma net income per share would have been
approximately $7,310,000 and $0.18 in fiscal 1995 and approximately $11,175,000
and $0.23 in the first twenty-six weeks of fiscal 1996. The pro forma disclosure
is not likely to be indicative of pro forma results which may be expected in
future years because of the fact that options vest over several years,
compensation expense is recognized as the options vest and additional awards may
also be granted.

2. INCOME TAXES

Prior to the initial public offering of the Company's Common Shares
completed on October 16, 1995 the Company included its income and expenses with
those of its shareholders for Federal and certain state income tax purposes (an
S corporation election). Accordingly, the Statements of Income for the fiscal
years ended January 2, 1994, and January 1, 1995, do not include a provision for
Federal income taxes. In connection with the Company's initial public offering
in October, 1995, the Company terminated its S corporation election and
accordingly recorded a deferred income tax liability and corresponding income
tax expense of $3,780,000, arising from a change in the Company's tax status and
a change from the cash basis to the accrual basis of accounting for tax
purposes. Beginning October 16, 1995, the Company provides for deferred income
taxes under the asset and liability method of accounting. This method requires
the recognition of deferred income taxes based upon the tax consequences of
"temporary differences" by applying enacted statutory tax rates

F-8
<PAGE> 53

APAC TELESERVICES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

applicable to future years to differences between the financial statements
carrying amounts and the tax basis of existing assets and liabilities.

The provision for income taxes for the year ended December 31, 1995 and the
twenty-six weeks ended June 30, 1996, consists of the following:

<TABLE>
<CAPTION>
TWENTY-SIX
YEAR ENDED WEEKS ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current:
Federal..................................... $ 920,000 $7,218,000
State....................................... 350,000 1,500,000
---------- ----------
Total current provision................ 1,270,000 8,718,000
Deferred:
Federal..................................... (582,000) (801,000)
State....................................... (138,000) (189,000)
---------- ----------
Total deferred provision............... (720,000) (990,000)
Initial recognition of deferred income taxes
resulting from change in tax status............ 3,780,000 --
---------- ----------
Total income tax provision............. $4,330,000 $7,728,000
========== ==========
</TABLE>

A reconciliation of statutory Federal tax rate to the pro forma and actual
effective income tax rate for the year ended December 31, 1995 and the
twenty-six weeks ended June 30, 1996, is as follows:

<TABLE>
<CAPTION>
YEAR ENDED TWENTY-SIX
DECEMBER 31, 1995 WEEKS ENDED
------------------- JUNE 30,
PRO-FORMA ACTUAL 1996
--------- ------ -----------

(UNAUDITED)
<S> <C> <C> <C>
Statutory rate.............................. 35.0% 35.0% 35.0%
========== =========== ==========
State taxes, net of Federal benefit and
state credits............................. 5.3 1.7 4.4
Tax-exempt investment income................ (0.6) (0.6) (0.6)
Targeted Jobs Tax Credit.................... (1.1) -- (0.1)
Income taxes recognized as a result of a
change in tax status...................... -- 30.3 --
S corporation income taxed to its
shareholders.............................. -- (33.2) --
Other....................................... 1.5 1.5 0.8
------- ----- -----

Effective rate.................... 40.1% 34.7% 39.5%
======= ======= =======
</TABLE>

The pro forma income data in the Statements of Income provides information
as if the Company had been treated as a C corporation for income tax purposes
for all periods presented.

F-9
<PAGE> 54

APAC TELESERVICES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The significant components of deferred income tax assets and liabilities as
of December 31, 1995 and June 30, 1996, are as follows:

DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
(UNAUDITED)
<S> <C> <C>
Deferred income tax assets:
Payroll and related......................... $ 397,000 $ 674,000
Allowance for doubtful accounts............. 110,000 172,000
Other....................................... 176,000 68,000
---------- ----------
Total deferred income tax assets....... 683,000 914,000
Deferred income tax liabilities:
Change in tax accounting method (cash to
accrual).................................. 2,756,000 2,297,000
Preoperating costs.......................... 303,000 78,000
Fixed assets................................ 272,000 204,000
Other....................................... 412,000 405,000
---------- ----------
Total deferred income tax
liabilities.......................... 3,743,000 2,984,000
========== ==========
Net deferred income tax liabilities......... $3,060,000 $2,070,000
========== ==========
</TABLE>

No valuation allowance for deferred income tax assets at December 31, 1995
and June 30, 1996 has been recorded as the Company believes it is more likely
than not the deferred tax assets will be realized in the future.

In connection with the initial public offering, the Company and certain of
its shareholders entered into a tax agreement. The agreement provides that the
Company will indemnify such shareholders against additional income taxes
resulting from adjustments made (as a result of a final determination made by a
competent tax authority) to the taxable income reported by the Company as an S
corporation for the periods prior to the initial public offering, but only to
the extent those adjustments result in a decrease in income taxes otherwise
payable by the Company.

As of December 31, 1995, the Company had accrued dividends of $2,809,000,
based upon the undistributed taxable income attributable to the Company's tax
status as an S corporation prior to the initial public offering. These dividends
were paid in fiscal 1996 to the Company's S Corporation shareholders of record
prior to its initial public offering when the Company finalized its corporate
income tax returns.

3. PROPERTY AND EQUIPMENT

At January 1, 1995, December 31, 1995 and June 30, 1996, property and
equipment along with corresponding estimated useful lives consists of the
following:

JANUARY 1, DECEMBER 31, JUNE 30, ESTIMATED
1995 1995 1996 LIFE
----------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Building and leasehold improvements....... $ 3,320,545 $ 7,214,706 $ 10,876,989 2-39 years
Telecommunications equipment.............. 9,538,305 16,648,311 31,691,407 5-7 years
Furniture and office equipment............ 2,614,933 6,175,863 8,683,623 5-7 years
Construction in progress.................. 159,787 2,065,989 6,027,300 --
----------- ----------- ------------
Total property and equipment......... 15,633,570 32,104,869 57,279,319
Less accumulated depreciation............. (4,570,644) (8,488,502) (12,374,251)
----------- ----------- ------------
Property and equipment, net.......... $11,062,926 $ 23,616,367 $ 44,905,068
=========== =========== ============
</TABLE>

F-10
<PAGE> 55

APAC TELESERVICES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The gross cost of equipment capitalized under capital lease obligations
included above is $4,426,032 at January 1, 1995, December 31, 1995 and June 30,
1996.

4. DEBT

In August, 1995, the Company refinanced its line-of-credit facilities with
a syndicate of banks. Proceeds from refinancing were used to retire outstanding
credit facilities in the amount of $11,787,520. As of December 31, 1995, the
Company had three separate line-of-credit facilities in place. The credit lines
consisted of a revolving facility of $10,000,000 and two capital expenditure
facilities totaling $21,212,480. At any time during the term of the capital
expenditure facilities, the Company could elect to convert all or part of the
outstanding draws into a term loan which would mature in 2000 provided that the
amount being converted was equal to or greater than $1,000,000. Amounts borrowed
and repaid in full under the capital expenditure facilities permanently reduced
the borrowing availability under these facilities. The credit lines were secured
by substantially all of the Company's non-real estate business assets. At
December 31, 1995, the Company had no borrowings under these lines of credit.

In June 1996, the Company entered into a new unsecured line-of-credit
facilities agreement (the "Credit Facility") with a syndicate of banks, and
terminated all prior line-of-credit facilities. As of June 30, 1996, the Company
had two separate line-of-credit facilities in place. The credit lines consist of
a revolving facility of $20,000,000 (the "Revolving Facility") and a $20,000,000
revolving credit facility which may be converted into a term loan (the
"Convertible Revolving Facility"). At June 30, 1996, the Company had borrowings
of $2,000,000 under the Revolving Facility.

The Revolving Facility matures in May 1999, with two one year renewal
options which is subject to the lenders acceptance. At June 30, 1996, the
Company had $18,000,000 of unused availability under the Revolving Facility. The
effective interest rate on outstanding borrowings was 8.25% at June 30, 1996.

The Convertible Revolving Facility expires in May 2000, unless converted to
a term loan. At any time during the term of the Convertible Revolving Facility,
the Company may elect to convert all or part of the outstanding draws into a
term loan which matures in quarterly installments beginning on the last day of
the calendar quarter during which the term loan was made and terminates the
earlier of the third anniversary of the relevant commencement date or May 31,
2001. The minimum amount which can be converted at any one time is $1,000,000.
As of June 30, 1996, the Company had $20,000,000 of unused availability under
the Convertible Revolving Facility.

The Company has several interest rate options available under the Credit
Facility. The options include a domestic rate, an adjusted LIBOR rate, a
treasury rate and a fixed rate. The actual interest rate charged is based on the
existing market rate at the time the rate is selected by the Company, plus a
specified level of basis points, depending on the maintenance of certain
financial covenants. At June 30, 1996, the Company's effective borrowing rate
using the adjusted LIBOR rate would have been 5 1/2%. The Company is required to
maintain certain financial covenants, and is restricted in its ability to pay
dividends on Common Shares under terms of the Credit Facility. At June 30, 1996,
the Company was in compliance with all covenants.

F-11
<PAGE> 56

APAC TELESERVICES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Long-term debt at January 1, 1995, December 31, 1995 and June 30, 1996
consists of the following:

JANUARY 1, DECEMBER 31, JUNE 30,
1995 1995 1996
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Convertible revolving facility.................. $ -- $ -- $ --
Bank notes, secured by related equipment,
bearing interest at the bank's prime interest
rate.......................................... 4,000,000 -- --
Bank installment note, personally guaranteed by
a shareholder, payable in monthly installments
of $50,000 plus accrued interest through
September, 1999, at the bank's prime interest
rate.......................................... 2,850,000 -- --
Bank installment notes, secured by a building,
payable in varying installments through
October, 1999, with a weighted average
interest rate of 9.3%......................... 301,182 -- --
Industrial Revenue Bonds, collateralized by a
building, payable in varying monthly
installments through June, 2008, bearing
interest at 7.0% adjustable semiannually
thereafter to 71% of the average yield rate of
U.S. Treasury Bonds with a floor of 7.0% (7.0%
at December 31, 1995 and June 30, 1996)....... 1,528,364 1,466,412 1,433,045
Capital lease obligations, secured by related
equipment, payable in varying monthly
installments through 1998, with a weighted
average interest rate of 8.5%................. 2,360,594 852,700 340,085
----------- ---------- ----------
Total long-term debt..................... 11,040,140 2,319,112 1,773,130
Less current maturities......................... (2,822,258) (845,397) (393,069)
----------- ---------- ----------
Long-term debt, net...................... $ 8,217,882 $1,473,715 $ 1,380,061
=========== ========== ==========
</TABLE>

The principal payments of long-term debt mature as follows:

<TABLE>
<S> <C>
Remainder of 1996............................................. $ 301,245
1997.......................................................... 146,474
1998.......................................................... 78,759
1999.......................................................... 85,502
2000.......................................................... 92,842
2001 and thereafter........................................... 1,068,308
----------
Total long-term debt..................................... $1,773,130
==========
</TABLE>

F-12
<PAGE> 57

APAC TELESERVICES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. LEASE COMMITMENTS

The Company leases administrative offices and telephone call centers at
several locations through 2001. Rent expense for the fiscal years ended January
2, 1994, January 1, 1995, December 31, 1995 and the twenty-six weeks ended July
2, 1995 and June 30, 1996 was $533,944, $1,011,185, $1,567,493, $625,967, and
$1,362,316, respectively. In addition, the Company has several capital leases
covering certain operating equipment. Minimum future rental payments at June 30,
1996 are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ---------
<S> <C> <C>
Remainder of 1996...................................... $1,642,609 $ 274,815
1997................................................... 2,971,082 76,384
1998................................................... 2,033,064 --
1999................................................... 983,098 --
2000................................................... 565,016 --
2001................................................... 84,853 --
---------- ---------
Total........................................... $8,279,722 351,199
==========
Less amount representing interest at an average effective rate of
8.5%.............................................................. (11,055)
---------
Present value of net minimum rent payments.......................... 340,144
---------
Less amounts due within one year.................................... (293,847)
---------
Amounts due beyond one year......................................... $ 46,297
=========
</TABLE>

6. CAPITAL STOCK

Effective March 31, 1994, the Company authorized and issued a 60,000-for-1
stock split of Common Shares. On September 8, 1995, the Company completed a
3.3:1 stock split. On May 15, 1996, the Company completed a 2-for-1 stock split
in the form of a stock dividend. All per share information included in these
financial statements has been adjusted to reflect these splits retroactively.

On October 16, 1995, the Company issued 6,600,000 Common Shares in
connection with an initial public offering.

At June 30, 1996, the Company had reserved 5,915,034 Common Shares for
issuance in connection with the exercise of stock options or purchases under the
Company's employee stock purchase plan.

7. STOCK OPTIONS

The Company has granted options to purchase Common Shares under several
plans. In 1995, the Company adopted an Incentive Stock Plan and a Nonemployee
Director Stock Option Plan. Officers, key employees and non-employee consultants
may be granted non-qualified stock options, incentive stock options, stock
appreciation rights, performance shares and stock awards under the Incentive
Stock Plan. A committee of the Board of Directors administers the Incentive
Stock Plan and is authorized to determine the key employees to whom, and the
times at which, the options and other benefits are to be granted, the number of
shares subject to each option, the applicable vesting schedule, and the exercise
price provided that the exercise price may not be less than 100% and 85% of the
fair market value of the Common Shares at the date of grant for incentive stock
options and non-qualified stock options, respectively. The Nonemployee Director
Stock Option Plan provides for annual grants of non-qualified stock options to
each non-affiliated Director of the Company. The option will allow such
Directors to purchase 5,000 Common Shares at an amount equal to the fair market
value of the Common Shares on the date of grant. These options vest equally over
a three year period. Options under both plans expire at periods between ten and
fifteen years after issuance.

F-13
<PAGE> 58

APAC TELESERVICES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

On May 26, 1995, the Company granted an officer an option to purchase
565,034 Common Shares at an aggregate price of $1,764,705, with an average
exercise price of $3.12 per share. Upon sale of all or substantially all its
assets or stock prior to May 1998, the officer has the right to sell this option
back to the Company for an amount determined with reference to the amount
received in such sale. The option vests 20% on May 31 of each year through 2000
and has a term of 10 years. The weighted average fair value of this option at
the date of grant was $1.83 per share, based upon the assumptions described
below using the Black-Scholes option pricing model. At June 30, 1996, 113,007 of
these options were vested.

Stock option activity for the Company's stock option plans for the year
ended December 31, 1995 and the twenty-six weeks ended June 30, 1996, is as
follows:

<TABLE>
<CAPTION>
WEIGHTED NONEMPLOYEE DIRECTOR WEIGHTED
INCENTIVE STOCK PLAN AVERAGE STOCK OPTION PLAN AVERAGE
------------------------- EXERCISE --------------------- EXERCISE
SHARES PRICE RANGE PRICE SHARES PRICE RANGE PRICE
--------- ------------- -------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding as of January
2, 1995................ -- -- -- -- -- --
Granted................ 1,312,784 $6.31-$15.44 $ 6.43 30,000 $ 8.00 $ 8.00
Exercised.............. -- -- -- -- -- --
Cancelled.............. -- -- -- -- -- --
--------- -------
Outstanding as of
December 31, 1995...... 1,312,784 $6.31-$15.44 $ 6.43 30,000 $ 8.00 $ 8.00
========= =======
Granted................ 727,000 13.44-38.38 22.66 10,000 38.12 38.12
Exercised.............. (74,346) 6.31-8.00 6.50 -- -- --
Cancelled.............. (113,135) 6.21-22.44 7.95 (10,000) 8.00 8.00
--------- -------
Outstanding as of June
30, 1996 (Unaudited)... 1,852,303 6.31-38.38 13.18 30,000 8.00-38.12 18.04
========= =======
Stock options exercisable
at December 31, 1995... 9,120 6.31 --
========= =======
at June 30, 1996
(Unaudited)......... 91,235 6.31 --
========= =======
</TABLE>

The fair value of each option is estimated on the date of grant based on
the Black-Scholes option pricing model assuming among other things, no dividend
yield, a risk free interest rate of 6.5%, expected volatility of 70% and
expected life of 7.5 years.

The weighted average fair value of options granted under the Company's
stock option plans for the periods ended December 31, 1995 and June 30, 1996 was
$2.64 and $13.00, respectively. As of June 30, 1996, the remaining contractual
life of all options was approximately ten years.

8. COMMITMENTS AND CONTINGENCIES

During the fiscal years ended January 1, 1995 and December 31, 1995 and the
twenty-six weeks ended June 30, 1996, the Company received funds from several
community colleges under various job-training agreements. These funds are
provided to subsidize the Company for costs it incurs in creating new job
positions. The community colleges raise these funds through the issuance of
bonds, which have varying maturity dates through June 1, 2003. Under the terms
of the agreements, the Company deposits amounts into a bond escrow account based
upon a percentage of gross payroll dollars associated with the new job positions
created and receives a state tax credit equivalent to the amounts deposited. The
Company has guaranteed that sufficient funds are in escrow to meet the bond
maturities. At January 1, 1995, December 31, 1995 and

F-14
<PAGE> 59

APAC TELESERVICES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

June 30, 1996, the Company had guaranteed the repayment of $900,000, $974,000
and $892,000 respectively, of the remaining outstanding bond obligations. At
June 30, 1996, it is the Company's best estimate that the deposits made into
escrow will be adequate to cover the cost of the maturing bonds.

9. BENEFIT PLANS

In October, 1995 the Company adopted a 401(k) savings plan. Employees,
meeting certain eligibility requirements, as defined, may contribute up to 15%
of pre-tax gross wages, subject to certain restrictions. The Company makes
matching contributions of 25% of the first 6% of employee wages contributed to
the plan. Company matching contributions vest 20% per year over a five year
period. For the year ended December 31, 1995 and the twenty-six weeks ended June
30, 1996, the Company made matching contributions of approximately $16,000 and
$48,000 to the plan, respectively.

In 1996, shareholders of the Company adopted an employee stock purchase
plan. The plan is administered by the Compensation Committee and permits
eligible employees to purchase an aggregate of 600,000 Common Shares at 85% of
the lesser of the current market closing price of the Company's Common Shares at
the beginning or end of a quarter. Employees may annually purchase Common Shares
up to the lesser of 15% of their gross wages or $25,000.

10. QUARTERLY DATA (UNAUDITED):

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
FOR THE FISCAL YEARS ENDED QUARTER QUARTER QUARTER QUARTER YEAR
- ----------------------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
January 1, 1995
Net revenue................ $ 9,352,335 $11,350,747 $10,610,087 $15,305,318 $ 46,618,487
Gross profit............... 2,645,195 3,770,026 3,126,008 6,411,262 15,952,491
Net income................. 615,415 952,096 1,052,246 3,346,721 5,966,478
Pro forma net income....... 399,481 618,030 688,657 2,190,310 3,896,478
Pro forma net income per
share................... $ 0.01 $ 0.02 $ 0.02 $ 0.05 $ 0.10
=========== =========== =========== =========== ============
December 31, 1995
Net revenue................ $17,864,765 $22,777,581 $24,142,850 $36,881,274 $101,666,470
Gross profit............... 6,383,646 7,068,734 6,706,080 9,526,196 29,684,656
Net income................. 2,526,099 2,971,597 2,231,587 423,821 8,153,104
Pro forma net income....... 1,536,832 1,807,864 1,354,656 2,783,752 7,483,104
Pro forma net income per
share................... $ 0.04 $ 0.05 $ 0.03 $ 0.06 $ 0.18
=========== =========== =========== =========== ============
December 29, 1996
Net revenue................ $48,144,496 $65,098,316
Gross profit............... 13,757,657 19,310,744
Net income................. 4,714,901 7,120,588
Net income per share....... $ 0.10 $ 0.15
=========== ===========
</TABLE>

11. TRANSACTIONS WITH RELATED PARTIES

The Company made distributions to its S corporation shareholders of record
prior to the Company's initial public offering. Such payments related to
shareholder tax obligations and undistributed S corporation taxable income.

F-15
<PAGE> 60

APAC TELESERVICES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

In January, 1996, the Company hired The Shechtman Group, a management
consulting firm, to provide various human resource consulting related services.
The chief executive officer and Managing Director of The Shechtman Group is also
a director of the Company. At June 30, 1996, the Company has incurred consulting
expenses of approximately $445,000 relating to the services provided by The
Schechtman Group. These consulting expenses are classified under selling,
general and administrative expenses as of June 30, 1996.

In February 1996, several shareholders of the Company sold an aggregate of
3,385,000 Common Shares in an underwritten public offering pursuant to a
registration rights agreement which was entered into by the Company and such
shareholders prior to the Company's initial public offering. The offering costs,
totalling approximately $360,000, were paid by the Company and have been
classified under selling, general and administrative expenses during the
twenty-six weeks ended June 30, 1996. The Company did not receive any proceeds
from the sale of these Common Shares.

F-16
<PAGE> 61

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON SHARES IN ANY JURISDICTION WHERE, OR TO ANY PERSON WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 11
Price Range for Common Shares and
Dividend Policy..................... 11
Capitalization........................ 12
Selected Financial and Operating
Data................................ 13
Recent Developments................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 20
Management............................ 29
Principal and Selling Shareholders.... 35
Description of Capital Stock.......... 37
Shares Eligible for Future Sale....... 38
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 39
Underwriting.......................... 41
Legal Matters......................... 43
Experts............................... 43
Additional Information................ 43
Incorporation of Certain Documents by
Reference........................... 44
Index to Financial Statements......... F-1
</TABLE>

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

4,000,000 SHARES

LOGO

APAC TELESERVICES, INC.

COMMON SHARES
---------------------------
PROSPECTUS
---------------------------

MERRILL LYNCH & CO.
LEHMAN BROTHERS
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
NOVEMBER 4, 1996

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 62

PROSPECTUS

[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]

4,000,000 SHARES

APAC TELESERVICES, INC.
COMMON SHARES LOGO
------------------------

Of the 4,000,000 Common Shares of APAC TeleServices, Inc., an Illinois
corporation (the "Company" or "APAC"), being offered hereby, 820,000 shares are
being offered outside the United States and Canada by the International Managers
(the "International Offering") and 3,180,000 shares are being offered in a
concurrent offering inside the United States and Canada by the U.S. Underwriters
(the "U.S. Offering," and together with the International Offering, the
"Offerings"). The public offering price and the aggregate underwriting discount
per share are identical for each of the Offerings. See "Underwriting."

SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES OFFERED
HEREBY.
------------------------

<CAPTION>
PROCEEDS TO
PRICE UNDERWRITING SELLING
TO PUBLIC DISCOUNT(1) SHAREHOLDERS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Per Share......................... $42.00 $1.68 $40.32
- ------------------------------------------------------------------------------------------------
Total(2).......................... $168,000,000 $6,720,000 $161,280,000
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."

(2) A Selling Shareholder has granted the International Managers and the U.S.
Underwriters options, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of 123,000 and 477,000 additional Common Shares,
respectively, on the same terms as set forth above, to cover
over-allotments, if any. If all such additional shares are purchased, the
total Price to Public, Underwriting Discount and Proceeds to Selling
Shareholders will be $193,200,000, $7,728,000 and $185,472,000,
respectively. See "Underwriting."
------------------------

MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
------------------------

The date of this Prospectus is November 4, 1996.
<PAGE> 63

[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]

UNDERWRITING

Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") among the Company, each of
the Selling Shareholders and each of the underwriters named below (the
"International Managers"), and concurrently with the sale of 3,180,000 Common
Shares to the U.S. Underwriters (as defined below), the Selling Shareholders
have agreed to sell to each of the International Managers, and each of the
International Managers severally has agreed to purchase from the Selling
Shareholders, the number of Common Shares set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
--------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch International.................................... 163,750
Lehman Brothers International (Europe)......................... 163,750
Smith Barney Inc. ............................................. 163,750
William Blair & Company, L.L.C. ............................... 163,750
Daiwa Europe Limited........................................... 55,000
Union Bancaire Privee.......................................... 55,000
Vereins- und Westbank
Aktiengesellschaft.................................... 55,000
---------
Total.............................................. 820,000
=========
</TABLE>

Merrill Lynch International, Lehman Brothers International (Europe), Smith
Barney Inc. and William Blair & Company, L.L.C. are acting as representatives
(the "International Representatives") of the International Managers.

The Company and the Selling Shareholders have also entered into a purchase
agreement (the "U.S. Purchase Agreement" and, together with the International
Purchase Agreement, the "Purchase Agreements") with certain underwriters in the
United States and Canada (collectively, the "U.S. Underwriters," and together
with the International Managers, the "Underwriters"), for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers Inc.,
Smith Barney Inc. and William Blair & Company, L.L.C. are acting as
representatives (the "U.S. Representatives" and, together with the International
Representatives, the "Representatives"). Subject to the terms and conditions set
forth in the U.S. Purchase Agreement, and concurrently with the sale of 820,000
Common Shares to the International Managers pursuant to the International
Purchase Agreement, the Selling Shareholders have agreed to sell to the U.S.
Underwriters, and the U.S. Underwriters have severally agreed to purchase from
the Selling Shareholders, an aggregate of 3,180,000 Common Shares. The public
offering price per Common Share and the underwriting discount per Common Share
are identical under the International Purchase Agreement and the U.S. Purchase
Agreement. The respective percentages of the Common Shares to be sold by each of
the Selling Shareholders will be identical in the U.S. Offering and the
International Offering.

In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the Common Shares being sold pursuant to each such
Agreement if any of the Common Shares being sold pursuant to such Agreement are
purchased. Under certain circumstances involving a default by an Underwriter,
the commitments of non-defaulting International Managers or U.S. Underwriters
(as the case may be) may be increased or the International Purchase Agreement or
the U.S. Purchase Agreement (as the case may be) may be terminated. The sale of
Common Shares to the International Managers is conditioned upon the sale of
Common Shares to the U.S. Underwriters and vice versa.

The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. The Underwriters are permitted to sell Common
Shares to each other for purposes of resale at the initial public offering
price, less an amount not greater than the selling concession. Under the terms
of the Intersyndicate Agreement, the

41
<PAGE> 64

[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]

International Managers and any dealer to whom they sell Common Shares will not
offer to sell or sell Common Shares to persons who are U.S. or Canadian persons
or to persons they believe intend to resell to persons who are U.S. or Canadian
persons, and the U.S. Underwriters and any dealer to whom they sell Common
Shares will not offer to sell or sell Common Shares to non-U.S. persons or to
non-Canadian persons or to persons they believe intend to resell to non-U.S.
persons or non-Canadian persons, except in the case of transactions pursuant to
the Intersyndicate Agreement.

The International Representatives have advised the Company and the Selling
Shareholders that the International Managers propose initially to offer the
Common Shares to the public at the public offering price set forth on the cover
page of this Prospectus, and to certain selected dealers at such price less a
concession not in excess of $1.00 per share. The International Managers may
allow, and such dealers may reallow, a discount not in excess of $.10 per share
on sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.

Each International Manager has agreed that (i) it has not offered or sold,
and will not for a period of six months following consummation of the Offerings
offer or sell, in the United Kingdom by means of any document, any Common Shares
offered hereby, other than to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances that do not
constitute an offer to the public within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied with and will comply with all
applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the Common Shares in, from or otherwise
involving the United Kingdom and (iii) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the Common Shares if that person is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996, as amended, or is a person to whom the
document may otherwise lawfully be issued or passed on.

Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase, in addition to the offering price set forth on the cover page hereby.

A Selling Shareholder has granted an option to the International Managers,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an aggregate of 123,000 additional Common Shares at the public offering price
set forth on the cover page of this Prospectus, less the underwriting discount.
The International Managers may exercise this option only to cover
over-allotments, if any, made on the sale of the Common Shares offered hereby.
To the extent that the International Managers exercise this option, each
International Manager will be obligated, subject to certain conditions, to
purchase a number of additional Common Shares, proportionate to such
International Manager's initial amount reflected in the foregoing table. Such
Selling Shareholder also has granted an option to the U.S. Underwriters,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an aggregate of 477,000 additional Common Shares to cover over-allotments, if
any, on terms similar to those granted to the International Managers. If
purchased, the Underwriters will offer such additional shares on the same terms
as those on which the 4,000,000 shares are being offered.

42
<PAGE> 65

[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]

satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also Nasdaq market makers in the
security being distributed to engage in limited market making transactions
during the period when Rule 10b-6 under the Exchange Act would otherwise
prohibit such activity. Rule 10b-6A prohibits underwriters and selling group
members engaged in passive market making generally from entering a bid or
effecting a purchase at a price that exceeds the highest bid for those
securities displayed on Nasdaq by a market maker that is not participating in
the distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the security to be
distributed.

LEGAL MATTERS

EXPERTS

ADDITIONAL INFORMATION

43
<PAGE> 66

[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

44
<PAGE> 67

[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]

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

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

TABLE OF CONTENTS

4,000,000 SHARES

LOGO

APAC TELESERVICES, INC.

COMMON SHARES
---------------------------
PROSPECTUS
---------------------------

MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
NOVEMBER 4, 1996

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