APAC TELESERVICES INC, S-3, 1996-10-15

APAC TELESERVICES INC
S-3, 1996-10-15
BUSINESS SERVICES, NEC

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<PAGE> 1

As filed with the Securities and Exchange Commission on October 15, 1996

Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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APAC TELESERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C>
ILLINOIS 36-2777140
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>

ONE PARKWAY NORTH CENTER, SUITE 510
DEERFIELD, ILLINOIS 60015
(847) 945-0055
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S EXECUTIVE OFFICES)
------------------------

THEODORE G. SCHWARTZ
CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE OFFICER
APAC TELESERVICES, INC.
ONE PARKWAY NORTH CENTER, SUITE 510
DEERFIELD, ILLINOIS 60015
(847) 945-0055
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
STANLEY H. MEADOWS, P.C. MICHAEL A. CAMPBELL
MCDERMOTT, WILL & EMERY MAYER, BROWN & PLATT
227 WEST MONROE STREET 190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60606-5096 CHICAGO, ILLINOIS 60603
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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Proposed maximum Proposed maximum
offering price aggregate
Title of each class of Amount to be per offering Amount of
securities to be registered registered(1) share(2) price(2) registration fee
<S> <C> <C> <C> <C>
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Common Shares (par value $.01
per share)................. 4,715,000 shares $54.00 $254,610,000 $77,155
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</TABLE>

(1) Includes 615,000 shares subject to an over-allotment option granted to the
Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 on the basis of the
average high and low prices of the Common Shares reported on the Nasdaq
National Market on October 9, 1996.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT
TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2

EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent international offering outside
the United States and Canada (the "International Prospectus"). The complete U.S.
Prospectus follows immediately. Following the U.S. Prospectus are certain pages
of the International Prospectus, which include an alternate front cover page, an
alternate underwriting section and an alternate back cover page. All other pages
of the U.S. Prospectus and the International Prospectus are identical.
<PAGE> 3

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

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 15, 1996
PROSPECTUS

4,100,000 SHARES

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

Of the 4,100,000 Common Shares of APAC TeleServices, Inc., an Illinois
corporation (the "Company" or "APAC"), being offered hereby, 3,280,000 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 October 14, 1996 was $55 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>
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PROCEEDS TO
PRICE UNDERWRITING SELLING
TO PUBLIC DISCOUNT(1) SHAREHOLDERS
<S> <C> <C> <C>
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Per Share......................... $ $ $
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Total(2).......................... $ $ $
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</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) Certain Selling Shareholders have 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 492,000 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 $ , $ and $ ,
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
, 1996.
------------------------

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

The date of this Prospectus is , 1996.
<PAGE> 4
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> 5

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 over 8,000 workstations in 56 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 over 3.9 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.

3
<PAGE> 6

consolidation, cardholder retention and sales of other banking products and
services. Significant relationships in this industry include Chevy Chase
Bank and Discover Card Services, which clients accounted for approximately
2.9% and 2.0%, respectively, 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 23 new call
centers and expanded certain existing call centers adding over 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

4
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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 telephone-based 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)................... 4,100,000 shares

Common Shares to be outstanding
after the Offerings(2).............. 46,512,368 shares

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

Nasdaq National Market symbol....... APAC
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(1) Assumes no exercise of the over-allotment options granted by certain Selling
Shareholders to the Underwriters. Of the 4,100,000 Common Shares to be sold
in the Offerings, 3,280,000 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) 2,321,106 Common Shares issuable upon exercise of
outstanding options, and (b) 3,356,176 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
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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
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<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
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<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>

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(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.

6
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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 telecommunications, consumer insurance,
financial services and parcel delivery 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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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.

8
<PAGE> 11

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.

9
<PAGE> 12

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 46,512,368 Common Shares will be outstanding, of
which 20,972,368 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. 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 Offering. 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 42.4% 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 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> 13

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 closing 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)................. $16 7/8 $9 15/16
Fiscal 1996:
First Quarter.......................................... 35 5/8 13 7/16
Second Quarter......................................... 42 3/4 31
Third Quarter.......................................... 57 34 3/4
Fourth Quarter (through October 14, 1996).............. 56 1/2 49 1/2
</TABLE>

On October 14, 1996, the last reported sale price of the Common Shares
reported on the Nasdaq National Market was $55 1/4 per share. As of October 1,
1996, there were 97 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 Note 11 to the Company's Financial Statements included
elsewhere in this Prospectus.

11
<PAGE> 14

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 appearing
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> 15

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> 16

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 Company's 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.

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

14
<PAGE> 17

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.

15
<PAGE> 18

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 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.

16
<PAGE> 19

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

17
<PAGE> 20

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 7.3%.
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.

18
<PAGE> 21

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 over 8,000 workstations in 56 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 23 new call centers and
expanded certain existing call centers adding over 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.

19
<PAGE> 22

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.

20
<PAGE> 23

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 its 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 Chevy Chase Bank and
Discover Card Services, which clients accounted for approximately 2.9% and
2.0%, respectively, 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 41 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 over 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."

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
operations accounted for approximately 3.0% of the Company's Sales Solutions net
revenue in the first twenty-six weeks of fiscal 1996.

21
<PAGE> 24

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

22
<PAGE> 25

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

23
<PAGE> 26

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
September 27, 1996. On September 27, 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, TeleService Resources, Precision Response Corporation,
Electronic Data Systems Corporation and TeleTech Holdings, 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.

24
<PAGE> 27

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 telemarketing laws.

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.

25
<PAGE> 28

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>

26
<PAGE> 29

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 300
Corpus Christi, Texas................ November, 1996(2) 200
Columbia, South Carolina............. December, 1996(2) 200
-----
Total Service Solutions.............................. 4,206
=====
</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) At their anticipated dates of opening, Corpus Christi and Columbia are each
expected to staff 200 workstations. Corpus Christi is expected to contain
approximately 725 workstations and 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.

27
<PAGE> 30

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 37 Senior Vice President/General Manager--Operations
Kenneth G. Culver 50 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 49 Senior Vice President--Business Development
James M. Nikrant 57 Senior Vice President/General Manager--Operations
Thomas M. Collins 68 Director
Morris R. Shechtman 53 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, 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

28
<PAGE> 31

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.

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.

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.

29
<PAGE> 32

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

30
<PAGE> 33

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, 1,826,072 stock options are outstanding
under the Employee Stock Plan at a weighted average exercise price of $15.26 per
share and 30,000 stock options are outstanding under the Director Stock Plan at
a weighted average exercise price of $18.04 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.

31
<PAGE> 34

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.

32
<PAGE> 35

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.

33
<PAGE> 36

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information as of October 11, 1996
regarding the beneficial ownership of Common Shares by: (1) 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 42.4%
Schwartz 1996
Charitable Remainder Trust...... 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 12.5
Marc S. Simon(6)(7)............... 121,007 * 100,000 21,007 *
Donald B. Berryman(7)............. 27,994 * -- 27,994 *
Kenneth Culver(7)................. 26,494 * -- 26,494 *
Thomas M. Collins(7).............. 6,333 * -- 6,333 *
Morris R. Shechtman(7)............ 8,883 * -- 8,883 *
George D. Dalton.................. 2,000 * -- 2,000 *
Paul D. Yovovich.................. 5,000 * -- 5,000 *
Thomas E. Chaplin(8).............. 40,735 * -- 40,735 *
All directors and executive
officers as a group (12
persons)(7)..................... 20,809,211 44.7% 1,000,000 19,809,211 42.5%
</TABLE>

- ------------
* less than 1%.
(1) The Schwartz 1996 Charitable Remainder Trust and Marc S. Simon have
granted the Underwriters options to purchase up to 600,000 and 15,000
additional Common Shares, respectively, 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 46,412,368 Common Shares
outstanding as of October 11, 1996 and 46,512,368 Common Shares to be
outstanding after the Offerings.

(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 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.

34
<PAGE> 37

(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 Trust 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, of which options for 100,000 shares are intended
to be exercised and such shares sold in the Offerings.

(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.

35
<PAGE> 38

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 11,
1996, there were 46,412,368 Common Shares outstanding, held of record by 97
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 and Section 11.75 described below, 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

36
<PAGE> 39

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, 20,972,368 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 in the case of the Company, 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

37
<PAGE> 40

to 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. 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 1,846,462 Common Shares under the
Employee Stock Plan and options to acquire 30,000 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.

38
<PAGE> 41

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.

39
<PAGE> 42

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.....................................
Lehman Brothers Inc. .........................................
Smith Barney Inc. ............................................
William Blair & Company, L.L.C................................

---------
Total............................................. 3,280,000
=========
</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 3,280,000
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.

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, the commitments of non-defaulting U.S.
Underwriters or International Managers (as the case may be) may be increased.
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

40
<PAGE> 43

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 $ per share. The U.S. Underwriters may allow, and such dealers
may reallow, a discount not in excess of $ per share on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.

Certain Selling Shareholders have 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 492,000 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 Shareholders also
have 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.

The Company and the Selling Shareholders have 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, 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 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.

41
<PAGE> 44

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.

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, 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.

42
<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

<TABLE>
<CAPTION>
JUNE 30,
1996
JANUARY 1, DECEMBER 31, -----------
1995 1995
----------- ------------ (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..................................... 198,000 231,000 462,767
Additional paid-in capital.......................... -- 49,071,750 50,367,831
Retained earnings................................... 5,523,733 3,404,609 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
WEEKS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, 1996
1995 -----------
------------ (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
DECEMBER 31, 1995 TWENTY-SIX
------------------- WEEKS ENDED
PRO-FORMA ACTUAL JUNE 30,
--------- ------ 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:

<TABLE>
<CAPTION>
JUNE 30,
1996
DECEMBER 31, ----------
1995
------------ (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 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:

<TABLE>
<CAPTION>
JUNE 30,
1996
JANUARY 1, DECEMBER 31, ------------ ESTIMATED
1995 1995 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:

<TABLE>
<CAPTION>
JUNE 30,
1996
JANUARY 1, DECEMBER 31, -----------
1995 1995
----------- ------------ (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 7.3%................. 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
7.3%.............................................................. (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
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 19
Management............................ 28
Principal and Selling Shareholders.... 34
Description of Capital Stock.......... 36
Shares Eligible for Future Sale....... 37
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 38
Underwriting.......................... 40
Legal Matters......................... 42
Experts............................... 42
Additional Information................ 42
Incorporation of Certain Documents by
Reference........................... 42
Index to Financial Statements......... F-1
</TABLE>

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

4,100,000 SHARES

APAC LOGO

APAC TELESERVICES, INC.

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

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

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

[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 15, 1996
PROSPECTUS

4,100,000 SHARES

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

Of the 4,100,000 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 3,280,000 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.
------------------------

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE UNDERWRITING SELLING
TO PUBLIC DISCOUNT(1) SHAREHOLDERS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Per Share......................... $ $ $
- ------------------------------------------------------------------------------------------------
Total(2).......................... $ $ $
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</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) Certain Selling Shareholders have granted the International Managers and to
the U.S. Underwriters options, exercisable within 30 days of the date
hereof, to purchase up to an aggregate of 123,000 and 492,000 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 $ , $ and $ ,
respectively. See "Underwriting."
------------------------

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

The date of this Prospectus is , 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 3,280,000 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....................................
Lehman Brothers International (Europe) ........................
Smith Barney Inc. .............................................
William Blair & Company, L.L.C.................................

---------
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 3,280,000 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, the commitments of non-defaulting
International Managers or U.S. Underwriters (as the case may be) may be
increased. 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 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.

40
<PAGE> 64

[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]

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 $ per share. The International Managers may
allow, and such dealers may reallow, a discount not in excess of $ 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 1995, 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.

Certain Selling Shareholders have 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 Shareholders also have 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 492,000 additional Common Shares to cover over-allotments, if
any, on terms similar to those granted to the International Managers.

41
<PAGE> 65

[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]

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

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

TABLE OF CONTENTS

4,100,000 SHARES

APAC LOGO

APAC TELESERVICES, INC.

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

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

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 66

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses (other than the SEC registration
fee and NASD filing fee) of the issuance and distribution of the securities
being registered, all of which will be paid by the Company.

<TABLE>
<S> <C>
SEC registration fee............................................... $ 77,155
NASD filing fee.................................................... 25,961
Printing expenses.................................................. 55,000
Fees and expenses of counsel....................................... 50,000
Fees and expenses of accountants................................... 50,000
Transfer agent and registrar fees.................................. 5,000
Blue sky fees and expenses......................................... 10,000
Miscellaneous...................................................... 6,884
--------
Total......................................................... $280,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Illinois law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director or
officer of the corporation, or his service, at the corporation's request, as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees) that are actually and reasonably
incurred by him ("Expenses"), and judgments, fines and amounts paid in
settlement that are actually and reasonably incurred by him, in connection with
the defense or settlement of such action, provided that he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Illinois law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the adjudicating court (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board of
directors, or (2) by independent legal counsel in a written opinion, if such a
quorum does not exist or if the disinterested directors so direct, or (3) by the
shareholders. The Business Corporation Act of Illinois also provides for
mandatory indemnification of any director, officer, employee or agent against
Expenses to the extent such person has been successful in any proceeding covered
by the statute. In addition, the Business Corporation Act of Illinois provides
the general authorization of advancement of a director's or officer's litigation
expenses in lieu of requiring the authorization of such advancement by the board
of directors in specific cases, and that indemnification and advancement of
expenses provided by the statute shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement or otherwise.

The Company's Amended Bylaws provide that the Company shall indemnify its
directors, and may indemnify its officers, employees and other agents to the
fullest extent permitted by Illinois law.

The Company entered into agreements to indemnify its directors and certain
of its officers, in addition to the indemnification provided for in the
Company's Amended Articles and Amended Bylaws. These agreements, among other
things, indemnify the Company's directors and officers for all direct and
indirect expenses and costs (including, without limitation, all reasonable
attorneys' fees and related disbursements,

II-1
<PAGE> 67

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.

The Company has liability insurance for the benefit of its directors and
officers.

Under the terms of the Purchase Agreements, the Underwriters have agreed to
indemnify, under certain conditions, the Company, its directors, certain of its
officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") against certain
liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The Company has not issued or sold any unregistered securities within the
past three years.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------
<S> <C>
1.1* Form of U.S. Purchase Agreement
1.2* Form of International Purchase Agreement
3.1 Amended and Restated Articles of Incorporation of APAC TeleServices, Inc.,
as amended
3.2 Amended and Restated Bylaws of APAC TeleServices, Inc. is incorporated
herein by reference to Exhibit 3.2 to APAC TeleServices, Inc.'s
Registration Statement on Form S-1, as amended, Registration No. 33-95638
3.3 Amendment to Amended and Restated Articles of Incorporation of APAC
TeleServices, Inc. is incorporated herein by reference to Exhibit 3.3 to
APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
4.1 Specimen Common Stock Certificate is incorporated herein by reference to
Exhibit 4.1 to APAC TeleServices, Inc.'s Registration Statement on Form
S-1, as amended, Registration No. 33-95638
5.1* Opinion of McDermott, Will & Emery regarding legality
10.1 Amended and Restated APAC TeleServices, Inc. 1995 Incentive Stock Plan is
incorporated herein by reference to Exhibit 10.1 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.2 Amended and Restated APAC TeleServices, Inc. 1995 Nonemployee Director
Stock Option Plan is incorporated herein by reference to Exhibit 10.2 to
APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
10.3 Employment Agreement with Marc S. Simon, as amended, is incorporated herein
by reference to Exhibit 10.3 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 33-95638
</TABLE>

II-2
<PAGE> 68

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------
<S> <C>
10.4 Employment Agreement with Donald B. Berryman is incorporated herein by
reference to Exhibit 10.4 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 33-95638
10.5 Credit Agreement
10.6 Agreement with United Parcel Service General Services Inc. is incorporated
herein by reference to Exhibit 10.6 to APAC TeleServices, Inc.'s
Registration Statement on Form S-1, as amended, Registration No. 33-95638
10.7 Registration Rights Agreement is incorporated herein by reference to
Exhibit 10.7 to APAC TeleServices, Inc.'s Registration Statement on Form
S-1, as amended, Registration No. 33-95638
10.8 Tax Agreement is incorporated herein by reference to Exhibit 10.8 to APAC
TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
10.9 Agreement with J.C. Penney Insurance Company, dated November 1, 1994 is
incorporated herein by reference to Exhibit 10.9 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.10 Agreement with Health Benefit Services, Inc., dated July 1, 1994 is
incorporated herein by reference to Exhibit 10.10 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.11 Amendment No. 1 to Amended and Restated APAC TeleServices, Inc. 1995
Incentive Stock Plan is incorporated herein by reference to Exhibit 10.11
to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as
amended, Registration No. 33-95638
10.12 Employment Agreement with Beverly S. McIntosh is incorporated herein by
reference to Exhibit 10.12 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 333-1236
10.13 Agreement between the Registrant and The Shechtman Group, L.L.C. is
incorporated herein by reference to Exhibit 10.13 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
333-1236
10.14 Employment Agreement with John C. Dontje
10.15 Employment Agreement with Robert C. Froetscher
10.16 Employment Agreement with James M. Nikrant
23.1 Consent of Arthur Andersen LLP
23.2* Consent of McDermott, Will & Emery (included in Exhibit 5.1)
24.1 Power of Attorney (included with the signature page to the registration
statement)
</TABLE>

- ------------
* To be filed by amendment

(B) FINANCIAL STATEMENT SCHEDULES:

Schedule II -- Schedule of Valuation and Qualification Accounts

ITEM 17. UNDERTAKINGS.

(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of

II-3
<PAGE> 69

expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered hereunder, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

(b) The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, (i) the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective and (ii) each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 70

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Deerfield, Illinois on October 14, 1996.

APAC TeleServices, Inc.

By /S/ THEODORE G. SCHWARTZ

------------------------------------
Theodore G. Schwartz
Chairman of the Board of Directors,
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Theodore G. Schwartz and Marc S. Simon and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as a director and/or officer of
APAC TeleServices, Inc.) to sign any or all amendments (including post-effective
amendments) to this Registration Statement and to sign a Registration Statement
pursuant to Section 462(b) of the Securities Act of 1933, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------- ------------------
<C> <S> <C>
/S/ THEODORE G. SCHWARTZ Chairman of the Board of October 14, 1996
- ------------------------------------- Directors, President and
Theodore G. Schwartz Chief Executive Officer
(Principal Executive Officer)

/S/ MARC S. SIMON Chief Financial Officer and October 14, 1996
- ------------------------------------- Director, (Principal
Marc S. Simon Financial Officer)

/S/ ROBERT D. MITCHUM Senior Vice President--Finance October 14, 1996
- ------------------------------------- (Principal Accounting
Robert D. Mitchum Officer)

/S/ THOMAS M. COLLINS Director October 14, 1996
- -------------------------------------
Thomas M. Collins

/S/ MORRIS R. SHECHTMAN Director October 14, 1996
- -------------------------------------
Morris R. Shechtman

/S/ GEORGE D. DALTON Director October 14, 1996
- -------------------------------------
George D. Dalton

/S/ PAUL YOVOVICH Director October 14, 1996
- -------------------------------------
Paul Yovovich
</TABLE>

II-5
<PAGE> 71

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of APAC TeleServices, Inc.:

We have audited in accordance with generally accepted auditing standards,
the financial statements of APAC TeleServices, Inc. included in this
registration statement and have issued our report thereon dated February 1,
1996. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and Exchange
Commissions rules and is not a part of the basic financial statements. This
schedule has been subject to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 1, 1996

S-1
<PAGE> 72

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN C
----------
COLUMN B ADDITIONS
------------ ---------- COLUMN D COLUMN E
COLUMN A BALANCE AT CHARGED TO ---------- --------------
- ----------------------------------------------- BEGINNING OF COSTS AND DEDUCTIONS- BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE(A) OF PERIOD
- ----------------------------------------------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
Allowance deducted from assets to which it
applies:
Allowance for doubtful accounts:
Year ended January 2, 1994................ $0 $ 0 $ 0 $ 0
Year ended January 1, 1995................ 0 1,167 (1,167) 0
Year ended December 31, 1995.............. 0 246,061 (5,561) 240,500
</TABLE>

- ---------------
(A) Uncollected receivables written off.

S-2
<PAGE> 73

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------------ ----
<S> <C> <C>
1.1* Form of U.S. Purchase Agreement
1.2* Form of International Purchase Agreement
3.1 Amended and Restated Articles of Incorporation of APAC TeleServices, Inc., as
amended
3.2 Amended and Restated Bylaws of APAC TeleServices, Inc. is incorporated herein
by reference to Exhibit 3.2 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 33-95638
3.3 Amendment to Amended and Restated Articles of Incorporation of APAC
TeleServices, Inc. is incorporated herein by reference to Exhibit 3.3 to
APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
4.1 Specimen Common Stock Certificate is incorporated herein by reference to
Exhibit 4.1 to APAC TeleServices, Inc.'s Registration Statement on Form S-1,
as amended, Registration No. 33-95638
5.1* Opinion of McDermott, Will & Emery regarding legality
10.1 Amended and Restated APAC TeleServices Inc. 1995 Incentive Stock Plan is
incorporated herein by reference to Exhibit 10.1 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.2 Amended and Restated APAC TeleServices, Inc. 1995 Nonemployee Director Stock
Option Plan is incorporated herein by reference to Exhibit 10.2 to APAC
TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
10.3 Employment Agreement with Marc S. Simon, as amended, is incorporated herein by
reference to Exhibit 10.3 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 33-95638
10.4 Employment Agreement with Donald B. Berryman is incorporated herein by
reference to Exhibit 10.4 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 33-95638
10.5 Credit Agreement
10.6 Agreement with United Parcel Service General Services Inc. is incorporated
herein by reference to Exhibit 10.6 to APAC TeleServices, Inc.'s
Registration Statement on Form S-1, as amended, Registration No. 33-95638
10.7 Registration Rights Agreement is incorporated herein by reference to Exhibit
10.7 to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as
amended, Registration No. 33-95638
10.8 Tax Agreement is incorporated herein by reference to Exhibit 10.9 to APAC
TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
10.9 Agreement with J.C. Penney Insurance Company, dated November 1, 1994 is
incorporated herein by reference to Exhibit 10.9 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.10 Agreement with Health Benefit Services, Inc., dated July 1, 1994 is
incorporated herein by reference to Exhibit 10.10 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.11 Amendment No. 1 to Amended and Restated APAC TeleServices, Inc. 1995 Incentive
Stock Plan is incorporated herein by reference to Exhibit 10.11 to APAC
TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
</TABLE>
<PAGE> 74

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------------ ----
<S> <C> <C>
10.12 Employment Agreement with Beverly S. McIntosh is incorporated herein by
reference to Exhibit 10.12 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 333-1236
10.13 Agreement between the Registrant and the Shechtman Group, L.L.C. is
incorporated herein by reference to Exhibit 10.13 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
333-1236
10.14 Employment Agreement with John C. Dontje
10.15 Employment Agreement with Robert C. Froetscher
10.16 Employment Agreement with James M. Nikrant
23.1 Consent of Arthur Andersen LLP
23.2* Consent of McDermott, Will & Emery (included in Exhibit 5.1)
24.1 Power of Attorney (included with the signature page to the registration
statement)
</TABLE>

- ------------
* To be filed by amendment

<PAGE> 1
EXHIBIT 3.1

AMENDED AND RESTATED ARTICLES OF INCORPORATION

APAC TELESERVICES, INC.

The original Articles of Incorporation of Apac Teleservices,
Inc. were filed with the Secretary of State of Illinois on May 23, 1973. The
name of the Corporation under which it was originally incorporated was Allstate
Promotional Advertising Corporation. The original Articles of Incorporation
were amended on September 9, 1985 to change the Corporation's name to "The APAC
Corporation." The original Articles of Incorporation were amended and restated
on June 8, 1988 and in connection therewith the Corporation's name was changed
to "APAC Telemarketing Corporation." The Articles of Incorporation of the
Corporation were further amended on April 4, 1992 to change the Corporation's
name to "APAC Teleservices, Inc." This Amended and Restated Articles of
Incorporation not only restates and integrates the original Articles of
Incorporation and all amendments thereto, but also includes amendments adopted
by the shareholders of APAC Teleservices, Inc. on the date hereof. This
Amended and Restated Articles of Incorporation was duly adopted in accordance
with the applicable provisions of Sections 10.20 and 7.10 of the Illinois
Business Corporation Act of 1983 and shall become effective upon filing with
the Secretary of State of the State of Illinois. EACH OF THE ARTICLES
CONTAINED IN THIS AMENDED AND RESTATED ARTICLES OF INCORPORATION HAVE BEEN BOTH
AMENDED AND RESTATED.

FIRST: The name of the Corporation is APAC Corporation.

SECOND: The Corporation's registered office in the State of
Illinois is located at One Parkway North Center, Suite 510, City of Deerfield,
County of Cook 60015 and Marc S. Simon is the Corporation's registered agent
at such address.

THIRD: The purpose for which the Corporation is organized is
to carry on and to engage in any lawful act or activity for which corporations
may be organized under the Illinois Business Corporation Act of 1983.

FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 150,000,000, consisting
of (i) 100,000,000 common shares, par value $0.01 per share (the "Common
Shares"), and (ii) 50,000,000 preferred shares, par value $0.01 per share (the
"Preferred Shares"). Cumulative voting in the election of Directors shall not
be permitted to holders of either the Common Shares or the Preferred Shares.
No holder of any share of any class of stock of the Corporation shall have any
preemptive right to subscribe for or acquire additional shares of stock of any
class of the Corporation or warrants or options to purchase, or securities
convertible into, shares of any class of stock of the Corporation.
<PAGE> 2
SECTION A

COMMON SHARES

1. Voting Rights. Except as otherwise provided by law, each
Common Shares shall entitle the holder thereof to one (1) vote in any matter
submitted to a vote of shareholders of the Corporation.

2. Dividends and Distributions. Subject to the express terms
of the Preferred Shares outstanding from time to time, the holders of Common
Shares shall be entitled to receive such dividends and distributions as may
from time to time be declared by the Board of Directors.

SECTION B

PREFERRED SHARES

Subject to the terms contained in any designation of a series
of Preferred Shares, the Board of Directors is expressly authorized, at any
time and from time to time, to issue Preferred Shares in one or more series,
and for such consideration as the Board of Directors may determine and to fix,
by resolution or resolutions, the following provisions for shares of any class
or classes of Preferred Shares of the Corporation or any series of any class of
Preferred Shares:

1. the designation of such class or series, the number of
shares to constitute such class or series which may be increased or decreased
(but not below the number of shares of that class or series then outstanding)
by resolution of the Board of Directors, and the stated value thereof if
different from the par value thereof;

2. whether the shares of such class or series shall have
voting rights, in addition to any voting rights provided by law, and, if so,
the terms of such voting rights;

3. the dividends, if any, payable on such class or series,
whether any such dividends shall be cumulative, and, if so, from what dates,
the conditions and dates upon which such dividends shall be payable, and the
preference or relation such dividends shall bear to the dividends payable on
any shares of stock of any class or any other series of the same class;

4. whether the shares of such class or series shall be
subject to redemption by the Corporation, and, if so, prices and other
conditions of such redemption;

5. the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such class or series in, the voluntary
or involuntary liquidation, dissolution or winding up, or upon any distribution
of the assets, of the Corporation;

-2-

<PAGE> 3
6. whether the shares of such class or series shall be
subject to the operation of a retirement or sinking fund and, if so, the extent
to and manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of the shares of such class or series for retirement
or other corporate purposes and the terms and provisions relative to the
operation thereof;

7. whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of stock of any class or any
other series of the same class or any other securities and, if so, the price or
prices or the rates or rates of conversion or exchange and the method, if any,
of adjusting the same, and any other terms and conditions of conversion or
exchange;

8. the limitations and restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the payment of
dividends or the making of other distributions on, and upon purchase,
redemption or other acquisition by the Corporation of the Common Shares or
shares or stock of any class or any other series of the same class;

9. the conditions or restrictions, if any, upon the creation
of indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other series of
the same class or of any other class;

10. the ranking (be it pari passu, junior or senior) of each
class or series vis-a-vis any other class or series of any class of Preferred
Shares as to the payment of dividends, the distribution of assets and all other
matters; and

11. any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof, insofar as they are not inconsistent with the provisions
of this Amended and Restated Articles of Incorporation, to the full extent
permitted in accordance with the laws of the State of Illinois.

The powers , preferences and relative, participating, optional
and other special rights of each class or series of Preferred Shares, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.

FIFTH: Advance notice of shareholder nominations for the
election of Directors and of new business to be brought by shareholders before
any meeting of the shareholders of the Corporation shall be given in a manner
provided by the By-laws of the Corporation.

SIXTH: Special meetings of the shareholders, for any purpose
or purposes (except to the extent otherwise provided by law or this Amended and
Restated Articles of Incorporation), may only be called by the Chairman of the
Board, the President or any three Directors.

-3-
<PAGE> 4
SEVENTH: Notwithstanding the provisions of this Amended and
Restated Articles of Incorporation and any provisions of the By-Laws of the
Corporation, no amendment to this Amended and Restated Articles of
Incorporation shall amend, modify or repeal any or all of the provisions of
this Article SEVENTH, Article SIXTH or Article FIFTH of this Amended and
Restated Articles of Incorporation, unless so adopted by the affirmative vote
or consent of the holders of not less than two-thirds (66 2/3%) of the total
voting power of all then outstanding shares entitled to vote in the election of
Directors of the Corporation, voting as a single class; provided, however, that
in the event the Board of Directors of the Corporation shall, by resolution
adopted by a majority of the Directors then in office, recommend to the
shareholders the adoption of any such amendment, the shareholders of record
holding a majority of the total voting power of all then outstanding shares
entitled to vote in the election of Directors of the Corporation, voting as a
single class, may amend, modify or repeal any or all of such provisions.

EIGHTH: In furtherance and not in limitation of the powers
conferred by the laws of Illinois, the Board of Directors is expressly
authorized and empowered to make, alter, amend and repeal the By-laws of the
Corporation in any respect not inconsistent with the laws of the State of
Illinois or with this Amended and Restated Articles of Incorporation.

NINTH: The books of the Corporation may be kept at such place
within or without the State of Illinois as the By-laws of the Corporation may
provide or as may be designated from time to time by the Board of Directors of
the Corporation.

TENTH: A Director of the Corporation shall not be personally
liable to the Corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
Director's duty of loyalty to the Corporation or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 8.65 of the Illinois Business
Corporation Act, as the same exists or hereafter may be amended, or (iv) for
any transaction from which the Director derived an improper personal benefit.

If the Illinois Business Corporation Act hereafter is amended
to authorize the further elimination or limitation of the liability of
Directors, then the liability of the Corporation's Directors shall be
eliminated or limited to the full extent authorized by the Illinois Business
Corporation Act, as so amended.

Any repeal or modification of this Article shall not adversely
affect any right or protection of a Director of the Corporation existing at the
time of such repeal or modification.

ELEVENTH: As of the date of adoption of this Amended and
Restated Articles of Incorporation, 6,000,000 Common Shares of the Corporation
are outstanding and the Corporation's paid-in-capital is $60,000.

-4-
<PAGE> 5
IN WITNESS WHEREOF, the Corporation has caused this Amended
and Restated Articles of Incorporation to be signed by its duly authorized
officers this 8th day of August, 1995.

Attest: APAC CORPORATION

/s/ Marc S. Simon /s/ Theodore G. Schwartz
- --------------------- -------------------------
Marc S. Simon, Theodore G. Schwartz,
Secretary Chief Executive Officer

-5-
<PAGE> 6
ARTICLES OF AMENDMENT
TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF

APAC CORPORATION

1. CORPORATE NAME: APAC Corporation

2. MANNER OF ADOPTION OF AMENDMENT:

The following amendment of the Articles of Incorporation was adopted
on September 8, 1995 in the manner indicated below.

By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and submitted to
the shareholders. A consent in writing has been signed by all the shareholders
entitled to vote on this amendment.

3. TEXT OF AMENDMENT:

Article I: The name of the corporation is: APAC TeleServices, Inc.

The undersigned corporation has caused this statement to be signed by
its duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.

Dated: September 8, 1995

APAC Corporation

by /s/ Theodore G. Schwartz
-------------------------------------
Theodore G. Schwartz, President

attested
by /s/ Marc S. Simon
-----------------------------------
Marc S. Simon, Secretary

-6-
<PAGE> 7
ARTICLES OF AMENDMENT
TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF

APAC TELESERVICES, INC.

1. CORPORATE NAME: APAC TeleServices, Inc.

2. MANNER OF ADOPTION OF AMENDMENT:

The following amendment of the Articles of Incorporation was adopted
on May 21, 1996 in the manner indicated below.

By the shareholders, in accordance with Section 10.20, a resolution of
the board of directors having been duly adopted and submitted to the
shareholders. At a meeting of shareholders, not less than the minimum number
of votes required by statute and by the articles of incorporation were voted in
favor of the amendment.

3. TEXT OF AMENDMENT:

"RESOLVED, that the first paragraph of ARTICLE FOURTH of the Company's
Amended and Restated Articles of Incorporation be and hereby is amended to read
in its entirety as follows:

FOURTH: The total number of shares of all classes of stock
which the Corporation will have authority to issue is 250,000,000,
consisting of (i) 200,000,000 common shares, par value $0.01 per share
(the "Common Shares"), and (ii) 50,000,000 preferred shares, par value
$0.01 per share (the "Preferred Shares"). Cumulative voting in the
election of Directors shall not be permitted to holders of either of
the Common Shares or the Preferred Shares. No holder of any share of
any class of stock of the Corporation shall have any preemptive right
to subscribe for or acquire additional shares of stock of any class of
the Corporation or warrants or options to purchase, or securities
convertible into, shares of any class of stock of the Corporation."

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<PAGE> 8
The undersigned corporation has caused this statement to be signed by
its duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.

Dated: May 21, 1996

APAC Teleservices, Inc.

by /s/ Theodore G. Schwartz
-----------------------------------
Theodore G. Schwartz, President

attested
by /s/ Marc S. Simon
-----------------------------------
Marc S. Simon, Secretary

-8-

<PAGE> 1

EXHIBIT 10.5

================================================================================
CREDIT AGREEMENT

DATED AS OF JUNE 5, 1996

AMONG

APAC TELESERVICES, INC.,

THE LENDERS
PARTY HERETO,

AND

HARRIS TRUST AND SAVINGS BANK,
INDIVIDUALLY AND AS AGENT

================================================================================
<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION DESCRIPTION PAGE
<S> <C> <C>
SECTION 1. THE CREDITS . .............................................................................. 1

Section 1.1. Facility A Credit ........................................................................ 1
Section 1.2. Facility B Credit ........................................................................ 2
Section 1.3. Manner and Disbursement of Loans ......................................................... 4

SECTION 2. INTEREST AND CHANGE IN CIRCUMSTANCES ....................................................... 5

Section 2.1. Interest Rate Options .................................................................... 5
Section 2.2. Minimum LIBOR Portion Amounts ........................................................... 6
Section 2.3. Computation of Interest .................................................................. 6
Section 2.4. Manner of Rate Selection ................................................................. 7
Section 2.5. Change of Law ............................................................................ 7
Section 2.6. Unavailability of Deposits or Inability to Ascertain Adjusted LIBOR ...................... 7
Section 2.7. Taxes and Increased Costs ................................................................ 8
Section 2.8. Change in Capital Adequacy Requirements .................................................. 9
Section 2.9. Funding Indemnity ........................................................................ 9
Section 2.10. Lending Branch ...........................................................................10
Section 2.11. Discretion of Lenders as to Manner of Funding ............................................10
Section 2.12. Lender's Duty to Mitigate ................................................................10

SECTION 3. FEES, PREPAYMENTS AND TERMINATIONS .........................................................11

Section 3.1. Facility A Commitment Fee ................................................................11
Section 3.2. Facility B Commitments ...................................................................11
Section 3.3. Agent's Fee ..............................................................................12
Section 3.4. Defaulting Lender ........................................................................12
Section 3.5. Voluntary Prepayments.....................................................................12
Section 3.6. Terminations .............................................................................12

SECTION 4. PAYMENTS, NOTATIONS AND REPLACEMENTS OF LENDERS ............................................13

Section 4.1. Place and Application of Payments ........................................................13
Section 4.2. Notations ................................................................................14
Section 4.3. Replacement of Lender ....................................................................14

SECTION 5. DEFINITIONS; INTERPRETATION ................................................................15

Section 5.1. Definitions ..............................................................................15
Section 5.2. Interpretation ...........................................................................25
</TABLE>
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SECTION 6. REPRESENTATIONS AND WARRANTIES ..............................................................25

Section 6.1. Organization and Qualification ...........................................................25
Section 6.2. Subsidiaries .............................................................................25
Section 6.3. Corporate Authority and Validity of Obligations ..........................................26
Section 6.4. Use of Proceeds; Margin Stock ............................................................26
Section 6.5. Financial Reports ........................................................................26
Section 6.6. No Material Adverse Change ...............................................................27
Section 6.7. Full Disclosure ..........................................................................27
Section 6.8. Good Title ...............................................................................27
Section 6.9. Litigation and Other Controversies .......................................................27
Section 6.10. Taxes ....................................................................................27
Section 6.11. Approvals ................................................................................28
Section 6.12. Affiliate Transactions ...................................................................28
Section 6.13. Investment Company; Public Utility Holding Company .......................................28
Section 6.14. ERISA ....................................................................................28
Section 6.15. Compliance with Laws .....................................................................28
Section 6.16. Other Agreements .........................................................................29
Section 6.17. No Default ...............................................................................29

SECTION 7. CONDITIONS PRECEDENT ........................................................................29

Section 7.1. All Advances .............................................................................29
Section 7.2. Initial Advance ..........................................................................29

SECTION 8. COVENANTS ................................................................................31

Section 8.1. Maintenance of Business ..................................................................31
Section 8.2. Maintenance of Properties ................................................................31
Section 8.3. Taxes and Assessments ....................................................................31
Section 8.4. Insurance ................................................................................31
Section 8.5. Financial Reports ........................................................................32
Section 8.6. Inspection ...............................................................................34
Section 8.7. Modified Leverage Ratio ..................................................................34
Section 8.8. Debt Service Coverage Ratio ..............................................................34
Section 8.9. Fixed Charge Coverage Ratio ..............................................................34
Section 8.10. Indebtedness for Borrowed Money ..........................................................34
Section 8.11. Liens ....................................................................................35
Section 8.12. Investments, Acquisitions, Loans, Advances and Guaranties ................................36
Section 8.13. Mergers, Consolidations and Sales ........................................................37
Section 8.14. Operating Leases .........................................................................38
Section 8.15. Maintenance of Subsidiaries ..............................................................38
Section 8.16. Dividends and Certain Other Restricted Payments ..........................................38
Section 8.17. ERISA ....................................................................................38
Section 8.18. Compliance with Laws .....................................................................39
Section 8.19. Burdensome Contracts With Affiliates .....................................................39
Section 8.20. No Changes in Fiscal Year ................................................................39
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>

Section 8.21. Change in the Nature of Business .........................................................39
Section 8.22. New Subsidiaries .........................................................................39

SECTION 9. EVENTS OF DEFAULT AND REMEDIES ..............................................................39

Section 9.1. Events of Default ....................................................................... 39
Section 9.2. Non-Bankruptcy Defaults ..................................................................42
Section 9.3. Bankruptcy Defaults ......................................................................42

SECTION 10. THE AGENT ...................................................................................42

Section 10.1. Appointment and Authorization ............................................................42
Section 10.2. Rights as a Lender .......................................................................43
Section 10.3. Standard of Care .........................................................................43
Section 10.4. Costs and Expenses .......................................................................44
Section 10.5. Indemnity ................................................................................44
Section 10.6. Agent's Relationship with Company ........................................................44

SECTION 11. MISCELLANEOUS ...............................................................................44

Section 11.1. Non-Business Days ........................................................................44
Section 11.2. No Waiver, Cumulative Remedies ...........................................................45
Section 11.3. Waivers, Modifications and Amendments ....................................................45
Section 11.4. Costs and Expenses .......................................................................45
Section 11.5. Documentary Taxes ........................................................................46
Section 11.6. Survival of Representations ..............................................................46
Section 11.7. Survival of Indemnities ..................................................................46
Section 11.8. Participations ...........................................................................46
Section 11.9. Assignment Agreements ....................................................................46
Section 11.10. Notices ..................................................................................47
Section 11.11. Construction .............................................................................48
Section 11.12. Headings .................................................................................48
Section 11.13. Severability of Provisions ...............................................................48
Section 11.14. Counterparts .............................................................................48
Section 11.15. Entire Understanding .....................................................................48
Section 11.16. Extensions of the Facility A Commitments .................................................49
Section 11.17. Binding Nature, Governing Law, Etc .......................................................49
Section 11.18. Submission to Jurisdiction; Waiver of Jury Trial .........................................50

Signature .....................................................................................................50
</TABLE>
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<PAGE> 5

Exhibit A - Facility A Revolving Note
Exhibit B - Facility B Revolving Note
Exhibit C - Facility B Term Note
Exhibit D - Compliance Certificate
Exhibit 7.2(c) - Form Opinion of Counsel for Company
Schedule 6.2 - Subsidiaries
Schedule 8.11 - Permitted Debt

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<PAGE> 6
CREDIT AGREEMENT

This Credit Agreement is entered into as of the 5th day of June, 1996,
by and between APAC TeleServices, Inc., an Illinois corporation (the
"Company"), Harris Trust and Savings Bank, a national banking association,
individually as a Lender and as an agent (the "Agent"), and the lending
institutions which are or hereafter become signatories hereto ("Lenders").

RECITALS

A. The Company has requested that Lenders loan monies to Company.

B. The Lenders, upon acceptance of this Agreement in writing, will lend
monies and/or make advances, extensions of credit or other financial
accommodations to, on behalf of or for the benefit of the Company pursuant
hereto.

NOW, THEREFORE, in consideration of the Recitals set forth above, which
by this reference are incorporated into the Agreement set forth below, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and subject to the terms and conditions hereof and on the
basis of the representations and warranties herein set forth, the Company, the
Agent and the Lenders hereby agree to the following:

SECTION 1. THE CREDITS.

Section 1.1. Facility A Credit. (a) Generally. Subject to the terms
and conditions hereof, each Lender severally agrees to extend a revolving
credit (the "Facility A Credit") to the Company which may be availed of by the
Company from time to time during the period from and including the date hereof
to but not including the Facility A Termination Date, at which time the
commitments of the Lenders to extend credit under the Facility A Credit shall
expire. The maximum amount of the Facility A Credit which each Lender agrees
to extend to the Company shall be as set forth opposite such Lender's signature
hereto under the heading "Facility A Commitment", as such amount may be reduced
pursuant hereto. The Facility A Credit may be utilized by the Company in the
form of Facility A Loans, all as more fully hereinafter set forth, provided
that the aggregate principal amount of Facility A Loans outstanding at any one
time shall not exceed the Facility A Commitments. During the period from and
including the date hereof to but not including the Facility A Termination Date,
the Company may use the Facility A Commitments by borrowing, repaying and
reborrowing from time to time Facility A Loans in whole or in part, all in
accordance with the terms and conditions of this Agreement. For purposes of
this Agreement, where a determination of the unused or available amount of the
Facility A Commitments is necessary, the Facility A Loans shall be deemed to
utilize the Facility A Commitments. The obligations of the Lenders hereunder
are several and not joint, and no Lender shall under any circumstances be
obligated to extend credit under the Facility A Credit in excess of its
Facility A Commitment.

<PAGE> 7
(b) Facility A Loans. Subject to the terms and conditions hereof, the
Facility A Credit may be availed of by the Company in the form of loans
(individually a "Facility A Loan" and collectively the "Facility A Loans").
Except to the extent Section 2 requires otherwise for LIBOR Portions, each
Facility A Loan shall be in a minimum amount of $100,000 or such greater amount
which is an integral multiple of $25,000; and each Facility A Loan shall be
made pro rata by the Lenders in accordance with the amounts of their Facility A
Commitments. Each advance made by a Lender of its pro rata share of a Facility
A Loan shall be made against and evidenced by a Revolving Credit Note of the
Company (individually a "Facility A Note" and collectively the "Facility A
Notes") payable to the order of such Lender in the amount of its Facility A
Commitment, with each Facility A Note to be in the form (with appropriate
insertions) attached hereto as Exhibit A. Each Facility A Note shall be dated
the date of issuance thereof, be expressed to bear interest as set forth in
Section 2 hereof, and be expressed to mature on the Facility A Termination
Date. Without regard to the principal amount of each Facility A Note stated on
its face, the actual principal amount at any time outstanding and owing by the
Company on account thereof shall be the sum of all advances then or theretofore
made thereon less all payments of principal actually received.

Section 1.2. Facility B Credit. (a) Generally. Subject to all of
the terms and conditions hereof, each Lender agrees to extend an additional
revolving credit (the "Facility B Credit") to the Company which may be availed
of by the Company from time to time during the period from and including the
Facility B Activation Date to but not including the Facility B Termination
Date, at which time the commitments of the Lenders to extend credit under the
Facility B Credit shall expire. The maximum amount of the Facility B Credit
which each Lender agrees to extend to the Company shall be as set forth
opposite such Lender's signature hereto under the heading "Facility B
Commitment", as such amount may be reduced pursuant hereto. The Facility B
Credit may be utilized by the Company in the form of Facility B Loans, all as
more fully hereinafter set forth, provided that the aggregate principal amount
of Facility B Loans outstanding at any one time shall not exceed the portion
(if any) of the Facility B Commitments which have become Available Facility B
Commitments as hereinafter set forth. During the period from and including the
Facility B Activation Date to but not including the Facility B Termination
Date, the Company may use the Available Facility B Commitments by borrowing,
repaying and reborrowing from time to time Facility B Loans in whole or in
part, all in accordance with the terms and conditions of this Agreement. For
purposes of this Agreement, where a determination of the unused or available
amount of the Facility B Commitments is necessary, the Facility B Loans shall
be deemed to utilize the Available Facility B Commitments. The obligations of
the Lenders hereunder are several and not joint, and no Lender shall under any
circumstances be obligated to extend credit under the Facility B Credit in
excess of its Available Facility B Commitment.

(b) Facility B Loans. Subject to the terms and conditions hereof, the
Facility B Credit may be availed of by the Company in the form of loans
(individually a "Facility B Loan" and collectively the "Facility B Loans").
Except to the extent Section 2 requires otherwise for LIBOR Portions, each
Facility B Loan shall be in a minimum amount of $1,000,000 or such greater
amount which is an integral multiple of $1,000,000; and each

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<PAGE> 8

Facility B Loan shall be made pro rata by the Lenders in accordance
with the amounts of their Available Facility B Commitments. Each advance made
by a Lender of its pro rata share of a Facility B Loan shall be made against
and evidenced by a Revolving Credit Note of the Company (individually a
"Facility B Note" and collectively the "Facility B Notes") payable to the order
of such Lender in the amount of its Facility B Commitment, with each Facility B
Note to be in the form (with appropriate insertions) attached hereto as Exhibit
B. Each Facility B Note shall be dated the date of issuance thereof, be
expressed to bear interest as set forth in Section 2 hereof, and be expressed
to mature on the Facility B Termination Date. Without regard to the principal
amount of each Facility B Note stated on its face, the actual principal amount
at any time outstanding and owing by the Company on account thereof shall be
the sum of all advances then or theretofore made thereon less all payments of
principal actually received. Borrowings under the Available Facility B
Commitments may be made during the period commencing on the first date (the
"Facility B Activation Date") on which both the Company requests that Facility
B Loans be made available to it and the conditions of Section 1.2(c) hereof
shall have been satisfied and ending on the Facility B Termination Date,
provided that the Lenders will not make Facility B Loans more frequently than
four (4) times per calendar year and no more than once per calendar quarter.
Each Facility B Loan shall mature on the Facility B Termination Date, unless
and to he extent the Company elects to convert all or any portion of such
Facility B Loan to term loans as set forth in Section 1.2(d) hereof.

(c) Activation of Facility B Commitments. On any Business Day between
the date hereof and May 31, 1999, the Company may, upon one (1) Business Day's
prior written notice to the Agent, activate all or any part (but if in part,
then in a minimum amount of $10,000,000 or such greater amount which is an
integral multiple of $1,000,000) of the Facility B Commitments; provided,
however, that no later than the effective date of such activation, (i) the
Company shall have paid to the Agent, for the ratable account of the Lenders, a
fee equal to one-eighth of one percent (1/8 of 1%) of the Facility B
Commitments so activated, (ii) each Lender shall have received a properly
completed and duly executed Facility B Note and (iii) the President or chief
financial officer of the Company shall have furnished the Agent on the date of
such activation with a written certificate (in form and substance reasonably
satisfactory to the Agent) that no Default or Event of Default then exists.
Such portion of the Facility B Commitments shall thereupon become part of the
Available Facility B Commitments, and the Available Facility B Commitment of
each Lender shall increase by its pro rata portion of the Facility B
Commitments so activated. Any portion of the Facility B Commitments not so
activated by May 31, 1999 shall automatically terminate at the close of
business on such date.

(d) Conversion Into Facility B Term Loans. At any time during the
period commencing on the Facility B Activation Date and ending on the Facility
B Termination Date, but in no event more than twice during any one (1) calendar
year, the Company may elect to convert all or any part (but if in part, then in
a minimum amount of $1,000,000 or such greater amount which is an integral
multiple of $100,000, and such conversion of Facility B Loans to be made
ratably as among the Lenders in accordance with their Facility B Commitments)
of the then outstanding Facility B Loans to term loans such that each Lender
shall be deemed to have made a term loan to the Company (individually, for

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<PAGE> 9

each Lender, its "Facility B Term Loan" and collectively the "Facility B Term
Loans") in the amount of such Lender's pro rata share of the amount of Facility
B Loans so converted. Each Facility B Term Loan deemed made by a Lender shall
be evidenced by a Term Loan Note of the Company (individually a "Facility B
Term Note" and collectively the "Facility B Term Notes") payable to the order
of such Lender in an amount equal to the original principal amount of such
Lender's Facility B Term Loan, each Facility B Term Note to be dated the date
of the Facility B Loan evidenced thereby and otherwise in the form (with
appropriate insertions) attached hereto as Exhibit C. Each Facility B Term
Loan shall mature as to principal in consecutive quarterly installments equal
(except for the final installment) to one-twelfth (1/12th) of the original
principal amount of such Facility B Term Loan, commencing on the last day (such
last day, for each Facility B Term Loan, being herein referred to as the
"Commencement Date" for such Facility B Term Loan) of the calendar quarter
during which such Facility B Term Loan was made and continuing on the last of
each and every calendar quarter thereafter, with the final installment to be in
the amount of all principal not sooner paid and due on the earlier of (x) the
third anniversary date of the relevant Commencement Date or (y) May 31, 2001.

(e) Reduction in Facility B Commitments From Term Loans. The principal
amount of each Facility B Term Loan made by a Lender shall concurrently and
permanently reduce by like amount the activated portion of such Lender's
Facility B Commitment (such Lender's Available Facility B Commitment) and hence
also permanently reduce by like amount the maximum principal amount of Facility
B Loans available under such Lender's Facility B Commitment, and no amount paid
or prepaid on any Facility B Term Loan may be borrowed again.

Section 1.3. Manner and Disbursement of Loans. The Company shall give
written or telephonic notice to the Agent (which notice shall be irrevocable
once given and, if given by telephone, shall be promptly confirmed in writing)
by no later than 11:00 a.m. (Chicago time) one (1) Business Day prior to the
date the Company requests that any Loan be made to it under the Commitments,
and the Agent shall promptly notify each Lender of the Agent's receipt of each
such notice. Each such notice shall specify the date of the Loan requested
(which must be a Business Day) and the amount of such Loan. Each Loan shall
initially constitute part of the applicable Domestic Rate Portion except to the
extent the Company has otherwise timely elected as provided in Section 2
hereof. The Company agrees that the Agent may rely upon any written or
telephonic notice given by any person the Agent in good faith believes is an
Authorized Representative without the necessity of independent investigation
and, in the event any telephonic notice conflicts with the written
confirmation, such telephonic notice shall govern if the Agent and the Lenders
have acted in reliance thereon. Not later than 1:00 p.m. (Chicago time) on the
date specified for any Loan to be made by a Lender hereunder, such Lender shall
make the proceeds of its pro rata share of such Loan available to the Agent in
Chicago, Illinois in immediately available funds. Subject to the provisions of
Section 7 hereof, the proceeds of each Loan shall be made available to the
Company at the principal office of the Agent in Chicago, Illinois, in
immediately available funds, upon receipt by the Agent from each Lender of its
pro rata share of such Loan. Unless the Agent shall have been notified by a
Lender prior to 1:00 p.m. (Chicago time) on the date a Loan is to be made
hereunder that such Lender does

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<PAGE> 10
not intend to make its pro rata share of such Loan available to the
Agent, the Agent may assume that such Lender has made such share available to
the Agent on such date and the Agent may in reliance upon such assumption make
available to the Company a corresponding amount. If such corresponding amount
is not in fact made available to the Agent by such Lender and the Agent has
made such amount available to the Company, the Agent shall be entitled to
receive such amount from such Lender forthwith upon the Agent's demand,
together with interest thereon in respect of each day during the period
commencing on the date such amount was made available to the Company and ending
on but excluding the date the Agent recovers such amount at a rate per annum
equal to the effective rate charged to the Agent for overnight federal funds
transactions with member banks of the federal reserve system for each day as
determined by the Agent (or in the case of a day which is not a Business Day,
then for the preceding day). If such amount is not received from such Lender
by the Agent immediately upon demand, the Company will, on demand, repay to the
Agent the proceeds of the Loan attributable to such Lender with interest
thereon at a rate per annum equal to the interest rate applicable to the
relevant Loan, but without such payment being considered a payment or
prepayment of a LIBOR Portion, so that the Company will have no liability under
Section 2.9 hereof with respect to such payment.

SECTION 2. INTEREST AND CHANGE IN CIRCUMSTANCES.

Section 2.1. Interest Rate Options.

(a) Portions. Subject to the terms and conditions of this Section 2,
(i) portions of the principal indebtedness evidenced by the Notes (all of the
indebtedness evidenced by a particular class of Notes bearing interest at the
same rate for the same period of time being hereinafter referred to as a
"Portion") may, at the option of the Company, bear interest with reference to
the Domestic Rate ("Domestic Rate Portions") or with reference to the Adjusted
LIBOR ("LIBOR Portions"), and Portions may be converted from time to time from
one basis to another. All of the indebtedness evidenced by a particular class
of Notes which is not part of a LIBOR Portion shall constitute a single
Domestic Rate Portion of such class of Notes. All of the indebtedness
evidenced by a particular class of Notes which bears interest with reference to
a particular Adjusted LIBOR for a particular Interest Period shall constitute a
single LIBOR Portion of such class of Notes. There shall not be more than
twenty (20) LIBOR Portions applicable to all the Notes outstanding at any one
time (taken together), and each Lender shall have a ratable interest in each
Portion. Anything contained herein to the contrary notwithstanding, the
obligation of the Lenders to create, continue or effect by conversion any LIBOR
Portion shall be conditioned upon the fact that at the time no Default or Event
of Default shall have occurred and be continuing. The Company hereby promises
to pay interest on each Portion at the rates and times specified in this
Section 2.

(b) Domestic Rate Portion. Each Domestic Rate Portion shall bear interest
at the rate per annum determined by adding the Applicable Margin to the
Domestic Rate as in effect from time to time, provided that if a Domestic Rate
Portion or any part thereof is not paid when due (whether by lapse of time,
acceleration or otherwise) such Portion shall thereafter bear interest, whether
before or after judgment, until payment in full thereof (or

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<PAGE> 11

such earlier time, if any, as such default in payment shall be (x) cured within
the grace period provided therefor in Section 9.1(a) hereof or (y) waived in
writing by the Lenders in their sole discretion) at the rate per annum
determined by adding 2% to the interest rate which would otherwise be applicable
thereto from time to time. Interest on each Domestic Rate Portion shall be
payable quarter-annually in arrears on the last day of each March, June,
September and December in each year (commencing on the first of such dates after
the date hereof) and at maturity of the applicable Notes, and interest after
maturity (whether by lapse of time, acceleration or otherwise) shall be due and
payable upon demand. Any change in the interest rate on the Domestic Rate
Portions resulting from a change in the Domestic Rate shall be effective on the
date of the relevant change in the Domestic Rate.

(c) LIBOR Portions. Each LIBOR Portion shall bear interest for each
Interest Period selected therefor at a rate per annum determined by adding the
Applicable Margin to the Adjusted LIBOR for such Interest Period, provided that
if any LIBOR Portion is not paid when due (whether by lapse of time,
acceleration or otherwise) such Portion shall thereafter bear interest, whether
before or after judgment, until payment in full thereof (but in no event after
such time, if any, whether during or after the Interest Period then applicable
thereto, as such default in payment shall be (x) cured within the grace period
provided therefor in Section 9.1(a) hereof or (y) waived in writing by the
Lenders in their sole discretion) (1) through the end of the Interest Period
then applicable thereto at the rate per annum determined by adding 2% to the
interest rate which would otherwise be applicable thereto, and (2) if such
default in payment shall not have yet been so cured or waived, effective at the
end of such Interest Period, such LIBOR Portion shall automatically be
converted into and added to the applicable Domestic Rate Portion and shall
thereafter bear interest at the interest rate applicable to such Domestic Rate
Portion after default. Interest on each LIBOR Portion shall be due and payable
on the last day of each Interest Period applicable thereto and, with respect to
any Interest Period applicable to a LIBOR Portion in excess of three (3)
months, on the date occurring every three (3) months after the date such
Interest Period began and at the end of such Interest Period, and interest
after maturity (whether by lapse of time, acceleration or otherwise) shall be
due and payable upon demand. The Company shall notify the Agent on or before
1:00 p.m. (Chicago time) on the third Business Day preceding the end of an
Interest Period applicable to a LIBOR Portion whether such LIBOR Portion is to
continue as a LIBOR Portion, in which event the Company shall notify the Agent
of the new Interest Period selected therefor, and in the event the Company shall
fail to so notify the Agent, such LIBOR Portion shall automatically be
converted into and added to the applicable Domestic Rate Portion as of and on
the last day of such Interest Period. The Agent shall promptly notify each
Lender of each notice received from the Company pursuant to the foregoing
provision.

Section 2.2. Minimum LIBOR Portion Amounts. Each LIBOR Portion
shall be in an amount equal to $1,000,000 or such greater amount which is an
integral multiple of $250,000.

Section 2.3. Computation of Interest. All interest on the Notes
shall be computed on the basis of a year of 360 days for the actual number of
days elapsed.

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<PAGE> 12

Section 2.4. Manner of Rate Selection. The Company shall notify the
Agent by 1:00 p.m. (Chicago time) at least three (3) Business Days prior to the
date designated by the Company as the effective date that any LIBOR Portion be
created or that any part of the applicable Domestic Rate Portion be converted
into a LIBOR Portion. Each such notice shall specify in each instance the
amount of the LIBOR Portion to be created or effected by conversion, as the
case may be, and the Interest Period selected therefor, and the Agent shall
promptly notify each Lender of each notice received from the Company pursuant
to the foregoing provision. If any request is made to convert a LIBOR Portion
into the relevant Domestic Rate Portion, such conversion shall only be made so
as to become effective as of the last day of the Interest Period applicable
thereto. All requests for the creation, continuance and conversion of Portions
under this Agreement shall be irrevocable. Such requests may be written or
oral and the Agent is hereby authorized to honor telephonic requests for
creations, continuances and conversions received by it from any person the
Agent in good faith believes to be an Authorized Representative without the
necessity of independent investigation, the Company hereby indemnifying the
Agent and the Lenders from any liability or loss ensuing from so acting.

Section 2.5. Change of Law. Notwithstanding any other provisions of
this Agreement or any Note, if at any time any Lender shall determine in good
faith that any change after the date hereof in applicable laws, treaties or
regulations or any change after the date hereof in the interpretation thereof
of any of the foregoing by any governmental authority charged with the
administration thereof or any central bank or any fiscal, monetary or other
authority having jurisdiction over such Lender or its lending branch or the
LIBOR Portions contemplated by this Agreement (whether or not having the force
of law) makes it unlawful for such Lender to create or continue to maintain any
LIBOR Portion, it shall promptly so notify the Agent (which shall in turn
promptly notify the Company and the other Lenders) and the obligation of such
Lender to create, continue or maintain any such LIBOR Portion under this
Agreement shall terminate until it is no longer unlawful for such Lender to
create, continue or maintain such LIBOR Portion. The Company, within five (5)
days (or sooner if applicable law so requires) after written demand from the
affected Lender or the Agent, shall, if the continued maintenance of any such
LIBOR Portion is unlawful, thereupon prepay the outstanding principal amount of
the affected LIBOR Portion, together with all interest accrued thereon and all
other amounts payable to affected Lender with respect thereto under this
Agreement; provided, however, that the Company may elect to convert the
principal amount of the affected Portion into another type of Portion available
hereunder, subject to the terms and conditions of this Agreement.

Section 2.6. Unavailability of Deposits or Inability to Ascertain
Adjusted LIBOR. Notwithstanding any other provision of this Agreement or any
Note, if prior to the commencement of any Interest Period, (i) any Lender shall
determine in good faith that deposits in the amount of any LIBOR Portion
scheduled to be outstanding during such Interest Period are not readily
available to such Lender in the relevant market, or, (ii) by reason of
circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining Adjusted LIBOR, then such Lender shall promptly give
notice thereof to the Agent (which shall in turn promptly notify the Company
and the other

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<PAGE> 13
Lenders) and the obligations of the Lenders to create, continue
or effect by conversion any such LIBOR Portion in such amount and for such
Interest Period shall terminate until deposits in such amount and for the
Interest Period selected by the Company shall again be readily available in the
relevant market and adequate and reasonable means exist for ascertaining
Adjusted LIBOR.

Section 2.7. Taxes and Increased Costs. With respect to any LIBOR
Portion, if any Lender shall determine in good faith that any change in any
applicable law, treaty, regulation or guideline (including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System) or any
new law, treaty, regulation or guideline, or any new interpretation of any of
the foregoing by any governmental authority charged with the administration
thereof or any central bank or other fiscal, monetary or other authority having
jurisdiction over such Lender or its lending branch or the LIBOR Portions
contemplated by this Agreement (whether or not having the force of law), shall:

(i) impose, increase, or deem applicable any reserve, special deposit
or similar requirement against assets held by, or deposits in or for the
account of, or loans by, or any other acquisition of funds or
disbursements by, such Lender which is not in any instance already
accounted for in computing the interest rate applicable to such LIBOR
Portion;

(ii) subject such Lender, any LIBOR Portion or a Note to the extent it
evidences such a Portion to any tax (including, without limitation, any
United States interest equalization tax or similar tax however named
applicable to the acquisition or holding of debt obligations and any
interest or penalties with respect thereto), duty, charge, stamp tax, fee,
deduction or withholding in respect of this Agreement, any LIBOR Portion
or a Note to the extent it evidences such a Portion, except such taxes as
may be measured by the overall net income or gross receipts of such Lender
or its lending branches and imposed by the jurisdiction, or any political
subdivision or taxing authority thereof, in which such Lender's principal
executive office or its lending branch is located;

(iii) change the basis of taxation of payments of principal and
interest due from the Company to such Lender hereunder or under a Note to
the extent it evidences any LIBOR Portion (other than by a change in
taxation of the overall net income or gross receipts of such Lender or its
lending branches); or

(iv) impose on such Lender any penalty with respect to the foregoing or
any other condition regarding this Agreement, any LIBOR Portion, or its
disbursement, or a Note to the extent it evidences any LIBOR Portion;

and such Lender shall determine in good faith that the result of any of the
foregoing is to increase the cost (whether by incurring a cost or adding to a
cost) to such Lender of creating or maintaining any LIBOR Portion hereunder or
to reduce the amount of principal or interest received or receivable by such
Lender (without benefit of, or credit for, any prorations, exemption, credits
or other offsets available under any such laws, treaties,

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<PAGE> 14

regulations, guidelines or interpretations thereof), then the Company
shall pay within sixty (60) days after written demand to the Agent for the
account of such Lender from time to time as specified by such Lender such
additional amounts as such Lender shall reasonably determine are sufficient to
compensate and indemnify it for such increased cost or reduced amount;
provided, however, that the Company shall not be obligated to pay any such
amount or amounts to the extent such additional cost or payment was incurred or
paid by such Lender more than ninety (90) days prior to the date of the
delivery of the certificate referred to in the immediately following sentence
(nothing herein to impair or otherwise affect the Company's liability hereunder
for costs or payments subsequently incurred or paid by such Lender). If a
Lender makes such a claim for compensation, it shall provide to the Company
(with a copy to the Agent) substantially concurrently with such demand a
certificate setting forth the computation of the increased cost or reduced
amount as a result of any event mentioned herein in reasonable detail and such
certificate shall be conclusive if reasonably determined.

Section 2.8. Change in Capital Adequacy Requirements. If any Lender
shall determine that the adoption after the date hereof of any applicable law,
rule or regulation regarding capital adequacy, or any change in any existing
law, rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
such Lender (or any of its branches) or any corporation controlling such Lender
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on such Lender's or
such corporation's capital, as the case may be, as a consequence of such
Lender's obligations hereunder or for the credit which is the subject matter
hereof to a level below that which such Lender or such corporation would have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to liquidity and
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time, within thirty (30) days after written demand by such Lender, the
Company shall pay to the Agent for the account of such Lender such additional
amount or amounts reasonably determined by such Lender as will compensate such
Lender for such reduction; provided, however, that the Company shall not be
obligated to compensate such Lender to the extent its rate of return was so
reduced more than ninety (90) days prior to the date of such demand (nothing
herein to impair or otherwise affect the Company's liability hereunder to
compensate for subsequent reductions in such Lender's rate of return).

Section 2.9. Funding Indemnity. (a) In the event any Lender shall
incur any loss, cost or expense (including, without limitation, any loss
(including loss of profit), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired or contracted
to be acquired by such Lender to fund or maintain its part of any LIBOR Portion
or the relending or reinvesting of such deposits or other funds or amounts paid
or prepaid to such Lender) as a result of:

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<PAGE> 15

(i) any payment of a LIBOR Portion on a date other than the last day of
the then applicable Interest Period for any reason, whether before or
after default, and whether or not such payment is required by any
provisions of this Agreement; or

(ii) any failure by the Company to create, borrow, continue or effect
by conversion a LIBOR Portion on the date specified in a notice given
pursuant to this Agreement;

then, upon the demand of such Lender, the Company shall pay to the
Agent for the account of such Lender such amount as will reimburse such Lender
for such loss, cost or expense.

(b) If a Lender requests such a reimbursement under clause (a) above, it
shall provide to the Company (with a copy to the Agent) a certificate setting
forth the computation of the loss, cost or expense giving rise to the request
for reimbursement in reasonable detail and such certificate shall be conclusive
if reasonably determined; provided, however, that the Company shall not be
obligated to pay any such amount or amounts to the extent such loss, cost or
expense was incurred by such Lender more than ninety (90) days prior to the
date of the delivery of such certificate (nothing herein to impair or otherwise
affect the Company's liability hereunder to compensate for any subsequent loss,
cost, or expense incurred by such Lender).

Section 2.10. Lending Branch. Each Lender may, at its option, elect
to make, fund or maintain its pro rata share of the Loans hereunder at the
branches or offices specified on the signature pages hereof or on any
Assignment Agreement executed and delivered pursuant to Section 11.9 hereof or
at such of its branches or offices as such Lender may from time to time elect.
To the extent reasonably possible, a Lender shall designate an alternate branch
or funding office with respect to its pro rata share of the LIBOR Portions to
reduce any liability of the Company to such Lender under Section 2.7 hereof or
to avoid the unavailability of an interest rate option under Section 2.6
hereof, so long as such designation is not otherwise disadvantageous in any
material respect to the Lender.

Section 2.11. Discretion of Lenders as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, each Lender
shall be entitled to fund and maintain its funding of all or any part of its
Notes in any manner it sees fit, it being understood, however, that for the
purposes of this Agreement all determinations hereunder (including, without
limitation, determinations under Sections 2.6, 2.7 and 2.9 hereof) shall be
made as if each Lender had actually funded and maintained each LIBOR Portion
during each Interest Period applicable thereto through the purchase of deposits
in the relevant market in the amount of its pro rata share of such LIBOR
Portion, having a maturity corresponding to such Interest Period, and bearing
an interest rate equal to the LIBOR for such Interest Period.

Section 2.12. Lender's Duty to Mitigate. Each Lender agrees that, as
promptly as practicable after it becomes aware of the occurrence of an event or
the existence of a condition that would cause it to be affected under Section
2.5, 2.6 or 2.7 hereof, such Lender will, after notice to the Company, to the
extent not inconsistent with such Lender's

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<PAGE> 16

internal policies and customary business practices, use its best
efforts to make, fund or maintain the affected LIBOR Portion through another
lending office of such Lender if as a result thereof the unlawfulness which
would otherwise require payment of such Portion pursuant to Section 2.5 hereof
would cease to exist or the circumstances which would otherwise terminate such
Lender's obligation to make such Portion under Section 2.6 hereof would cease
to exist or the increased costs which would otherwise be required to be paid in
respect of such Portion pursuant to Section 2.7 hereof would be materially
reduced, and if, as determined by such Lender, in its sole discretion, the
making, funding or maintaining of such Portion through such other lending
office would not otherwise adversely affect such Portion or such Lender. The
Company hereby agrees to pay all reasonable expenses incurred by each such
Lender in utilizing another lending office pursuant to this Section 2.12.

SECTION 3. FEES, PREPAYMENTS AND TERMINATIONS.

Section 3.1. Facility A Commitment Fee. For the period from and
including the date hereof to but not including the Facility A Termination Date,
the Company shall pay to the Agent for the account of the Lenders a commitment
fee at the rate of one-eighth of one percent (1/8 of 1%) per annum (computed on
the basis of a year of 360 days for the actual number of days elapsed) on the
average daily unused portion of the Facility A Commitments. Such commitment
fee accruing during each calendar quarter shall be payable quarter-annually in
arrears on the 15th day of the immediately following calendar quarter
(commencing July 15, 1996) and on the Facility A Termination Date.

Section 3.2. Facility B Commitments.

(a) Facility B Facility Fee. For the period from and including the date
hereof to but not including the Facility B Termination Date, the Company shall
pay to the Agent for the account of the Lenders a facility fee at the rate of
one-eighth of one percent (1/8 of 1%) per annum (computed on the basis of a
year of 360 days for the actual number of days elapsed) on the Facility B
Commitments to the extent the same have not become Available Facility B
Commitments. Such facility fee accruing during each calendar quarter shall be
payable quarter-annually in arrears on the 15th day of the immediately
following calendar quarter (commencing July 15, 1996) and on the Facility B
Termination Date.

(b) Facility B Commitment Fee. For the period from and including the
Facility B Activation Date to but not including the Facility B Termination
Date, the Company shall pay to the Agent for the account of the Lenders a
commitment fee at the rate of one-eighth of one percent (1/8 of 1%) per annum
(computed on the basis of a year of 360 days for the actual number of days
elapsed) on the daily unused portion of the Available Facility B Commitments.
Such facility fee accruing during each calendar quarter shall be payable
quarter-annually in arrears on the 15th day of the immediately following
calendar quarter (commencing on the first of such dates occurring after the
Facility B Activation Date) and on the Facility B Termination Date.

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<PAGE> 17
Section 3.3. Agent's Fee. On the date hereof, and on the date
occurring on each anniversary of the date hereof when any credit, or commitment
to extend credit, is outstanding hereunder, the Company shall pay to the Agent,
for its own use and benefit, an Agent's fee as mutually agreed upon by the
Company and the Agent.

Section 3.4. Defaulting Lender. Notwithstanding anything herein to
the contrary, any commitment or facility fee accrued with respect to any of the
Commitments of a Defaulting Lender during the period prior to the time such
Lender became a Defaulting Lender and unpaid at such time shall not be payable
by the Company so long as such Lender shall be a Defaulting Lender except to
the extent that such commitment or facility fee shall otherwise have been due
and payable by the Company prior to such time; and provided further that no
commitment or facility fee shall accrue on any of the Commitments of a
Defaulting Lender so long as such Lender shall be a Defaulting Lender.

Section 3.5. Voluntary Prepayments. The Company shall have the
privilege of prepaying the Notes in whole or in part (but if in part, then in a
minimum amount of $100,000 or such greater amount which is an integral multiple
of $100,000 as to any particular class of Notes being prepaid) at any time upon
one (1) Business Day's prior notice to the Agent (such notice if received
subsequent to 11:00 a.m. (Chicago time) on a given day to be treated as though
received at the opening of business on the next Business Day), which shall
promptly so notify the Lenders, by paying to the Agent for the account of the
Lenders the principal amount to be prepaid and (i) if such a prepayment prepays
any particular class of Notes in full, accrued interest thereon to the date of
prepayment, (ii) if such a prepayment prepays the Facility A Notes in full and
is accompanied by the termination in whole of the Facility A Commitments,
accrued interest thereon to the date of prepayment plus any facility or
commitment fee which has accrued on such Commitments and is unpaid, (iii) if
such a prepayment prepays any particular class of Facility B Notes in full and
is accompanied by the termination in whole of the Facility B Commitments,
accrued interest thereon to the date of prepayment plus any facility or
commitment fee which has accrued on such Commitments and is unpaid and (iv) any
amounts due to the Lenders under Section 2.9 hereof.

Section 3.6. Terminations. The Company shall have the right at any
time and from time to time, upon prior notice to the Agent (which shall
promptly so notify the Lenders), effective as of the close of any calendar
quarter specified in such notice ending more than thirty (30) days after the
Agent's receipt of such notice, to ratably terminate without premium or penalty
and in whole or in part (but if in part, then in an aggregate amount not less
than $500,000 or such greater amount which is an integral multiple of $100,000)
the Facility A Commitments or Facility B Commitments (including the Available
Facility B Commitments), provided that (i) the Facility A Commitments may not
be reduced to an amount less than the aggregate principal amount of the
Facility A Loans then outstanding under such Commitments and (ii) the Available
Facility B Commitments (and hence the Facility B Commitments) may not be
reduced to an amount less than the aggregate principal amount of the Facility B
Loans then outstanding under such Commitments. Any termination of Commitments
pursuant to this Section 3.4 may not be reinstated.

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<PAGE> 18
SECTION 4. PAYMENTS, NOTATIONS AND REPLACEMENTS OF LENDERS.

Section 4.1. Place and Application of Payments. All payments of
principal, interest, fees and all other Obligations payable hereunder and under
the other Loan Documents shall be made to the Agent at its office at 111 West
Monroe Street, Chicago, Illinois (or at such other place as the Agent may
specify) on the date any such payment is due and payable. Payments received by
the Agent after 11:00 a.m. (Chicago time) shall be deemed received as of the
opening of business on the next Business Day. All such payments shall be made
in lawful money of the United States of America, in immediately available funds
at the place of payment, without set-off or counterclaim and without reduction
for, and free from, any and all present or future taxes, levies, imposts,
duties, fees, charges, deductions, withholdings, restrictions and conditions of
any nature imposed by any government or any political subdivision or taxing
authority thereof (but excluding any taxes imposed on or measured by the net
income of any Lender). No amount paid or prepaid on the Facility B Term Notes
may be reborrowed, and partial prepayments of the Facility B Term Notes shall
be applied in the inverse order of their maturities. Except as herein
provided, all payments shall be received by the Agent for the ratable account
of the Lenders and shall be promptly distributed by the Agent ratably to the
Lenders. Unless the Company otherwise directs, principal payments on any
particular class of Notes shall be first applied to the Domestic Rate Portion
(if any) of such Notes until payment in full thereof, with any balance applied
to the LIBOR Portions (if any) of such Notes in the order in which their
Interest Periods expire.

Anything contained herein to the contrary notwithstanding, all payments and
collections received in respect of the Obligations, in each instance, by the
Agent or any of the Lenders after the occurrence of an Event of Default shall
be remitted to the Agent and distributed as follows:

(a) first, to the payment of any outstanding costs and expenses
incurred by the Agent in protecting, preserving or enforcing rights under
this Agreement or any of the other Loan Documents, and in any event
including all costs and expenses of a character which the Company has
agreed to pay under Section 11.4 hereof (such funds to be retained by the
Agent for its own account unless it has previously been reimbursed for
such costs and expenses by the Lenders, in which event such amounts shall
be remitted to the Lenders to reimburse them for payments theretofore made
to the Agent);

(b) second, to the payment of any outstanding interest or other fees
or amounts due under this Agreement or any of the other Loan Documents
other than for principal, pro rata as among the Agent and the Lenders
in accord with the amount of such interest and other fees or amounts
owing each;

(c) third, to the payment of the principal of the Notes, pro rata as
among the Lenders in accord with the then respective unpaid principal
balances of the Notes;

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<PAGE> 19
(d) fourth, to the Agent and the Lenders pro rata in accord with the
amounts of any other Obligations owing to them (if any) unless and until
all such Obligations have been fully paid and satisfied; and

(e) fifth, to the Company or to whoever else applicable law shall
require.

Section 4.2. Notations. All Loans made against a Note, the status of all
amounts evidenced by a Note as constituting part of the Domestic Rate Portion
or a LIBOR Portion, and, in the case of any LIBOR Portion, the rates of
interest and Interest Periods applicable to such Portions shall be recorded by
each Lender on its books and records or, at its option in any instance,
endorsed on a schedule to its Note and the unpaid principal balance and status,
rates and Interest Periods so recorded or endorsed by such Lender shall be
prima facie evidence in any court or other proceeding brought to enforce such
Note of the principal amount remaining unpaid thereon, the status of the Loans
evidenced thereby and the interest rates and Interest Periods applicable
thereto; provided that the failure of a Lender to record any of the foregoing
shall not limit or otherwise affect the obligation of the Company to repay the
principal amount of each Note together with accrued interest thereon. Prior to
any negotiation of a Note, a Lender shall record on a schedule thereto the
status of all amounts evidenced thereby as constituting part of the applicable
Domestic Rate Portion or a LIBOR Portion or in the case of the CapEx Term
Notes, a Treasury Rate Portion and, in the case of any LIBOR Portion, the rates
of interest and the Interest Periods applicable thereto. As soon as
practicable, but in no event later than one (1) Business Day after prior
written notice from the Company to each Lender, such Lender shall provide to
the Company a written payoff letter from such Lender setting forth the amount
required to pay the Notes in full as of the date or dates requested by the
Company and any other amounts due by the Company hereunder (with a per diem
amount owing thereafter).

Section 4.3. Replacement of Lender. (a) In the event that (x) the
Company receives from a Lender a certificate requesting an amount be paid to
such Lender under Section 2.7, 2.8 or 2.9 hereof and the Required Lenders have
not similarly made requests for payment arising out of the same circumstances
or (y) the obligation of any Lender to make or maintain any LIBOR Portion has
terminated under Section 2.5 or 2.6 hereof and the obligations of the Required
Lenders to make or maintain LIBOR Portions have not similarly terminated by
reason of the same circumstances or (z) any Lender becomes a Defaulting Lender,
then the Company may request other Lenders hereunder to assume in full the
Commitments then in effect of the Lender requesting such amount be paid or
whose obligations with respect to LIBOR Portions have so terminated or of such
Defaulting Lender, as the case may be (such Lender in each case being herein
referred to as the "Replaceable Lender"), and to purchase the Notes issued to
the Replaceable Lender at a price equal to the outstanding principal amount of
such Notes and the Replaceable Lender's share of any accrued and unpaid
interest on such Notes plus accrued and unpaid commitment fees owed to the
Replaceable Lender, and if any Lender or Lenders in their sole discretion agree
so to assume in full the Commitments of the Replaceable Lender (each an
"Assuming Lender"), and after payment by the Company to the Replaceable Lender
of all amounts due under this Agreement to such Lender (including any amount
specified as due in a certificate submitted under Section 2.7, 2.8 or 2.9
hereof) not so paid by the Assuming Lender, then

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<PAGE> 20
such assumption shall take place in the manner set forth in subsection (b)
below. In the event no Lender or Lenders agrees to assume in full the
Commitments of the Replaceable Lender, then the Company may nominate one or
more Lenders not then party to this Agreement so to assume in full the
Commitments of the Replaceable Lender, and if such nominated Lender or Lenders
are acceptable to the Required Lenders (excluding the Replaceable Lender), such
assumption shall take place in the manner set forth in subsection (b) below and
each such Lender or Lenders shall become a Lender hereunder (each a "New
Lender") and the Replaceable Lender shall no longer be a party hereto or have
any rights hereunder.

(b) In the event a Replaceable Lender's Commitments are to be assumed in
full by an Assuming Lender or a New Lender, then such assumption shall take
place on a date acceptable to the Company, the Replaceable Lender and the
Assuming Lender or New Lender, as the case may be, and such assumption shall
take place through the payment of all amounts due under this Agreement to the
Replaceable Lender and the execution of such instruments and documents as
shall, in the reasonable opinion of the Agent, be reasonably necessary or
appropriate for the Assuming Lender or New Lender to assume in full the
Commitments of the Replaceable Lender (including, without limitation, the
issuance of new Notes and the execution of an amendment hereto making any New
Lender a party hereto). In the event no Assuming Lender or New Lender agrees
to assume in full the Commitments of the Replaceable Lender, then such
Replaceable Lender shall remain a party hereto and its Commitments shall remain
in effect.

(c) The rights and remedies against a Defaulting Lender under this
Agreement, including without limitation this Section 4.3, are in addition to
other rights and remedies that the Company may have against such Defaulting
Lender with respect to any Loan which such Defaulting Lender has not funded,
and that the Agent, or any Lender may have against such Defaulting Lender with
respect to any such Loan.

SECTION 5. DEFINITIONS; INTERPRETATION.

Section 5.1. Definitions. The following terms when used herein shall
have the following meanings:

"Adjusted LIBOR" means a rate per annum determined by the Agent in
accordance with the following formula:

LIBOR
Adjusted LIBOR = ----------------------
100%-Reserve Percentage

"Reserve Percentage" means, for the purpose of computing Adjusted LIBOR, the
maximum rate of all reserve requirements (including, without limitation, any
marginal, emergency, supplemental or other special reserves) imposed by the
Board of Governors of the Federal Reserve System (or any successor) under
Regulation D on Eurocurrency liabilities (as such term is defined in Regulation
D) for the applicable Interest Period as of the first day of such Interest
Period, but subject to any amendments to such reserve requirement by such Board

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<PAGE> 21
or its successor, and taking into account any transitional adjustments thereto
becoming effective during such Interest Period. For purposes of this
definition, LIBOR Portions shall be deemed to be Eurocurrency liabilities as
defined in Regulation D without benefit of or credit for prorations, exemptions
or offsets under Regulation D. "LIBOR" means, for each Interest Period, (a)
the LIBOR Index Rate for such Interest Period, if such rate is available, and
(b) if the LIBOR Index Rate cannot be determined, the arithmetic average of the
rates of interest per annum (rounded upward, if necessary, to the nearest
1/100th of 1%) at which deposits in U.S. Dollars in immediately available funds
are offered to the Agent at 11:00 a.m. (London, England time) two (2) Business
Days before the beginning of such Interest Period by three (3) or more major
banks in the interbank eurodollar market selected by the Agent for a period
equal to such Interest Period and in an amount equal or comparable to the
applicable LIBOR Portion scheduled to be outstanding from the Agent during such
Interest Period. "LIBOR Index Rate" means, for any Interest Period, the rate
per annum (rounded upwards, if necessary, to the next higher one
hundred-thousandth of a percentage point) for deposits in U.S. Dollars for a
period equal to such Interest Period which appears on the Telerate Page 3750 as
of 11:00 a.m. (London, England time) on the date two Business Days before the
commencement of such Interest Period. "Telerate Pge 3750" means the display
designated as "Page 3750" on the Telerate Service (or such other page as may
replace Page 3750 on that service or such other service as may be nominated by
the British Bankers' Association as the information vendor for the purpose of
displaying British Banker's Association Interest Settlement Rates for U.S.
Dollar deposits). Each determination of LIBOR made by the Agent shall be
conclusive and binding on the Company and the Lenders absent manifest error.

"Affiliate" means any Person directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control another Person for the purposes of this
definition if such Person possesses, directly or indirectly, the power to
direct, or cause the direction of, the management and policies of the other
Person, whether through the ownership of voting securities, common directors,
trustees or officers, by contract or otherwise; provided that, in any event for
purposes of this definition, any Person that owns, directly or indirectly, 5%
or more of the securities having the ordinary voting power for the election of
directors or governing body of a corporation or 5% or more of the partnership
or other ownership interests of any other Person (other than as a limited
partner of such other Person) will be deemed to control such corporation or
other Person.

"Agent" means Harris Trust and Savings Bank and any successor thereto
appointed pursuant to Section 10.1 hereof.

"Agreement" means this Credit Agreement, as the same may be amended,
modified or restated from time to time in accordance with the terms hereof.

"Applicable Margin" means the rate specified below, subject to
quarterly adjustment as hereinafter provided:

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<PAGE> 22

When Following Applicable Applicable
Status Exists For Margin Margin
Any Margin For Domestic For LIBOR
Determination Rate Portions Portions
Date Is: Is:

Level I Status 0% 1.00%

Level II Status 0% 0.75%

Level III Status 0% 0.50%

provided, however, that all of the foregoing is subject to the following:

(i) the initial Applicable Margin in effect through the first Margin
Determination Date shall be the Applicable Margin for Level III Status;

(ii) on or before the date that is thirty (30) Business Days after the
date on which the Company has delivered a Compliance Certificate to the
Agent for a given accounting period pursuant to Section 8.5 hereof (such
date that is thirty (30) Business Days after the date on which the Company
delivered a Compliance Certificate to the Agent being herein referred to
as the "Margin Determination Date"), the Agent shall determine whether
Level I Status, Level II Status or Level III Status exists as of the close
of the applicable accounting period, based upon the Compliance Certificate
and financial statements delivered to the Agent under Section 8.5 hereof
for such accounting period, and shall promptly notify the Company and the
Lenders of such determination and of any change in the Applicable Margin
resulting therefrom. Any such change in the Applicable Margin shall be
effective as of such Margin Determination Date, with such new Applicable
Margin to continue in effect until the next Margin Determination Date. If
the Company has not delivered a Compliance Certificate by the date such
Compliance Certificate is required to be delivered under Section 8.5
hereof, until a Compliance Certificate is delivered before the next Margin
Determination Date, the Applicable Margin shall be the Applicable Margin
for Level I Status. If the Company subsequently delivers a Compliance
Certificate before the next Margin Determination Date, the Applicable
Margin established by such Compliance Certificate shall take effect from
the date of delivery until the next Margin Determination Date; and

(iii) if and so long as any Event of Default has occurred and is
continuing hereunder, notwithstanding anything herein to the contrary, the
Applicable Margin shall be the Applicable Margin for Level I Status.

"Authorized Representative" means the President, Chief Executive
Officer, Chief Financial Officer, Senior Vice President-Finance of the Company
and those other persons (if any) shown on the list of officers provided by the
Company pursuant to Section 7.2(a) hereof or on any update of any such list
provided by the Company to the Agent, or any

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<PAGE> 23
further or different officer of the Company so named by the President,
Chief Executive Officer, Chief Financial Officer or Senior Vice
President-Finance of the Company in a written notice to the Agent.

"Available Facility B Commitments" means the portion (if any) of the
Facility B Commitments that have been activated in accordance with the
provisions hereof and hence the aggregate principal amount of Facility B Loans
that at any given time may be borrowed hereunder.

"Business Day" means any day other than a Saturday or Sunday on which
banks are not authorized or required to close in Chicago, Illinois and, when
used with respect to LIBOR Portions, a day on which banks are also dealing in
United States Dollar deposits in London, England and Nassau, Bahamas.

"Capital Lease" means any lease of Property which in accordance with
GAAP is required to be capitalized on the balance sheet of the lessee.

"Capitalized Lease Obligation" means the amount of the liability shown
on the balance sheet of any Person in respect of a Capital Lease determined in
accordance with GAAP.

"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.

"Commitments" means and includes the Facility A Commitments and the
Facility B Commitments, unless the context in which such term is used shall
otherwise require.

"Company" is defined in the introductory paragraph hereof.

"Compliance Certificate" means a certificate furnished to the Agent
pursuant to Section 8.5 hereof in the form of Exhibit D hereto.

"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Company or any of its Subsidiaries, are
treated as a single employer under Section 414 of the Code.

"Default" means any event or condition the occurrence of which would,
with the passage of time or the giving of notice, or both, constitute an Event
of Default.

"Defaulting Lender" shall mean a Lender which has failed to fund as and
when required by the terms and conditions of this Agreement such Lender's
ratable share of any Loan hereunder, if any so long as such failure continues
unremedied.

"Domestic Rate" means, for any day, the greater of (i) the rate of
interest announced by the Agent from time to time as its prime commercial rate,
as in effect on such day; and (ii) the sum of (x) the rate determined by the
Agent to be the average (rounded upwards, if

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<PAGE> 24
necessary, to the next higher 1/100 of 1%) of the rates per annum quoted to the
Agent at approximately 10:00 a.m. (Chicago time) (or as soon thereafter as is
practicable) on such day (or, if such day is not a Business Day, on the
immediately preceding Business Day) by two or more Federal funds brokers
selected by the Agent for the sale to the Agent at face value of Federal funds
in an amount equal or comparable to the principal amount owed to the Agent for
which such rate is being determined, plus (y) 3/8 of 1% (0.375%).

"Domestic Rate Portions" is defined in Section 2.1(a) hereof.

"EBITDA" means, with reference to any period, Net Income for such
period plus all amounts deducted in arriving at such Net Income amount in
respect of (i) Interest Expense for such period, plus (ii) federal, state and
local income taxes for such period, plus (iii) all amounts properly charged for
depreciation of fixed assets and amortization of intangible assets during such
period on the books of the Company and its Subsidiaries.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.

"Event of Default" means any event or condition identified as such in
Section 9.1 hereof.

"Existing Credit Agreement" means the Credit Agreement dated as of
August 2, 1995, among the Company, the banks referred to therein and the Agent,
as agent.

"Facility A Credit" is defined in Section 1.1 hereof.

"Facility A Credit Commitments" means the commitments of the Lenders
to extend credit under the Facility A Credit in the amounts set forth opposite
their signatures hereto under the heading "Facility A Commitment" and opposite
their signatures on Assignment Agreements delivered pursuant to Section 11.9
hereof under the heading "Facility A Commitment", as such amounts may be
reduced pursuant hereto.

"Facility A Loan" is defined in Section 1.1 hereof.

"Facility A Note" is defined in Section 1.1 hereof.

"Facility A Termination Date" means May 31, 1999, or any later date to
which the Facility A Commitments are extended pursuant to Section 11.16 hereof,
or such earlier date on which the Facility A Commitments are terminated in
whole pursuant to Section 3.6, 9.2 or 9.3 hereof.

"Facility B Activation Date" is defined in Section 1.2 hereof.

"Facility B Commitments" means the commitments of the Lenders to make
Facility B Loans in the amounts set forth opposite their signature hereto under
the heading "Facility B Commitment" and opposite their signatures on Assignment
Agreements delivered pursuant

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<PAGE> 25
to Section 11.9 hereof under the heading "Facility B Commitment", as
such amounts may be reduced pursuant hereto.

"Facility B Credit" is defined in Section 1.2 hereof.

"Facility B Loans" is defined in Section 1.2 hereof.

"Facility B Notes" is defined in Section 1.2 hereof.

"Facility B Term Credit" is defined in Section 1.2 hereof.

"Facility B Term Loans" is defined in Section 1.2 hereof.

"Facility B Term Notes" is defined in Section 1.2 hereof.

"Facility B Termination Date" means May 31, 2000, or such earlier date
on which the Facility B Commitments are terminated in whole pursuant to Section
3.6, 9.2 or 9.3 hereof.

"Fixed Charges" means, with reference to any period, the sum (without
duplication) of (i) the aggregate amount of payments required to be made by the
Company and its Subsidiaries within the twelve (12) calendar months following
the close of such period in respect of principal on all Indebtedness for
Borrowed Money (whether at maturity, as a result of mandatory sinking fund
redemption, mandatory prepayment, acceleration or otherwise), plus (ii)
Interest Expense for such period, plus (iii) the aggregate amount of capital
expenditures (as determined and classified in accordance with GAAP) made by the
Company and its Subsidiaries during such period.

"GAAP" means generally accepted accounting principles as in effect from
time to time, applied by the Company and its Subsidiaries on a basis consistent
with the preparation of the Company's most recent financial statements
furnished to the Lenders pursuant to Section 6.5 hereof.

"Indebtedness for Borrowed Money" means for any Person (without
duplication) (i) all indebtedness created, assumed or incurred in any manner by
such Person representing money borrowed (including by the issuance of debt
securities), (ii) all indebtedness for the deferred purchase price of property
or services (other than trade accounts payable arising in the ordinary course
of business which are not more than sixty (60) days past due), (iii) all
indebtedness secured by any Lien upon Property of such Person, whether or not
such Person has assumed or become liable for the payment of such indebtedness,
(iv) all Capitalized Lease Obligations of such Person and (v) all obligations
of such Person on or with respect to letters of credit, bankers' acceptances
and other extensions of credit whether or not representing obligations for
borrowed money.

"Interest Expense" means, with reference to any period, the sum of all
interest charges (including imputed interest charges with respect to
Capitalized Lease Obligations and all

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<PAGE> 26
amortization of debt discount and expense) of the Company
and its Subsidiaries for such period determined in accordance with GAAP.

"Interest Period" means, with respect to any LIBOR Portion, the period
commencing on, as the case may be, the creation, continuation or conversion
date with respect to such LIBOR Portion and ending one (1), two (2), three (3)
or six (6) months thereafter as selected by the Company in its notice as
provided herein; provided that all of the foregoing provisions relating to
Interest Periods are subject to the following:

(i) if any Interest Period would otherwise end on a day
which is not a Business Day, that Interest Period shall be extended to
the next succeeding Business Day, unless in the case of an Interest
Period for a LIBOR Portion the result of such extension would be to
carry such Interest Period into another calendar month in which event
such Interest Period shall end on the immediately preceding Business
Day;

(ii) no Interest Period may extend beyond the final maturity
date of the relevant Notes;

(iii) the interest rate to be applicable to each Portion for
each Interest Period shall apply from and including the first day of
such Interest Period to but excluding the last day thereof; and

(iv) no Interest Period may be selected if after giving effect
thereto the Company will be unable to make a principal payment
scheduled to be made during such Interest Period without paying part of
a LIBOR Portion on a date other than the last day of the Interest
Period applicable thereto.

For purposes of determining an Interest Period, a month means a period starting
on one day in a calendar month and ending on a numerically corresponding day in
the next calendar month, provided, however, if an Interest Period begins on the
last day of a month or if there is no numerically corresponding day in the
month in which an Interest Period is to end, then such Interest Period shall
end on the last Business Day of such month.

"Lender" means Harris Trust and Savings Bank, the other signatories
hereto (other than the Company) and all other lenders becoming parties hereto
pursuant to Section 11.9 hereof.

"Level I Status" means, for any Margin Determination Date, that as of
the close of the accounting period with reference to which such Margin
Determination Date was set, the Leverage Ratio is more than 1.25 to 1.

"Level II Status" means, for any Margin Determination Date, that as of
the close of the accounting period with reference to which such Margin
Determination Date was set, (i) the Company has not attained Level III Status
and (ii) the Leverage Ratio is not more than 1.0 to 1.

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<PAGE> 27
"Level III Status" means, for any Margin Determination Date, that as of
the close of the accounting period with reference to which such Margin
Determination Date was set, the Leverage Ratio is not more than 0.50 to 1.

"Leverage Ratio" means as of any time the same is to be determined, the
ratio of Total Liabilities to Tangible Net Worth.

"LIBOR Portions" is defined in Section 2.1(a) hereof.

"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of
a vendor or lessor under any conditional sale, Capital Lease or other title
retention arrangement.

"Loan Documents" means this Agreement and the Notes.

"Loans" means and includes Facility A Loans, the Facility B Loans and
the Facility B Term Loans, unless the context in which such term is used shall
otherwise require.

"Material Subsidiary" shall mean each Subsidiary other than a
Non-Material Subsidiary.

"Net Income" means, with reference to any period, the net income (or
net loss) of the Company and its Subsidiaries for such period as computed on a
consolidated basis in accordance with GAAP, and, without limiting the
foregoing, after deduction from gross income of all expenses and reserves,
including reserves for all taxes on or measured by income, but excluding any
extraordinary profits or losses and also excluding any taxes on such profits
and any tax credits upon such losses.

"Non-Material Subsidiary" shall mean any Subsidiary (i) the revenues of
which (directly and together with its subsidiaries) for the most recently
completed fiscal year of the Company were less than 2% of the Company's
consolidated revenues for such fiscal year and (ii) the consolidated total
assets of which (directly and together with its subsidiaries) as of the date of
such financial statements were less than 2% of the Company's consolidated total
assets as of such date; provided, however, that each Subsidiary which would
(but for this proviso) constitute a Non-Material Subsidiary with the greatest
revenues shall constitute a Material Subsidiary if (i) the revenues of such
Subsidiary (directly and together with its subsidiaries), when together with
the revenues of Non-Material Subsidiaries (directly and together with their
respective subsidiaries), in each case for the most recently completed fiscal
year of the Company equal or exceed 5% of the Company's consolidated revenues
for such fiscal year or (ii) the consolidated total assets of such Subsidiary
(directly and together with its subsidiaries), when taken together with the
consolidated total assets of the Non-Material Subsidiaries (directly and
together with their respective subsidiaries), in each case as the date of such
financial statements equal or exceed 5% of the Company's consolidated total
assets as of such date.

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<PAGE> 28

"Notes" means and includes the Facility A Notes, the Facility B Notes
and the Facility B Term Notes, unless the context in which such term is used
shall otherwise require.

"Obligations" means all obligations of the Company to pay principal and
interest on the Loans, all fees and charges payable hereunder, and all other
payment obligations of the Company arising under or in relation to any Loan
Document, in each case whether now existing or hereafter arising, due or to
become due, direct or indirect, absolute or contingent, and howsoever
evidenced, held or acquired.

"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.

"Person" means an individual, partnership, corporation, association,
trust, unincorporated organization or any other entity or organization,
including a government or agency or political subdivision thereof.

"Plan" means any employee pension benefit plan covered by Title IV of
ERISA or subject to the minimum funding standards under Section 412 of the Code
that either (i) is maintained by a member of the Controlled Group for employees
of a member of the Controlled Group, or (ii) is maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which a member of the Controlled Group
is then making or accruing an obligation to make contributions or has within
the preceding five plan years made contributions.

"Portion" is defined in Section 2.1(a) hereof.

"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.

"Required Lenders" means, as of the date of determination thereof,
those Lenders holding at least 66-2/3% of the Commitments or, in the event that
no Commitments are outstanding hereunder, holding at least 66-2/3% in aggregate
principal amount of the Loans; provided, however, if at such time (i) any
Lender shall be a Defaulting Lender and (ii) no Default or Event of Default
shall have occurred and be continuing, there shall be excluded from the
determination of Required Lenders (i) the Commitments of such Lender at such
time and (ii) if no Commitments are outstanding at such time, the aggregate
amount of the Loans owing to such Lender (in its capacity as a Lender) and
outstanding at such time.

"SEC" shall mean the Securities and Exchange Commission of the United
States.

"Subsidiary" means any corporation or other Person more than 50% of the
outstanding ordinary voting shares or other equity interests of which is at the
time directly or indirectly owned by the Company, by one or more of its
Subsidiaries, or by the Company and one or more of its Subsidiaries.

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<PAGE> 29
"Tangible Net Worth" means, as of any time the same is to be
determined, the total shareholders' equity (including capital stock, additional
paid-in-capital and retained earnings after deducting treasury stock, but
excluding minority interests in Subsidiaries) which would appear on the balance
sheet of the Company and its Subsidiaries determined on a consolidated basis in
accordance with GAAP, less the sum of (i) all notes receivable from officers
and employees of the Company and its Subsidiaries, (ii) the aggregate book
value of all assets which would be classified as intangible assets under GAAP,
including, without limitation, goodwill, patents, trademarks, trade names,
copyrights, franchises and deferred charges (including, without limitation,
unamortized debt discount and expense, organization costs and deferred research
and development expense) and similar assets and (iii) the write-up of assets
above cost.

"Total Capitalization" means, as of any time the same is to be
determined, the sum of Tangible Net Worth plus Indebtedness for Borrowed Money
of the Company and its Subsidiaries in accordance with GAAP.

"Total Liabilities" means, as of any time the same is to be determined,
the aggregate of all indebtedness, obligations, liabilities, reserves and any
other items which would be listed as a liability on a balance sheet of the
Company and its Subsidiaries determined on a consolidated basis in accordance
with GAAP, and in any event including all indebtedness and liabilities of any
other Person which the Company or any Subsidiary may guarantee or otherwise be
responsible or liable for (other than any liability arising out of the
endorsement of commercial paper for deposit or collection received in the
ordinary course of business or other contingent liabilities not required to be
included under GAAP as liabilities on a balance sheet), all indebtedness and
liabilities secured by any Lien on any Property of the Company or any
Subsidiary, whether or not the same would be classified as a liability on a
balance sheet, the liability of the Company or any Subsidiary in respect of
banker's acceptances and letters of credit, and the aggregate amount of rentals
or other consideration payable by the Company or any Subsidiary in accordance
with GAAP over the remaining unexpired term of all Capital Leases, but
excluding all general contingency reserves and reserves for deferred income
taxes and investment credit.

"Unfunded Vested Liabilities" means, for any Plan at any time, the
amount (if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.

"Voting Stock" of any Person means capital stock of any class or
classes (however designated) having ordinary voting power for the election of
directors or such Person, other than stock having such power only by reason of
the happening of a contingency.

"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of
ERISA.

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<PAGE> 30

"Wholly-Owned Subsidiary" means a Subsidiary of which all of the issued
and outstanding shares of capital stock (other than directors' qualifying
shares as required by law) or other equity interests are owned by the Company
and/or one or more Wholly-Owned Subsidiaries within the meaning of this
definition.

Section 5.2. Interpretation. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The
words "hereof", "herein", and "hereunder" and words of like import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All references to time of day herein
are references to Chicago, Illinois time unless otherwise specifically
provided. Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, it shall be done in accordance with GAAP except where such
principles are inconsistent with the specific provisions of this Agreement.

SECTION 6. REPRESENTATIONS AND WARRANTIES.

The Company represents and warrants to the Agent and the Lenders as
follows:

Section 6.1. Organization and Qualification. The Company is duly
organized, validly existing and in good standing as a corporation under the
laws of the State of Illinois, has full and adequate corporate power to own its
Property and conduct its business as now conducted, and is duly licensed or
qualified and in good standing in each jurisdiction where the failure to be so
licensed or qualified would have a material adverse effect on the financial
condition, Properties, business or operations of the Company and its
Subsidiaries, taken as a whole.

Section 6.2. Subsidiaries. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, as the case may be, has full and adequate power to
own its Property and conduct its business as now conducted, and is duly
licensed or qualified and in good standing in each jurisdiction where the
failure to be so licensed or qualified would have a material adverse effect on
the financial condition, Properties, business or operations of the Company and
its Subsidiaries, taken as a whole. Schedule 6.2 hereto identifies each
Subsidiary, the jurisdiction of its incorporation or organization, as the case
may be, the percentage of issued and outstanding shares of each class of its
capital stock or other equity interests owned by the Company and the
Subsidiaries and, if such percentage is not 100% (excluding directors'
qualifying shares as required by law), a description of each class of its
authorized capital stock and other equity interests and the number of shares of
each class issued and outstanding. All of the outstanding shares of capital
stock and other equity interests of each Subsidiary are validly issued and
outstanding and fully paid and nonassessable and all such shares and other
equity interests indicated on Schedule 6.2 as owned by the Company or a
Subsidiary are owned, beneficially and of record, by the Company or such
Subsidiary free and clear of all Liens. There are no outstanding commitments
or other obligations of any Subsidiary to issue, and

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<PAGE> 31
no options, warrants or other rights of any Person to acquire, any
shares of any class of capital stock or other equity interests of any
Subsidiary.

Section 6.3. Corporate Authority and Validity of Obligations. The
Company has full right and authority to enter into this Agreement and the other
Loan Documents, to make the borrowings herein provided for, to issue its Notes
in evidence thereof and to perform all of its obligations hereunder and under
the other Loan Documents. The Loan Documents delivered by the Company have
been duly authorized, executed and delivered by the Company and constitute
valid and binding obligations of the Company enforceable in accordance with
their terms except as enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors' rights generally and
general principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law) and this
Agreement and the other Loan Documents do not, nor does the performance or
observance by the Company of any of the matters and things herein or therein
provided for, contravene or constitute a default under any provision of law or
any judgment, injunction, order or decree binding upon the Company or any
provision of the charter, articles of incorporation or by-laws of the Company
or any covenant, indenture or agreement of or affecting the Company or any of
its Properties, or result in the creation or imposition of any Lien on any
Property of the Company.

Section 6.4. Use of Proceeds Margin Stock. The Company shall use
the proceeds of the Loans and other extensions of credit made available
hereunder solely for its general working capital purposes and for such other
legal and proper purposes as are consistent with all applicable laws, the
Company's charter, articles of incorporation and by-laws, resolutions of the
Company's board of directors, and the terms of this Agreement. Neither the
Company nor any Subsidiary is engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of any Loan or any other extension of credit made
hereunder will be used to purchase or carry any such margin stock or to extend
credit to others for the purpose of purchasing or carrying any such margin
stock.

Section 6.5. Financial Reports. The consolidated balance sheet of the
Company and its Subsidiaries as at December 31, 1995 and the related
consolidated statements of income, retained earnings and cash flows of the
Company and its Subsidiaries for the fiscal year then ended, and accompanying
notes thereto, which financial statements are accompanied by the audit report
of Arthur Andersen LLP, independent public accountants, and the unaudited
interim consolidated balance sheet of the Company and its Subsidiaries as at
March 31, 1996 and the related consolidated statements of income, retained
earnings and cash flows of the Company and its Subsidiaries for the thirteen
(13) weeks then ended, heretofore furnished to the Lenders, fairly present the
consolidated financial condition of the Company and its Subsidiaries as at said
dates and the consolidated results of their operations and cash flows for the
periods then ended in conformity with generally accepted accounting principles
applied on a consistent basis. Neither the Company nor any Subsidiary has
contingent liabilities which are material to it other than as indicated on such
financial statements or,

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<PAGE> 32
with respect to future periods, on the financial statements furnished
pursuant to Section 8.5 hereof.

Section 6.6. No Material Adverse Change. Since March 31, 1996, there
has been no change in the condition (financial or otherwise) or business
prospects of the Company or any Subsidiary except those occurring in the
ordinary course of business, none of which individually or in the aggregate
have been materially adverse.

Section 6.7. Full Disclosure. The statements and information
furnished to the Lenders in connection with the negotiation of this Agreement
and the other Loan Documents and the commitments by the Lenders to provide all
or part of the financing contemplated hereby do not contain any untrue
statements of a material fact or omit a material fact necessary to make the
material statements contained herein or therein not misleading, the Lenders
acknowledging that as to any projections furnished to Lenders, the Company only
represents that the same were prepared on the basis of information and
estimates the Company believed to be reasonable.

Section 6.8. Good Title. The Company and its Subsidiaries each have
good and defensible title to their assets as reflected on the most recent
consolidated balance sheet of the Company and its Subsidiaries furnished to
the Lenders (except for sales of assets by the Company and its Subsidiaries in
the ordinary course of business), subject to no Liens other than such thereof
as are permitted by Section 8.11 hereof.

Section 6.9. Litigation and Other Controversies. There is no
litigation or governmental proceeding or labor controversy pending, nor to the
knowledge of the Company threatened, against the Company or any Subsidiary
which if adversely determined would (a) impair the validity or enforceability
of, or impair the ability of the Company to perform its obligations under, this
Agreement or any other Loan Document or (b) result in any material adverse
change in the financial condition, Properties, business or operations of the
Company or any Subsidiary.

Section 6.10. Taxes. All United States federal income and all other
material tax returns required to be filed by the Company or any Subsidiary
(except those returns other than United States federal income tax returns, the
failure to file of which could not reasonably be expected to have a material
adverse effect on the financial condition, Properties, business or operations
of the Company and its Subsidiaries, taken as a whole) in any jurisdiction
have, in fact, been filed, and all taxes, assessments, fees and other
governmental charges upon the Company or any Subsidiary or upon any of their
respective Properties, income or franchises, which are shown to be due and
payable in such returns, have been paid. The Company does not know of any
proposed additional tax assessment against it or its Subsidiaries for which
adequate provision in accordance with GAAP has not been made on its accounts.
Adequate provisions in accordance with GAAP for taxes on the books of the
Company and each Subsidiary have been made for all open years, and for its
current fiscal period.

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<PAGE> 33

Section 6.11. Approvals. To the best knowledge of the Company, no
authorization, consent, license, or exemption from, or filing or registration
with, any court or governmental department, agency or instrumentality, nor any
approval or consent of the stockholders of the Company or any other Person, is
or will be necessary to the valid execution, delivery or performance by the
Company of this Agreement or any other Loan Document.

Section 6.12. Affiliate Transactions. Neither the Company nor any
Subsidiary is a party to any material contracts or agreements with any of its
Affiliates (other than with Wholly-Owned Subsidiaries) on terms and conditions
which are less favorable to the Company or such Subsidiary than would be usual
and customary in similar contracts or agreements between Persons not affiliated
with each other.

Section 6.13. Investment Company Public Utility Holding Company.
Neither the Company nor any Subsidiary is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "public utility holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.

Section 6.14. ERISA. The Company and each other member of its
Controlled Group has fulfilled its obligations under the minimum funding
standards of and is in compliance in all material respects with ERISA and the
Code to the extent applicable to it and has not incurred any liability to the
PBGC or a Plan under Title IV of ERISA other than a liability to the PBGC for
premiums under Section 4007 of ERISA. Neither the Company nor any Subsidiary
has any contingent liabilities with respect to any post-retirement benefits
under a Welfare Plan, other than liability for continuation coverage described
in article 6 of Title I of ERISA.

Section 6.15. Compliance with Laws. To the best knowledge of the
Company, the Company and each of its Subsidiaries are in compliance in all
material respects with the requirements of all federal, state and local laws,
rules and regulations applicable to or pertaining to their Properties or
business operations (including, without limitation, the Occupational Safety and
Health Act of 1970, the Americans with Disabilities Act of 1990, and laws and
regulations establishing quality criteria and standards for air, water, land
and toxic or hazardous wastes and substances), non-compliance with which could
have a material adverse effect on the financial condition, Properties, business
or operations of the Company or any Subsidiary, taken as a whole. Neither the
Company nor any Subsidiary has received notice to the effect that its
operations are not in compliance with any of the requirements of applicable
federal, state or local environmental, health and safety statutes and
regulations or are the subject of any governmental investigation evaluating
whether any remedial action is needed to respond to a release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action could have a material adverse effect on the financial
condition, Properties, business or operations of the Company and its
Subsidiaries, taken as a whole.

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Section 6.16. Other Agreements. Neither the Company nor any
Subsidiary is in default under the terms of any covenant, indenture or
agreement of or affecting the Company, any Subsidiary or any of their
Properties, which default if uncured would have a material adverse effect on
the financial condition, Properties, business or operations of the Company and
its Subsidiaries, taken as a whole.

Section 6.17.No Default. No Default or Event of Default has occurred
and is continuing.

SECTION 7. CONDITIONS PRECEDENT.

The obligation of the Lenders to make any Loan under this Agreement is
subject to the following conditions precedent:

Section 7.1. All Advances. As of the time of the making of each
extension of credit (including the initial extension of credit) hereunder:

(a) each of the representations and warranties set forth in
Section 6 hereof and in the other Loan Documents shall be true and
correct as of such time, except to the extent the same expressly relate
to an earlier date

(b) the Company shall be in full compliance with all of the
terms and conditions of this Agreement and of the other Loan Documents,
and no Default or Event of Default shall have occurred and be
continuing or would occur as a result of making such extension of
credit

(c) after giving effect to such extension of credit the
aggregate principal amount of all Facility A Loans outstanding under
this Agreement shall not exceed the Facility A Commitments

(d) after giving effect to such extension of credit the
aggregate principal amount of all Facility B Loans outstanding under
this Agreement shall not exceed the Available Facility B Commitments
and

(e) such extension of credit shall not violate any order,
judgment or decree of any court or other authority or any provision of
law or regulation applicable to the Agent or any Lender (including,
without limitation, Regulation U of the Board of Governors of the
Federal Reserve System) as then in effect.

The Company's request for any Loan shall constitute its warranty as to the
facts specified in subsections (a) through (e), both inclusive, above.

Section 7.2. Initial Advance. At or prior to the making of the
initial extension of credit hereunder, the following conditions precedent shall
also have been satisfied:

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<PAGE> 35

(a) the Agent shall have received the following for the account
of the Lenders (each to be properly executed and completed) and the
same shall have been approved as to form and substance by the Agent:

(i) the Facility A Notes and (if the Facility B Credit
has been activated) the Facility B Notes;

(ii) certified copies of resolutions of the Board of
Directors of the Company authorizing the execution and delivery
of this Agreement and the Notes, indicating the authorized
signers of such documents and all other documents relating
thereto and the specimen signatures of such signers;

(iii) copies of the articles of incorporation and
by-laws of the Company certified by the Secretary or other
appropriate officer of the Company; and

(iv) an incumbency certificate containing the name,
title and genuine signatures of each of the Company's
Authorized Representatives;

(b) the Agent shall have received for itself and for the
Lenders the initial fees called for hereby;

(c) legal matters incident to the execution and delivery of
this Agreement and the other Loan Documents and to the transactions
contemplated hereby shall be reasonably satisfactory to each Lender and
its counsel; and the Agent shall have received for the account of the
Lenders the favorable written opinion of counsel for the Company in
form set forth as Exhibit 7.2(c) hereof;

(d) the Agent shall have received for the account of the
Lenders a good standing certificate for the Company (dated as of the
date no earlier than thirty (30) days prior to the date hereof) from
the office of the secretaries of state of the states of Illinois and
Iowa;

(e) The proceeds of such initial credit shall be used to pay in
full all outstanding "Obligations" under the Existing Credit Agreement
except to the extent such "Obligations" constitute a "LIBOR Portions,"
in which event such "Obligations" shall be deemed Facility A Loans made
by the same Lender hereunder evidenced by the relevant Facility A Notes
issued to such Lender, with interest on each such "LIBOR Portion" to be
due and payable at the end of the "Interest Period" applicable thereto
at the time such "LIBOR Portion" becomes evidenced by the Facility A
Notes and the interest applicable to each such "LIBOR Portion" to
continue at the rate which would otherwise applicable thereto under the
Existing Credit Agreement (except that the "Applicable Margin" under
the Existing Credit Agreement shall be deemed the Applicable Margin
hereunder). The Lenders and the Company agree that concurrently with
such initial credit, the Existing Credit Agreement shall terminate and
all "Obligations" outstanding thereunder (except for such "LIBOR
Portions") shall be due and payable; and

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(f) The Agent shall have received a certificate by the
President, Chief Executive Officer, Chief Financial Officer or Senior
Vice President-Finance of the Company, stating that on the date of such
initial extension of credit no Default or Event of Default has occurred
and is continuing.

SECTION 8. COVENANTS.

The Company agrees that, so long as any credit is available to or in
use by the Company hereunder, except to the extent compliance in any case or
cases is waived in writing by the Required Lenders:

Section 8.1. Maintenance of Business. The Company shall, and shall
cause each Subsidiary to, preserve and maintain its existence provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the corporate existence of any Non-Material Subsidiary if
continuance of such Non-Material Subsidiary is desirable in the conduct of the
Company's business or the business of any Subsidiary and such discontinuance
not disadvantageous in any material respect to the Lenders. The Company shall,
and shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits and franchises necessary to the proper conduct of its
business provided, however, that the Company shall not be required to preserve
any such right or franchise if the preservation thereof is no longer desirable
in the conduct of the business of the Company or any Subsidiary and the loss
thereof is not disadvantageous in any material respect to the Lenders.

Section 8.2. Maintenance of Properties. The Company shall maintain,
preserve and keep its property, plant and equipment in good repair, working
order and condition (ordinary wear and tear excepted) and shall from time to
time in Company's reasonable business judgment make all needful and proper
repairs, renewals, replacements, additions and betterments thereto so that at
all times the efficiency thereof shall be fully preserved and maintained, and
shall cause each Subsidiary to do so in respect of Property owned or used by
it.

Section 8.3. Taxes and Assessments. The Company shall duly pay and
discharge, and shall cause each Subsidiary to duly pay and discharge, all
taxes, rates, assessments, fees and governmental charges upon or against it or
its Properties, in each case before the same become delinquent and before
penalties accrue thereon, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings which prevent
enforcement of the matter under contest and adequate reserves are provided
therefor.

Section 8.4. Insurance. The Company shall insure and keep insured,
and shall cause each Subsidiary to insure and keep insured, with good and
responsible insurance companies, all insurable Property owned by it which is of
a character usually insured by Persons similarly situated and operating like
Properties against loss or damage from such hazards and risks, and in such
amounts, as are insured by Persons similarly situated and operating like
Properties and the Company shall insure, and shall cause each Subsidiary to
insure, such other hazards and risks (including employers' and public liability
risks) with good and responsible insurance companies as and to the extent
usually insured by Persons similarly

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<PAGE> 37
situated and conducting similar businesses. The Company shall upon
request furnish to the Agent and any Lender a certificate setting forth in
summary form the nature and extent of the insurance maintained pursuant to this
Section.

Section 8.5. Financial Reports. The Company shall, and shall cause
each Subsidiary to, maintain a standard system of accounting in accordance with
GAAP and shall furnish to the Agent, each Lender and each of their duly
authorized representatives such information respecting the business and
financial condition of the Company and its Subsidiaries as the Agent or such
Lender may reasonably request; and without any request, shall furnish to the
Lenders:

(a) as soon as available, and in any event within forty-five (45)
days after the close of each quarterly accounting period of the
Company, a copy of the consolidated and consolidating balance sheet of the
Company and its Subsidiaries as of the last day of such period and the
consolidated and consolidating statements of income, retained earnings and
cash flows of the Company and its Subsidiaries for such quarter and for
the fiscal year-to-date period then ended, each in reasonable detail
showing in comparative form the figures for the corresponding date and
period in the previous fiscal year, prepared by the Company in accordance
with GAAP and certified to by the President, Chief Executive Officer,
Chief Financial Officer or Senior Vice President-Finance of the Company;

(b) within forty-five (45) days after the end of each of the first
three quarterly fiscal periods of the Company, a copy of the Company's
Form 10-Q Report filed with the SEC;

(c) within ninety (90) days after the end of each fiscal year of
the Company, a copy of the Company's Form 10-K Report filed with the SEC,
including a copy of the audited financial statements of the Company and
the Subsidiaries for such year with the accompanying report of independent
public accountants;

(d) as soon as available, and in any event within
ninety (90) days after the close of each annual accounting period of the
Company, to the extent not contained in the Company's Form 10-K Report
filed with the SEC for such year, a copy of the consolidated balance sheet
of the Company and its Subsidiaries as of the last day of the period then
ended and the consolidated statements of income, retained earnings and
cash flows of the Company and its Subsidiaries for the period then ended,
and accompanying notes thereto, each in reasonable detail showing in
comparative form the figures for the previous fiscal year, accompanied by
the opinion thereon of Arthur Andersen & Company or another firm of
independent public accountants of recognized national standing, selected
by the Company and satisfactory to the Required Lenders, to the effect
that such consolidated financial statements have been prepared in
conformity with GAAP and present fairly the consolidated financial
condition of the Company and its Subsidiaries as of the close of such
fiscal year and the results of their operations and cash flows for the
fiscal year then ended and that the audit of such financial statements was
made in accordance with generally accepted

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auditing standards and, accordingly, such audit provided a
reasonable basis for their opinion;

(e) within the period provided in subsection (d) above,
the written statement of the accountants who certified the
audit report thereby required that in connection with their audit,
nothing comes to their attention that causes them to believe that the
Company was not in compliance with the terms, covenants, conditions or
provisions of this Agreement insofar as they relate to accounting
matters;

(f) promptly after receipt thereof, any additional management
letters or other information similar in scope given to it by
its independent public accountants;

(g) as soon as available, and in any event within ninety (90)
days after the end of each fiscal year of the Company, a copy
of the Company's consolidated and consolidating business plan for the
following fiscal year, such business plan to show the Company's
projected consolidated and consolidating revenues, expenses, and
balance sheet on an annual basis, such business plan to be in
reasonable detail prepared by the Company and in form reasonably
satisfactory to the Required Lenders;

(h) promptly after the sending or filing thereof, copies of all
proxy statements, financial statements and reports which the
Company sends to its shareholders, and copies of all other regular,
periodic and special reports and all registration statements which the
Company files with the SEC or any successor thereto, or with any
national securities exchange; and

(i) promptly after knowledge thereof shall have come to the
attention of any responsible officer of the Company, written
notice of any threatened or pending material litigation or
governmental proceeding or labor controversy against the Company or
any Subsidiary which, if adversely determined, would adversely effect
the financial condition, Properties, business or operations of the
Company and its Subsidiaries, taken as a whole, or of the occurrence
of any Default or Event of Default hereunder.

Each of the financial statements furnished to the Lenders pursuant to
subsection (c) of this Section 8.5, and each of the financial statements
furnished to the Lenders for any fiscal quarter of the Company pursuant to
subsection (b) of this Section 8.5, shall be accompanied by a written
certificate in the form attached hereto as Exhibit D signed by the President,
Chief Executive Officer, Chief Financial Officer or Senior Vice
President-Finance of the Company to the effect that to the best of such
officer's knowledge and belief no Default or Event of Default has occurred
during the period covered by such statements or, if any such Default or Event
of Default has occurred during such period, setting forth a description of such
Default or Event of Default and specifying the action, if any, taken by the
Company to remedy the same. Such certificate shall also set forth the
calculations supporting such statements in respect of Sections 8.7, 8.8 and 8.9
of this Agreement.

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Section 8.6. Inspection. The Company shall, and shall cause each
Subsidiary to, permit the Agent, each Lender and each of their duly authorized
representatives and agents to visit and inspect any of the Properties,
corporate books and financial records of the Company and each Subsidiary, to
examine and make copies of the books of accounts and other financial records of
the Company and each Subsidiary, and to discuss the affairs, finances and
accounts of the Company and each Subsidiary with, and to be advised as to the
same by, its officers, employees and independent public accountants (and by
this provision the Company hereby authorizes such accountants to discuss with
the Agent and such Lenders the finances and affairs of the Company and of each
Subsidiary) at such reasonable times and reasonable intervals as the Agent or
any such Lender may designate.

Section 8.7. Modified Leverage Ratio. The Company will at all times
maintain a ratio of Indebtedness for Borrowed Money to Total Capitalization, in
each case on a consolidated basis for the Company and its Subsidiaries, of not
more than 0.40 to 1.

Section 8.8. Debt Service Coverage Ratio. The Company will, as of
the close of each fiscal quarter of the Company, maintain the ratio of
Indebtedness for Borrowed Money of the Company and its Subsidiaries as of such
close to EBITDA for the four fiscal quarters then ended at not more than 1.00
to 1.

Section 8.9. Fixed Charge Coverage Ratio. Beginning with the quarter
ending on September 30, 1996, the Company will, as of the close of each fiscal
quarter of the Company, maintain the ratio (the "Fixed Charge Coverage Ratio")
of EBITDA for the four fiscal quarters then ended to Fixed Charges for the same
four fiscal quarters then ended (provided that the Fixed Charge Coverage Ratio
shall be computed as of September 30, 1996 for the period of three quarters
then ended) of not less than 1.25 to 1.

Section 8.10. Indebtedness for Borrowed Money. The Company shall
not, nor shall it permit any Subsidiary to, issue, incur, assume, create or
have outstanding any Indebtedness for Borrowed Money provided, however, that
the foregoing shall not restrict nor operate to prevent:

(a) the Obligations of the Company owing to the Agent and the
Lenders hereunder

(b) purchase money indebtedness and Capitalized Lease Obligations
secured by Liens permitted by Section 8.11 hereof in an aggregate amount
not to exceed $10,000,000 at any one time outstanding

(c) obligations of the Company aggregating not more than $1,528,000
in respect of (i) the City of Cedar Rapids, Iowa Industrial Development
Revenue Bonds (E & S Electrical Contractors, Inc. Project), Series 1981
and (ii) the City of Cedar Rapids, Iowa Industrial Development Revenue
Bonds (TLS Co. Project), Series 1981

(d) indebtedness of Subsidiaries acquired in compliance with Section
8.12(h) hereof, and indebtedness assumed by the Company or any Subsidiary
of a Person

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whose assets were acquired in compliance with such Section 8.12(h), in
each case existing at the time of such acquisition and not created in
contemplation of such acquisition and aggregating not more than $1,000,000
at any one time outstanding; and

(e) intercompany loans and advances permitted by Section 8.12
hereof; and

(f) other indebtedness not otherwise permitted by this Section
aggregating not more than $100,000 at any one time outstanding.

Section 8.11. Liens. The Company shall not, nor shall it permit any
Subsidiary to, create, incur or permit to exist any Lien of any kind on any
Property owned by the Company or any Subsidiary; provided, however, that the
foregoing shall not apply to nor operate to prevent:

(a) Liens arising by statute in connection with worker's
compensation, unemployment insurance, old age benefits, social security
obligations, taxes, assessments, statutory obligations or other similar
charges, good faith cash deposits in connection with tenders, contracts or
leases to which the Company or any Subsidiary is a party or other cash
deposits required to be made in the ordinary course of business, provided
in each case that the obligation is not for borrowed money and that the
obligation secured is not overdue or, if overdue, is being contested in
good faith by appropriate proceedings which prevent enforcement of the
matter under contest and adequate reserves have been established therefor;

(b) mechanics', workmen's, materialmen's, landlords', carriers', or
other similar Liens arising in the ordinary course of business with
respect to obligations which are not due or which are being contested in
good faith by appropriate proceedings which prevent enforcement of the
matter under contest;

(c) the pledge of assets for the purpose of securing an appeal,
stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries
secured by a pledge of assets permitted under this subsection, including
interest and penalties thereon, if any, shall not be in excess of $100,000
at any one time outstanding;

(d) Liens on property of the Company or any of its Subsidiaries
created solely for the purpose of securing indebtedness permitted by
Section 8.10(b) hereof, representing or incurred to finance, refinance or
refund the purchase price of Property, provided that no such Lien shall
extend to or cover other Property of the Company or such Subsidiary other
than the respective Property so acquired, and the principal amount of
indebtedness secured by any such Lien shall at no time exceed the original
purchase price of such Property;

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(e) Liens on the Company's buildings and related fixtures at the
so-called Cedar Rapids Ground Transportation Center in Cedar Rapids, Iowa
securing the indebtedness permitted by Sections 8.10(c) hereof; and

(f) Liens set forth on Schedule 8.11 hereof.

Section 8.12. Investments, Acquisitions, Loans, Advances and
Guaranties. The Company shall not, nor shall it permit any Subsidiary
to, directly or indirectly, make, retain or have outstanding any investments
(whether through purchase of stock or obligations or otherwise) in, or loans or
advances (other than for travel advances and other similar cash advances made
to employees in the ordinary course of business) to, any other Person, or
acquire all or any substantial part of the assets or business of any other
Person or division thereof, or be or become liable as endorser, guarantor,
surety or otherwise for any debt, obligation or undertaking of any other
Person, or otherwise agree to provide funds for payment of the obligations of
another, or supply funds thereto or invest therein or otherwise assure a
creditor of another against loss, or apply for or become liable to the issuer
of a letter of credit which supports an obligation of another, or subordinate
any claim or demand it may have to the claim or demand of any other Person;
provided, however, that the foregoing shall not apply to nor operate to
prevent:

(a) investments in direct obligations of the United States of
America or of any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America, provided that any such obligations shall mature within one year
of the date of issuance thereof;

(b) investments in commercial paper rated at least P-1 by Moody's
Investors Services, Inc. and at least A-1 by Standard & Poor's
Corporation maturing within 270 days of the date of issuance thereof;

(c) investments in certificates of deposit issued by any United
States commercial bank having capital and surplus of not less than
$100,000,000 which have a maturity of one year or less;

(d) endorsement of items for deposit or collection of commercial
paper received in the ordinary course of business;

(e) loans by the Company to, or other investments by the Company in,
any one or more Subsidiaries in the ordinary course of the Company's
business aggregating not more than $2,000,000 at any one time outstanding;

(f) loans by any one or more Subsidiaries to the Company in the
ordinary course of such Subsidiaries' business aggregating not more than
$500,000 at any one time outstanding;

(g) loans by any one or more Subsidiaries to, or other investments
by any one or more Subsidiaries in, any one or more other Subsidiaries in
the ordinary

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course of such lending or investing Subsidiaries' business aggregating
not more than $500,000 at any one time outstanding;

(h) acquisitions of all or substantially all of the assets or
business of any other Person engaged in the same or similar business as
the Company or division of such a Person, or of all or substantially all
of the assets or Voting Stock of such a Person, so long as (i) no Default
or Event of Default exists or would exist after giving effect to such
acquisition, (ii) the Board of Directors or other governing body of such
Person whose assets or Voting Stock is being so acquired has approved the
terms of such acquisition, (iii) the Company shall have delivered to the
Lenders an updated Schedule 6.2 to reflect any new Subsidiary resulting
from such acquisition, (iv) the aggregate amount expended by the Company
and its Subsidiaries as consideration for such acquisition (and in any
event (1) including as such consideration, any Indebtedness for Borrowed
Money assumed or incurred as a result of such acquisition and (2)
excluding as such consideration, any equity securities issued by the
Company as consideration for such acquisition), when taken together with
the aggregate amount expended on a cumulative basis after the date hereof
as consideration (again, similarly including Indebtedness for Borrowed
Money assumed or incurred and excluding equity securities issued) for all
other acquisitions permitted under this Section 8.12(h) does not aggregate
more than $25,000,000, (v) the Company can demonstrate that on a pro forma
basis (including financial projections for the twelve months following the
subject acquisition) after giving effect to the subject acquisition it
will continue to comply with all the terms and conditions of the Loan
Documents, and (vi) the Company has provided to the Lenders financial
statements of the Person whose assets or Voting Stock is being so
acquired, including historical financial statements, and a description of
such Person and its business;

(i) investments, loans, advances and guaranties not otherwise
permitted by this Section aggregating not more than $100,000 at any one
time outstanding.

In determining the amount of investments, acquisitions, loans,
advances and guarantees permitted under this Section 8.12, investments and
acquisitions shall always be taken at the original cost thereof
(regardless of any subsequent appreciation or depreciation therein), loans
and advances shall be taken at the principal amount thereof then remaining
unpaid, and guarantees shall be taken at the amount of obligations
guaranteed thereby.

Section 8.13. Mergers, Consolidations and Sales. The Company shall
not, nor shall it permit any Subsidiary to, be a party to any merger or
consolidation, or sell, transfer, lease or otherwise dispose of all or any
substantial part of its Property, including any disposition of Property as part
of a sale and leaseback transaction, or in any event sell or discount (with or
without recourse) any of its notes or accounts receivable; provided, however,
that:

(a) any Subsidiary (including any corporation which immediately
after giving effect to an acquisition permitted by Section 8.12(h)
hereof becomes a Subsidiary, but in any event excluding any foreign
Subsidiary) may merge or consolidate with or into the Company or any
Wholly-Owned Subsidiary; provided that

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in any merger or consolidation involving the Company, the Company shall
be the surviving or continuing corporation, or, in the case of a merger or
consolidation of a Subsidiary and a Wholly-Owned Subsidiary, the
Wholly-Owned Subsidiary shall be the continuing or surviving corporation
and

(b) the Company and each Subsidiary may sell its inventory in the
ordinary course of its business.

A sale or disposition of five percent (5%) of the total assets of the Company
shall be deemed substantial for the foregoing purposes.

Section 8.14. Operating Leases. The Company will not, and will not
permit any of their respective Subsidiaries to, acquire the use or possession
of any Property under a lease or similar arrangement, whether or not the
Company or any such Subsidiary has the express or implied right to acquire
title to or purchase such Property at any time if, after giving effect thereto,
the aggregate amount of fixed rentals and other consideration payable by the
Company and its Subsidiaries under all such leases or arrangements would exceed
$10,000,000 during any fiscal year of the Company. Capital Leases shall not be
included in computing compliance with this Section to the extent the Company's
and its Subsidiaries' liability in respect of the same is permitted by Section
8.10(b) hereof.

Section 8.15. Maintenance of Subsidiaries. The Company shall not
assign, sell or transfer, or permit any Subsidiary to issue, assign, sell or
transfer, any shares of capital stock of a Subsidiary provided that the
foregoing shall not operate to prevent the issuance, sale and transfer to any
person of any shares of capital stock of a Subsidiary solely for the purpose of
qualifying, and to the extent legally necessary to qualify, such person as a
director of such Subsidiary.

Section 8.16. Dividends and Certain Other Restricted Payments. The
Company will not during any fiscal year (a) declare or pay any dividends on or
make any other distributions in respect of any class or series of its capital
stock (other than dividends payable solely in its capital stock) or (b)
directly or indirectly purchase, redeem or otherwise acquire or retire any of
its capital stock (such non-excepted dividends, distributions, purchases,
redemptions, acquisitions and retirements being hereinafter collectively called
"Restricted Payments") provided, however, that the foregoing shall not apply
to or operate to prevent any Restricted Payments made in any fiscal year of the
Company if and to the extent that (i) at the time such Restricted Payment is
made and after giving effect thereto, (i) no Default or Event of Default shall
occur or be continuing and (ii) the aggregate amount of all Restricted Payments
made during such fiscal year does not exceed twenty-five percent (25%) of the
Company's Net Income for such fiscal year to date.

Section 8.17. ERISA. The Company shall, and shall cause each
Subsidiary to, promptly pay and discharge in all material respects all
obligations and liabilities arising under ERISA of a character which if unpaid
or unperformed might result in the imposition of a Lien against any of its
Properties. The Company shall, and shall cause each Subsidiary to, promptly
notify the Agent and each Lender of (i) the occurrence of any material

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reportable event (as defined in ERISA) with respect to a Plan, (ii) receipt of
any notice from the PBGC of its intention to seek termination of any Plan or
appointment of a trustee therefor, (iii) its intention to terminate or withdraw
from any Plan, and (iv) the occurrence of any event with respect to any Plan
which would result in the incurrence by the Company or any Subsidiary of any
material liability, fine or penalty, or any material increase in the contingent
liability of the Company or any Subsidiary with respect to any post-retirement
Welfare Plan benefit.

Section 8.18. Compliance with Laws. The Company shall, and shall
cause each Subsidiary to, comply in all material respects with the
requirements of all material federal, state and local laws, rules, regulations,
ordinances and orders applicable to or pertaining to their Properties or
business operations, non-compliance with which could have a material adverse
effect on the financial condition, Properties, business or operations of the
Company and its Subsidiaries, taken as a whole, or could result in a Lien upon
any of their Property.

Section 8.19. Burdensome Contracts With Affiliates. The Company
shall not, nor shall it permit any Subsidiary to, enter into any contract,
agreement or business arrangement with any of its Affiliates (other than with
Wholly-Owned Subsidiaries) on terms and conditions which are less favorable to
the Company or such Subsidiary than would be usual and customary in similar
contracts, agreements or business arrangements between Persons not affiliated
with each other.

Section 8.20. No Changes in Fiscal Year. Neither the Company nor any
Subsidiary shall change its fiscal year from its present basis without the
prior written consent of the Required Lenders.

Section 8.21. Change in the Nature of Business. The Company shall
not, and shall not permit any Subsidiary to, engage in any business or activity
if as a result the general nature of the business of the Company or any
Subsidiary would be changed in any material respect from the general nature of
the business engaged in by the Company or such Subsidiary on the date of this
Agreement.

Section 8.22. New Subsidiaries. No later than 30 days after the
close of each calendar quarter, the Company shall notify the Lenders in writing
of its formation or acquisition within such calendar quarter of each Subsidiary
not already appropriately reflected on Schedule 6.2 hereto. Such notice shall
include the name, jurisdiction of incorporation and percentage of the Company's
ownership of such Subsidiary, and Schedule 6.2 hereto shall be deemed amended
to include such information for each Subsidiary as to which the Lenders receive
such notice. The notice required by this Section shall be in addition to
whatever other notice of such Subsidiaries is required by Section 7.1(a) of
this Agreement.

SECTION 9. EVENTS OF DEFAULT AND REMEDIES.

Section 9.1. Events of Default. Any one or more of the following
shall constitute an "Event of Default" hereunder:

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(a) default in the payment when due of all or any part of the
principal of or interest on any Note (whether at the stated maturity
thereof or at any other time provided for in this Agreement) which
continues unremedied for three (3) days' or more after written notice from
the Agent or default in the payment when due of any fee or other
Obligation payable by the Company hereunder or under any other Loan
Document which continues unremedied for seven (7) days' or more after
written notice from the Agent; or

(b) default in the observance or performance of any covenant set
forth in Sections 8.10, 8.11, 8.12, 8.13, 8.15 or 8.16 hereof; or

(c) default in the observance or performance of any covenant set
forth in Sections 8.7, 8.8 or 8.9 hereof which continues unremedied for
ten (10) days or more after the earlier of (i) the date on which any
Authorized Representative of the Company has actual knowledge that the
event or condition giving rise to such default actually constitutes a
default under this Agreement or (ii) written notice of such default is
given to the Company by the Agent or any Lender; or

(d) default in the observance or performance of any other provision
hereof or of any other Loan Document which is not remedied within thirty
(30) days after the earlier of (i) the date on which any Authorized
Representative of the Company has actual knowledge that the event or
condition giving rise to such default actually constitutes a default under
a Loan Document or (ii) written notice of such default is given to the
Company by the Agent or any Lender; or

(e) any representation or warranty made by the Company herein or
in any other Loan Document, or in any statement or certificate
furnished by it pursuant hereto or thereto, or in connection with any
extension of credit made hereunder, proves untrue in any material respect
as of the date of the issuance or making thereof; or

(f) default shall occur under Indebtedness for Borrowed Money of
$500,000 or more (individually or in the aggregate) issued, assumed or
guaranteed by the Company or any Subsidiary, or under any indenture,
agreement or other instrument under which the same may be issued, and such
default shall continue for a period of time sufficient to permit the
acceleration of the maturity of any such Indebtedness for Borrowed Money
(whether or not such maturity is in fact accelerated), or Indebtedness for
Borrowed Money of $500,000 or more (individually or in the aggregate)
shall not be paid when due (whether by lapse of time, acceleration or
otherwise); or

(g) any judgment or judgments, writ or writs, or warrant or
warrants of attachment, or any similar process or processes in an
aggregate amount in excess of $500,000 shall be entered or filed against
the Company or any Subsidiary or against any of their Property and which
remains unvacated, unbonded, unstayed or unsatisfied for a period of
thirty (30) days; or

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<PAGE> 46

(h) the Company or any member of its Controlled Group shall fail
to pay when due an amount or amounts aggregating in excess $500,000
which it shall have become liable to pay to the PBGC or to a Plan under
Title IV of ERISA; or notice of intent to terminate a Plan or Plans having
aggregate Unfunded Vested Liabilities in excess of $500,000 (collectively,
a "Material Plan") shall be filed under Title IV of ERISA by the Company
or any other member of its Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate or to cause a trustee to be appointed
to administer any Material Plan or a proceeding shall be instituted by a
fiduciary of any Material Plan against the Company or any member of its
Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA and such
proceeding shall not have been dismissed within thirty (30) days
thereafter; or a condition shall exist by reason of which the PBGC would
be entitled to obtain a decree adjudicating that any Material Plan must be
terminated; or

(i) dissolution or termination of the existence of the Company or
any Subsidiary (except for the dissolution of any Non-Material
Subsidiary permitted by Section 8.1 hereof); or

(j) thirty (30) days' shall have elapsed after the Company has
received written notice from the Agent that there has occurred any
material adverse change in the condition (financial or otherwise) or
business prospects of the Company and its Subsidiaries, taken as a whole,
which is not remedied in such period; or

(k) the Company or any Material Subsidiary shall (i) have entered
involuntarily against it an order for relief under the United States
Bankruptcy Code, as amended, (ii) not pay, or admit in writing its
inability to pay, its debts generally as they become due, (iii) make an
assignment for the benefit of creditors, (iv) apply for, seek, consent to,
or acquiesce in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any substantial part of
its Property, (v) institute any proceeding seeking to have entered against
it an order for relief under the United States Bankruptcy Code, as
amended, to adjudicate it insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, adjustment or composition of it
or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed
against it, (vi) take any corporate action in furtherance of any matter
described in parts (i) through (v) above, or (vii) fail to contest in good
faith any appointment or proceeding described in Section 9.1(l) hereof; or

(l) a custodian, receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Company or any Material Subsidiary
or any substantial part of any of their Property, or a proceeding
described in Section 9.1(k)(v) shall be instituted against the Company or
any Material Subsidiary, and such appointment continues undischarged or
such proceeding continues undismissed or unstayed for a period of sixty
(60) days.

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<PAGE> 47

Section 9.2. Non-Bankruptcy Defaults. When any Event of Default
described in subsection (a) through (j), both inclusive, of Section 9.1 has
occurred and is continuing, the Agent shall, upon the request of the Required
Lenders, by notice to the Company, take one or more of the following actions:

(a) terminate the obligations of the Lenders to extend any further
credit hereunder on the date (which may be the date thereof) stated in
such notice;

(b) declare the principal of and the accrued interest on the Notes
to be forthwith due and payable and thereupon the Notes, including both
principal and interest and all fees, charges and other Obligations payable
hereunder and under the other Loan Documents, shall be and become
immediately due and payable without further demand, presentment, protest
or notice of any kind; and

Section 9.3. Bankruptcy Defaults. When any Event of Default described
in subsection (k) or (l) of Section 9.1 has occurred and is continuing, then
the Notes, including both principal and interest, and all fees, charges and
other Obligations payable hereunder and under the other Loan Documents, shall
immediately become due and payable without presentment, demand, protest or
notice of any kind, and the obligations of the Lenders to extend further credit
pursuant to any of the terms hereof shall immediately terminate. In addition,
the Agent may exercise any and all remedies available to it under the Loan
Documents or applicable law.

SECTION 10. THE AGENT.

Section 10.1. Appointment and Authorization. Each Lender hereby
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers hereunder and under the other Loan Documents as are
designated to the Agent by the terms hereof and thereof together with such
powers as are reasonably incidental thereto. The Lenders expressly agree that
the Agent is not acting as a fiduciary of the Lenders in respect of the Loan
Documents, the Company or otherwise, and nothing herein or in any of the other
Loan Documents shall result in any duties or obligations on the Agent or any of
the Lenders except as expressly set forth herein. The Agent may resign at any
time by sending twenty (20) days prior written notice to the Company and the
Lenders and may be removed by the Required Lenders upon twenty (20) days prior
written notice to the Company, the Agent and the Lenders. In the event of any
such resignation or removal the Required Lenders may appoint a new agent after
consultation with the Company, which shall succeed to all the rights, powers
and duties of the Agent hereunder and under the other Loan Documents. Any
resigning or removed Agent shall be entitled to the benefit of all the
protective provisions hereof with respect to its acts as an agent hereunder,
but no successor Agent shall in any event be liable or responsible for any
actions of its predecessor. If the Agent resigns or is removed and no
successor is appointed, the rights and obligations of such

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<PAGE> 48

Agent shall be automatically assumed by the Required Lenders and the
Company shall be directed to make all payments due each Lender hereunder
directly to such Lender.

Section 10.2. Rights as a Lender. The Agent has and reserves all of
the rights, powers and duties hereunder and under the other Loan Documents as
any Lender may have and may exercise the same as though it were not the Agent
and the terms "Lender" or "Lenders" as used herein and in all of such documents
shall, unless the context otherwise expressly indicates, include the Agent in
its individual capacity as a Lender.

Section 10.3. Standard of Care. The Lenders acknowledge that they
have received and approved copies of the Loan Documents and such other
information and documents concerning the transactions contemplated and financed
hereby as they have requested to receive and/or review. The Agent makes no
representations or warranties of any kind or character to the Lenders with
respect to the validity, enforceability, genuineness, perfection, value, worth
or collectibility hereof or of the Notes or any of the other Obligations or of
any of the other Loan Documents or of any other documents called for hereby or
thereby. Neither the Agent nor any director, officer, employee, agent or
representative thereof shall in any event be liable for action taken or omitted
to be taken by it or them hereunder or under the other Loan Documents or in
connection herewith or therewith except for its or their own gross negligence
or willful misconduct. The Agent shall incur no liability under or in respect
of this Agreement or the other Loan Documents by acting upon any notice,
certificate, warranty, instruction or statement (oral or written) of anyone
(including anyone reasonably believed by it to be authorized to act on behalf
of the Company), unless it has actual knowledge of the untruthfulness of same.
The Agent may execute any of its duties hereunder by or through employees,
agents, and attorneys-in-fact and shall not be answerable to the Lenders for
the default or misconduct of any such agents or attorneys-in-fact selected with
reasonable care. The Agent shall be entitled to advice of counsel concerning
all matters pertaining to the agencies hereby created and its duties hereunder,
and shall incur no liability to anyone and be fully protected in acting upon
the advice of such counsel. The Agent shall be entitled to assume that no
Default or Event of Default exists unless notified to the contrary by a Lender
or the Company. The Agent shall in all events be fully protected in acting or
failing to act in accord with the instructins of the Required Lenders. Upon
the occurrence of an Event of Default hereunder, the Agent shall take such
action with respect to the enforcement of the Obligations as it shall be
directed to take by the Required Lenders but unless and until the Required
Lenders have given such direction the Agent shall take or refrain from taking
such actions as it deems appropriate and in the best of interest of all
Lenders. The Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
the Agent by reason of taking or continuing to take any such action. The Agent
may treat the owner of any Note as the holder thereof until written notice of
transfer shall have been filed with the Agent signed by such owner in form
satisfactory to the Agent. Each Lender acknowledges that it has independently
and without reliance on the Agent or any other Lender and based upon such
information, investigations and inquiries as it deems appropriate made its own
credit analysis and decision to extend credit to the Company. It shall be the
responsibility of each Lender to keep itself informed as to the
creditworthiness of the Company and the Agent shall have

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<PAGE> 49
no liability to any Lender with respect thereto; provided, however,
that the Agent shall, at its own expense, provide to each Lender (in addition
to such other information as the Loan Documents expressly require the Agent
furnish to the Lenders) a copy of each communication which the Agent shall
receive from the Company notifying the Agent of or discussing any Default or
Event of Default to occur or which has occurred, promptly following the Agent's
receipt thereof unless the Agent reasonably believes such communication has
already been sent to the Lenders.

Section 10.4. Costs and Expenses. Each Lender agrees to reimburse
the Agent for all costs and expenses suffered or incurred by the Agent or any
security trustee in performing its duties hereunder and under the other Loan
Documents, or in the exercise of any right or power imposed or conferred upon
the Agent hereby or thereby, to the extent that the Agent is not promptly
reimbursed for same by the Company, all such costs and expenses to be borne by
the Lenders ratably in accordance with the amounts of their respective
Commitments. If any Lender fails to reimburse the Agent for such Lender's
share of any such costs and expenses, such costs and expenses shall be paid pro
rata by the remaining Lenders, but without in any manner releasing the
defaulting Lender from its liability hereunder.

Section 10.5. Indemnity. The Lenders shall ratably indemnify and
hold the Agent, and its directors, officers, employees, agents and
representatives (including as such any security trustee therefor) harmless from
and against any liabilities, losses, costs and expenses suffered or incurred by
them hereunder or under the other Loan Documents or in connection with the
transactions contemplated hereby or thereby, regardless of when asserted or
arising, except to the extent they are promptly reimbursed for the same by the
Company and except to the extent that any event giving rise to a claim was
caused by the gross negligence or willful misconduct of the party seeking to be
indemnified. If any Lender defaults in its obligations hereunder, its share of
the obligations shall be paid pro rata by the remaining Lenders, but without in
any manner releasing the defaulting Lender from its liability hereunder.

Section 10.6. Agent's Relationship with Company. The provisions of
this Section 10 shall be binding upon and sets forth agreements by and among
each Lender and the Agent. The provisions of this Section 10 shall in no way
amend, alter, modify, restrict or otherwise affect the agreements of the
Company with the Agent and with the Lenders otherwise set forth in this
Agreement.

SECTION 11. MISCELLANEOUS.

Section 11.1. Non-Business Days. If any payment hereunder becomes
due and payable on a day which is not a Business Day, the due date of such
payment shall be extended to the next succeeding Business Day on which date
such payment shall be due and payable. In the case of any payment of principal
falling due on a day which is not a Business Day, interest on such principal
amount shall continue to accrue during such extension at the rate per annum
then in effect, which accrued amount shall be due and payable on the next
scheduled date for the payment of interest.

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Section 11.2. No Waiver, Cumulative Remedies. No delay or failure on
the part of any Lender or on the part of any holder of any of the Obligations
in the exercise of any power or right shall operate as a waiver thereof or as
an acquiescence in any default, nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof or the exercise
of any other power or right. The rights and remedies hereunder of the Lenders
and any of the holders of the Obligations are cumulative to, and not exclusive
of, any rights or remedies which any of them would otherwise have.

Section 11.3. Waivers, Modifications and Amendments. Any provision
hereof or of any of the other Loan Documents may be amended, modified, waived
or released and any Default or Event of Default and its consequences may be
rescinded and annulled upon the written consent of the Company and the Required
Lenders; provided, however, that without the consent of all Lenders no such
amendment, modification or waiver shall increase the amount or extend the terms
of any Lender's Commitment or reduce the interest rate applicable to or extend
the maturity of any Obligation owed to it or reduce the amount of any principal
of or interest on any Loan or any fees to which it is entitled hereunder or
change this Section 11.3 or change the definition of "Required Lenders" or
change the number of Lenders required to take any action hereunder or under any
of the other Loan Documents. No amendment, modification or waiver of the
Agent's protective provisions shall be effective without the prior written
consent of the Agent.

Section 11.4. Costs and Expenses. The Company agrees to pay on demand
all the reasonable costs and expenses of the Agent and (to the extent incurred
prior to December 31, 1995) each Lender in connection with the negotiation,
preparation, execution and delivery of this Agreement, the other Loan Documents
and the other instruments and documents to be delivered hereunder or
thereunder, and in connection with the transactions contemplated hereby or
thereby, and in connection with any consents hereunder or waivers or amendments
hereto or thereto, and in connection with any Default or Event of Default, and
in connection with the enforcement of this Agreement or any of the other Loan
documents or any other instrument or document delivered hereunder or
thereunder, including the fees and expenses of Messrs. Chapman and Cutler,
counsel for the Agent, with respect to all of the foregoing (whether or not the
transactions contemplated hereby are consummated). Upon the occurrence and
during the continuation of any Default or Event of Default, the Company further
agrees to pay to the Lenders and any other holders of the Obligations all the
reasonable costs and expenses (including court costs and attorneys' fees), if
any, incurred or paid upon the occurrence and during the continuation of any
Default or Event of Default by the Lenders or any other holders of the
Obligations in connection with any Default or Event of Default, and in
connection with the enforcement of this Agreement or any of the other Loan
Documents or any other instrument or document delivered hereunder or
thereunder. The Company further agrees to indemnify and save the Lenders, the
Agent and any security trustee for the Lenders harmless from any and all
liabilities, losses, costs and expenses incurred by the Lenders or the Agent in
connection with any action, suit or proceeding brought against the Agent, or
any security trustee or any Lender by any Person which arises out of the
transactions contemplated or financed hereby or out of any action or inacton by
the Agent, any security trustee or any Lender hereunder or thereunder, except
for such thereof (i) as is caused by the gross negligence or willful

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<PAGE> 51
misconduct of the party seeking to be indemnified or (ii) arises in
connection with litigation solely between the Lenders. The provisions of this
Section 11.4 and the protective provisions of Section 2 hereof shall survive
payment of the Obligations.

Section 11.5. Documentary Taxes. The Company agrees to pay on demand
any documentary, stamp or similar taxes payable in respect of this Agreement or
any other Loan Document, including interest and penalties, in the event any
such taxes are assessed, irrespective of when such assessment is made and
whether or not any credit is then in use or available hereunder.

Section 11.6. Survival of Representations. All representations and
warranties made herein or in any of the other Loan Documents or in certificates
given pursuant hereto or thereto shall survive the execution and delivery of
this Agreement and the other Loan Documents, and shall continue in full force
and effect with respect to the date as of which they were made as long as any
credit is in use or available hereunder.

Section 11.7. Survival of Indemnities. All indemnities and other
provisions relative to reimbursement to the Agent and the Lenders of amounts
sufficient to protect the yield of the Agent and the Lenders with respect to
the Loans, including, but not limited to, Sections 2.7, 2.8 and 2.9 hereof,
shall survive in accordance with their terms the termination of this Agreement
and the payment of the Obligations.

Section 11.8. Participations. Any Lender may grant participations in
its extensions of credit hereunder to any other Lender or other lending
institution (a "Participant"), provided that (i) no Participant shall thereby
acquire any direct rights under this Agreement, (ii) no Lender shall agree with
a Participant not to exercise any of such Lender's rights hereunder without the
consent of such Participant except for rights which under the terms hereof may
only be exercised by all Lenders and (iii) no sale of a participation in
extensions of credit shall in any manner relieve the selling Lender of its
obligations hereunder.

Section 11.9. Assignment Agreements. Each Lender may, from time to
time upon at least ten (10) Business Days' prior written notice to the Agent,
assign to other commercial lenders part of its rights and obligations under
this Agreement (including without limitation the indebtedness evidenced by the
Notes then owned by such assigning Lender, together with an equivalent
proportion of its Commitments to make Loans hereunder) pursuant to written
agreements executed by such assigning Lender, such assignee lender or lenders,
the Company and the Agent, which agreements shall specify in each instance the
portion of the indebtedness evidenced by the Notes which is to be assigned to
each such assignee lender and the portion of the Commitments of the assigning
Lender to be assumed by it (the "Assignment Agreements"); provided, however,
that (i) each such assignment shall be of a constant, and not a varying,
percentage of the assigning Lender's rights and obligations under this
Agreement and the assignment shall cover the same percentage of such Lender's
Commitments, Loans and Notes; (ii) unless the Agent otherwise consents, the
aggregate amount of the Commitments, Loans and Notes of the assigning Lender
being assigned pursuant to each such assignment (determined as of the effective
date of the relevant Assignment Agreement) shall in no event be less than
$5,000,000 (or $1,000,000 in the case

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of assignments requested by the Company in accordance with the last sentence of
this Section) and shall in each case be an integral multiple of $1,000,000;
(iii) the Agent and the Company must each consent, which consent shall not be
unreasonably withheld, to each such assignment to a party which was not an
original signatory of this Agreement; and (iv) the assigning Lender must pay to
the Agent a processing and recordation fee of $2,500 and any out-of-pocket
attorneys' fees and expenses incurred by the Agent in connection with such
Assignment Agreement. Upon the execution of each Assignment Agreement by the
assigning Lender theeunder, the assignee lender thereunder, the Company and the
Agent and payment to such assigning Lender by such assignee lender of the
purchase price for the portion of the indebtedness of the Company being
acquired by it, (i) such assignee lender shall thereupon become a "Lender" for
all purposes of this Agreement with Commitments in the amounts set forth in
such Assignment Agreement and with all the rights, powers and obligations
afforded a Lender hereunder, (ii) such assigning Lender shall have no further
liability for funding the portion of its Commitments assumed by such other
Lender and (iii) the address for notices to such assignee Lender shall be as
specified in the Assignment Agreement executed by it. Concurrently with the
execution and delivery of such Assignment Agreement, the Company shall execute
and deliver Notes to the assignee Lender in the respective amounts of its
Facility A Commitment, Facility B Commitment (if activated) and Facility B Term
Loans (if any are outstanding) and new Notes to the assigning Lender in the
respective amounts of its Facility A Commitment, Facility B Commitment (if
activated), and Facility B Term Loans (if any are outstanding) after giving
effect to the reduction occasioned by such assignment, all such Notes to
constitute "Notes" for all purposes of this Agreement and of the other Loan
Documents.

Section 11.10. Notices. Except as otherwise specified herein, all
notices hereunder shall be in writing (including cable or telecopy) and shall
be given to the relevant party at its address, telecopier number or telex
number set forth below, in the case of the Company, or on the appropriate
signature page hereof, in the case of the Lenders and the Agent, or such other
address or telecopier number as such party may hereafter specify by notice to
the Agent and the Company given by United States certified or registered mail,
by telecopy or by other telecommunication device capable of creating a written
record of such notice and its receipt. Notices hereunder to the Company shall
be addressed to:

APAC TeleServices, Inc.
One Parkway North Center
Deerfield, Illinois 60015
Attention: Marc S. Simon, Chief Financial Officer
Telephone: (847) 945-0055
Telecopy: (847) 945-2938

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With a copy (in the case of notices of default) to:

Barry J. Shkolnik
Neal Gerber & Eisenberg
Two North LaSalle, Suite 2100
Chicago, Illinois 60602
Telephone: (312) 269-8046
Telecopy: (312) 269-1747

Each such notice, request or other communication shall be effective (i) if
given by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section 11.10 and a confirmation of such telecopy has been
received by the sender, (ii) if given by mail, five (5) days after such
communication is deposited in the mail, certified or registered with return
receipt requested, addressed as aforesaid or (iii) if given by any other means,
when delivered at the addresses specified in this Section 11.10; provided that
any notice given pursuant to Section 1 or Section 2 hereof shall be effective
only upon receipt.

Section 11.11. Construction. The parties hereto acknowledge and agree
that this Agreement and the other Loan Documents shall not be construed more
favorably in favor of one than the other based upon which party drafted the
same, it being acknowledged that all parties hereto contributed substantially
to the negotiation of this Agreement and the other Loan Documents. Nothing
contained herein shall be deemed or construed to permit any act or omission
which is prohibited by the terms of any of the other Loan Documents, the
covenants and agreements contained herein being in addition to and not in
substitution for the covenants and agreements contained in the other Loan
Documents.

Section 11.12. Headings. Section headings used in this Agreement are
for convenience of reference only and are not a part of this Agreement for any
other purpose.

Section 11.13. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. All rights, remedies and powers provided in this Agreement and
the other Loan Documents may be exercised only to the extent that the exercise
thereof does not violate any applicable mandatory provisions of law, and all
the provisions of this Agreement and the other Loan Documents are intended to
be subject to all applicable mandatory provisions of law which may be
controlling and to be limited to the extent necessary so that they will not
render this Agreement or the other Loan Documents invalid or unenforceable.

Section 11.14. Counterparts. This Agreement may be executed in any number
of counterparts, and by different parties hereto on separate counterpart
signature pages, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.

Section 11.15. Entire Understanding. This Agreement together with the
other Loan Documents constitute the entire understanding of the parties with
respect to the subject

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<PAGE> 54
matter hereof and any prior agreements, whether written or oral, with
respect thereto are superseded hereby except for prior understandings related
to fees payable to the Agent upon the initial closing of the transactions
contemplated hereby.

Section 11.16. Extensions of the Facility A Commitments. No later
than ninety (90) days prior to the Facility A Termination Date, the Company may
advise the Agent in writing of its desire to extend the Facility A Termination
Date for an additional twelve (12) months and the Agent shall promptly notify
the Lenders of each such request. The Facility A Termination Date may be
extended more than once pursuant to the terms of this Section, but in no event
shall the Facility A Termination Date be extended beyond May 31, 2001. In the
event that all the Lenders are agreeable to such extension (it being understood
that any Lender may accept or decline such a request in its sole discretion),
the Facility A Termination Date shall be so extended and the Company, the
Lenders and the Agent shall enter into such documents as such parties may
reasonably deem necessary or appropriate to reflect such extension. In the
event that some, but not all, of the Lenders are agreeable to an extension, the
Company may (provided that no Default or Event of Default has occurred and is
then continuing) (i) terminate the Commitments of the Lender or Lenders
declining to extend and repay all Loans and other Obligations (not just
Facility A Loans) owed to such Lender or Lenders and upon such repayment the
Commitments of such Lender or Lenders shall be canceled, (ii) revoke the
Company's request for extension of the Facility A Termination Date, or (iii) at
the option of the Company, the Company may obtain a new Lender or Lenders
reasonably acceptable to the Agent and the Required Lenders to replace the
Commitments of the Lender or Lenders declining to extend and in such event the
Commitments of the Lender or Lenders not desiring to extend shall be canceled.
In the event a Lender elects not to extend, all Loans and other Obligations
owed to such Lender (not just its Facility A Loans) shall be paid to it no
later than the then current Facility A Termination Date to which it has agreed.
The Company, the Agent and the new Lender shall therupon execute such
instruments and documents as shall in the opinion of the Agents be reasonably
necessary or appropriate to substitute the new approved Lender hereunder
(including without limitation the issuance of new Notes to the substitute
Lender, the execution of an Assignment Agreement as contemplated by Section
11.9 hereof or amendment to this Agreement in each case making the new Lender a
party hereto. The new Lender shall make initial Loans against its Notes in the
amount necessary to retire the indebtedness evidenced by the Notes held by the
declining Lender and all expenses of the Agent incurred in connection with the
foregoing shall be paid by the Company.

Section 11.17. Binding Nature, Governing Law, Etc. This Agreement
shall be binding upon the Company and its successors and assigns, and shall
inure to the benefit of the Agent and the Lenders and the benefit of their
successors and assigns, including any subsequent holder of an interest in the
Obligations. The Company may not assign its rights hereunder without the
written consent of the Lenders. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF
THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.

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Section 11.18. Submission to Jurisdiction; Waiver of Jury Trial.
The Company hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Northern District of Illinois and of any Illinois
State court sitting in the City of Chicago for purposes of all legal
proceedings arising out of or relating to this Agreement, the other Loan
Documents or the transactions contemplated hereby or thereby. The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum. The Company, the Agent, and
each Lender hereby irrevocably waives any and all right to trial by jury in any
legal proceeding arising out of or relating to any Loan Document or the
transactions contemplated thereby.

Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.

Dated as of this 5th day of June, 1996.

APAC TELESERVICES, INC.
By: /s/ Theodore G. Schwartz
----------------------------
Name: Theodore G. Schwartz
Title: Chairman, President & CEO

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<PAGE> 56

Accepted and Agreed to at Chicago, Illinois as of the day and year last
above written.

Each of the Lenders hereby agrees with each other Lender that if it
should receive or obtain any payment (whether by voluntary payment, by the
exercise of rights of set-off or banker's lien, by counterclaim or cross
action, or by the enforcement of any rights under this Agreement, any of the
other Loan Documents or otherwise) in respect of the Obligations in a greater
amount than such Lender would have received had such payment been made to the
Agent and been distributed among the Lenders as contemplated by Section 3.5
hereof then in that event the Lender receiving such disproportionate payment
shall purchase for cash without recourse from the other Lenders an interest in
the Obligations of the Company to such Lenders in such amount as shall result
in a distribution of such payment as contemplated by Section 3.5 hereof. In
the event any payment made to a Lender and shared with the other Lenders
pursuant to the provisions hereof is ever recovered from such Lender, the
Lenders receiving a portion of such payment hereunder shall restore the same to
the payor Lender, but without interest.

Amount and Percentage of Commitments:

Facility A Commitment: Harris Trust And Savings Bank
$10,000,000
(50%)
By: /s/ James B. Hemauer
----------------------------
Facility B Commitment: Name: James B. Hemauer
$10,000,000 Title: Vice President
(50%)
111 West Monroe Street
Chicago, Illinois 60603
Attention: Middle Market D
Telephone: (312) 461-6158
Telecopy: (312) 765-1655
Telex: 254157

-51-

<PAGE> 57

Facility A Commitment: The Northern Trust Company
$5,000,000
(25%)
By: /s/ Wenders Noken
Facility B Commitment: ---------------------------
$5,000,000 Name: Wenders Noken
(25%) Title: ________________________

50 South LaSalle Street/2nd Floor
Chicago, Illinois 60675
Attention: Scott Berlin
Telephone: (312) 444-7172
Telecopy: (312) 444-7028
Telex: 253879
<PAGE> 58
Facility A Commitment: Bank of America Illinois
$5,000,000
(25%)
By: /s/ Victor P. Stasica
Facility B Commitment: -----------------------
$5,000,000 Name: Victor P. Stasica
(25%) Title: Senior Vice President

231 South LaSalle Street
5th Floor
Chicago, Illinois 60697
Attention: Victor P. Stasica
Telephone: (312) 828-8815
Telecopy: (312) 765-2193

<PAGE> 59

Exhibit A

APAC TeleServices, Inc.
Revolving Note(Facility A)
Chicago, Illinois
$_______________ _______________, 19_____

On the Facility A Termination Date, for value received, the
undersigned, APAC TeleServices, Inc., an Illinois corporation (the "Company"),
hereby promises to pay to the order of ________________ (the "Lender"), at the
principal office of Harris Trust and Savings Bank in Chicago, Illinois, the
principal sum of (i) _______________________ and no/100 Dollars ($___________),
or (ii) such lesser amount as may at the time of the maturity hereof, whether
by acceleration or otherwise, be the aggregate unpaid principal amount of all
Facility A Loans owing from the Company to the Lender under the Facility A
Credit provided for in the Credit Agreement hereinafter mentioned.

This Note evidences Facility A Loans constituting part of a "Domestic
Rate Portion" and "LIBOR Portions" as such terms are defined in that certain
Credit Agreement dated as of June 5, 1996 between the Company, Harris Trust and
Savings Bank, individually and as Agent thereunder, and the other Lenders which
are now or may from time to time hereafter become parties thereto (said Credit
Agreement, as the same may be amended, modified or restated from time to time,
being referred to herein as the "Credit Agreement") made and to be made to the
Company by the Lender under the Facility A Credit provided for under the Credit
Agreement, and the Company hereby promises to pay interest at the office
described above on each Facility A Loan evidenced hereby at the rates and at
the times and in the manner specified therefor in the Credit Agreement.

Each Facility A Loan made under the Facility A Credit provided for in
the Credit Agreement by the Lender to the Company against this Note, any
repayment of principal hereon, the status of each such Facility A Loan from
time to time as part of the Domestic Rate Portion or a LIBOR Portion and, in
the case of any LIBOR Portion, the interest rate and Interest Period applicable
thereto shall be endorsed by the holder hereof on a schedule to this Note or
recorded on the books and records of the holder hereof (provided that such
entries shall be endorsed on a schedule to this Note prior to any negotiation
hereof). The Company agrees that in any action or proceeding instituted to
collect or enforce collection of this Note, the entries so endorsed on a
schedule to this Note or recorded on the books and records of the holder hereof
shall be prima facie evidence of the unpaid principal balance of this Note, the
status of each such loan from time to time as part of the Domestic Rate Portion
or a LIBOR Portion, and, in the case of any LIBOR Portion, the interest rate
and Interest Period applicable thereto.

<PAGE> 60
This Note is issued by the Company under the terms and provisions of
the Credit Agreement, and this Note and the holder hereof are entitled to all
of the benefits and security provided for thereby or referred to therein, to
which reference is hereby made for a statement thereof. This Note may be
declared to be, or be and become, due prior to its expressed maturity,
voluntary prepayments may be made hereon, and certain prepayments are required
to be made hereon, all in the events, on the terms and with the effects
provided in the Credit Agreement. All capitalized terms used herein without
definition shall have the same meanings herein as such terms are defined in the
Credit Agreement.

Pursuant to the terms of the Credit Agreement, the Company hereby
promises to pay all reasonable costs and expenses (including attorneys' fees)
suffered or incurred by the holder hereof in collecting this Note. The Company
hereby waives presentment for payment and demand. This Note shall be construed
in accordance with, and governed by, the internal laws of the State of Illinois
without regard to principles of conflicts of laws.

APAC TELESERVICES, INC.

By: _________________________
Name: _____________________
Title: ____________________

-2-
<PAGE> 61
Exhibit B

APAC TeleServices, Inc.
Revolving Note(Facility B)
Chicago, Illinois
$_______________ _______________, 19_____

On the Facility B Termination Date, for value received, the
undersigned, APAC TeleServices, Inc., an Illinois corporation (the "Company"),
hereby promises to pay to the order of ________________ (the "Lender"), at the
principal office of Harris Trust and Savings Bank in Chicago, Illinois, the
principal sum of (i) _______________________ and no/100 Dollars ($___________),
or (ii) such lesser amount as may at the time of the maturity hereof, whether
by acceleration or otherwise, be the aggregate unpaid principal amount of all
Facility B Loans owing from the Company to the Lender under the Facility B
Credit provided for in the Credit Agreement hereinafter mentioned.

This Note evidences Facility B Loans constituting part of a "Domestic
Rate Portion" and "LIBOR Portions" as such terms are defined in that certain
Credit Agreement dated as of June 5, 1996 between the Company, Harris Trust and
Savings Bank, individually and as Agent thereunder, and the other Lenders which
are now or may from time to time hereafter become parties thereto (said Credit
Agreement, as the same may be amended, modified or restated from time to time,
being referred to herein as the "Credit Agreement") made and to be made to the
Company by the Lender under the Facility B Credit provided for under the Credit
Agreement, and the Company hereby promises to pay interest at the office
described above on each Facility B Loan evidenced hereby at the rates and at
the times and in the manner specified therefor in the Credit Agreement.

Each Facility B Loan made under the Facility B Credit provided for in
the Credit Agreement by the Lender to the Company against this Note, any
repayment of principal hereon, the status of each such Facility B Loan from
time to time as part of the Domestic Rate Portion or a LIBOR Portion and, in
the case of any LIBOR Portion, the interest rate and Interest Period applicable
thereto shall be endorsed by the holder hereof on a schedule to this Note or
recorded on the books and records of the holder hereof (provided that such
entries shall be endorsed on a schedule to this Note prior to any negotiation
hereof). The Company agrees that in any action or proceeding instituted to
collect or enforce collection of this Note, the entries so endorsed on a
schedule to this Note or recorded on the books and records of the holder hereof
shall be prima facie evidence of the unpaid principal balance of this Note, the
status of each such loan from time to time as part of the Domestic Rate Portion
or a LIBOR Portion, and, in the case of any LIBOR Portion, the interest rate
and Interest Period applicable thereto.
<PAGE> 62

This Note is issued by the Company under the terms and provisions of
the Credit Agreement, and this Note and the holder hereof are entitled to all
of the benefits and security provided for thereby or referred to therein, to
which reference is hereby made for a statement thereof. This Note may be
declared to be, or be and become, due prior to its expressed maturity,
voluntary prepayments may be made hereon, and certain prepayments are required
to be made hereon, all in the events, on the terms and with the effects
provided in the Credit Agreement. All capitalized terms used herein without
definition shall have the same meanings herein as such terms are defined in the
Credit Agreement.

APAC TELESERVICES, INC.
By: _________________________
Name: ___________________
Title: __________________

-2-
<PAGE> 63

Exhibit C

APAC TELESERVICES, INC.
FACILITY B TERM NOTE
Chicago, Illinois
$_____________________ _______________, 19__

FOR VALUE RECEIVED, the undersigned, APAC TeleServices, Inc., an
Illinois corporation (the "Company"), hereby promises to pay to the order of
______________________ (the "Lender"), at the principal office of Harris Trust
and Savings Bank in Chicago, Illinois, the principal sum of
______________________________ Dollars ($______________), in ____________
(____) consecutive quarter-annual principal installments, commencing on
________________, 19__ and continuing on the ______ day of each ______________,
______________, _______________ and _________________ occurring thereafter to
and including __________________, 19__, with each installment (except the last)
to be in the amount of one-twelfth (1/12th) of the face amount of this Note and
last such installment to be in the amount of all principal hereof not sooner
paid.

This Note evidences a Facility B Term Loan constituting part of a
"Domestic Rate Portion" and "LIBOR Portions" as such terms are defined in that
certain Credit Agreement dated as of June 5, 1996 by and between the Company,
Harris Trust and Savings Bank, individually and as Agent thereunder, and the
other Lenders which are now or may from time to time hereafter become parties
thereto (said Credit Agreement, as the same may be amended, modified or
restated from time to time, being referred to herein as the "Credit Agreement")
made to the Company by the Lender under the Credit Agreement, and the Company
hereby promises to pay interest at the office specified above on the loan
evidenced hereby at the rates and at the times and in the manner specified
therefor in the Credit Agreement.

Each repayment of the principal of the Facility B Term Loan made by the
Lender to the Company against this Note, the status of such Facility B Term
Loan from time to time as part of the Domestic Rate Portion or a LIBOR Portion
and, in the case of any LIBOR Portion, the interest rate and Interest Period
applicable thereto shall be endorsed by the holder hereof on a schedule to this
Note or recorded on the books and records of the holder hereof (provided that
such entries shall be endorsed on a schedule to this Note prior to any
negotiation hereof). The Company agrees that in any action or proceeding
instituted to collect or enforce collection of this Note, the entries so
endorsed on a schedule to this Note or recorded on the books and records of the
holder hereof shall be prima facie evidence of the unpaid balance of this Note
and the status of such loan from time to time as part of the Domestic Rate
Portion or a LIBOR Portion and, in the case of any LIBOR Portion, the interest
rate and Interest Period applicable thereto.

<PAGE> 64
This Note is issued by the Company under the terms and provisions of the Credit
Agreement, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, to which
reference is hereby made for a statement thereof. This Note may be declared to
be, or be and become, due prior to its expressed maturity, voluntary
prepayments may be made hereon, and certain prepayment are required to be made
hereon, all in the events, on the terms and with the effects provided in the
Credit Agreement. All capitalized terms used herein without definition shall
have the same meanings herein as such terms are defined in the Credit
Agreement.

Pursuant to the terms of the Credit Agreement, the Company hereby promises to
pay all reasonable costs and expenses (including attorneys' fees) suffered or
incurred by the holder hereof in collecting this Note. The Company hereby
waives presentment for payment and demand. THIS NOTE SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF ILLINOIS
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW.

APAC TeleServices, Inc.

By: _______________________
Name: _____________________
Title: ____________________

-2-

<PAGE> 65

Exhibit D

Compliance Certificate

This Compliance Certificate is furnished to (the Agent and the Lenders)
pursuant to that certain Credit Agreement dated as of June 5, 1996, by and
among APAC TeleServices, Inc. (the "Company") and you (the "Credit Agreement").
Unless otherwise defined herein, the terms used in this Compliance Certificate
have the meanings ascribed thereto in the Credit Agreement.

The Undersigned hereby certifies that:

1. I am the duly elected _____________________________________ of the
Company;

2. I have reviewed the terms of the Credit Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Company and its Subsidiaries during the
accounting period covered by the attached financial statements;

3. The examinations described in paragraph 2 did not disclose, and I have
no knowledge of, the existence of any condition or the occurrence of any event
which constitutes a Default or Event of Default during or at the end of the
accounting period covered by the attached financial statements or as of the
date of this Certificate, except as set forth below;

4. The financial statements required by Section 8.5 of the Credit
Agreement and being furnished to you concurrently with this Certificate are
true, correct and complete as of the date and for the periods covered thereby;
and

5. The Attachment hereto sets forth financial data and computations
evidencing the Company's compliance with certain covenants of the Credit
Agreement, all of which data and computations are, to the best of my knowledge,
true, complete and correct and have been made in accordance with the relevant
Sections of the Credit Agreement.

Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Company has taken, is taking, or proposes to
take with respect to each such condition or event:
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________

<PAGE> 66

The foregoing certifications, together with the computations set forth in the
Attachment hereto and the financial statements delivered with this Certificate
in support hereof, are made and delivered this _________ day of
__________________ 19___.

__________________________________________
___________________, _____________________
(Name) (Title)

-2-

<PAGE> 67

ATTACHMENT TO COMPLIANCE CERTIFICATE
APAC TELESERVICES, INC.

Compliance Calculations for Credit Agreement

Dated as of June 5, 1996
Calculations as of _____________, 19___
___________________________________________________________________________

A. Modified Leverage Ratio (Section 8.7)

1. Indebtedness for Borrowed Money as defined -------

2. Tangible Net Worth as defined -------

3. Total Capitalization (Line 1 plus Line 2) -------

4. Ratio of Indebtedness for Borrowed Money (Line 1)
to Total Capitalization (Line 3)
("Modified Leverage Ratio") :1
=======
5. As listed in Section 8.7, for the date
of this Certificate, Modified Leverage Ratio
shall not be greater than 0.40:1
=======
6. Company is in compliance?
(Circle yes or no) Yes/No
=======
B. Debt Service Coverage (Section 8.8)

1. Indebtedness for Borrowed
Money as defined ---------

2. Net Income as defined
for past four quarters ---------

3. Amounts deducted in arriving
at Net Income
in respect of ---------

(a) Interest Expense ---------

<PAGE> 68
(b) Taxes imposed on or
measured by income or
excess profits ---------------

(d) Amortization of
intangible assets ---------------

4. Sum of Lines 2, 3(a),
3(b), 3(c) and 3(d) ("EBITDA") --------------

5. Ratio of Indebtedness for Borrowed Money
(Line 1) to EBITDA(Line 4)("Debt
Service Coverage Ratio") :1
-------------
6. As listed in Section 8.8, for
the date of this Certificate,
the Debt Service Coverage Ratio
must be in an amount not more than 1.0:1
=============
7. Company is in compliance?
(Circle yes or no) Yes/No
=============

C. Fixed Charge Coverage (Section 8.9)

1. EBITDA (Line B4 above) -------------

2. Aggregate amount of principal
payments required to be made
on Indebtedness for Borrowed
Money -------------

3. Interest Expense -------------

4. Capital Expenditures -------------

5. Sum of Lines 2, 3 and 4
("Fixed Charges") --------------

6. Ratio of EBITDA (Line 1) to Fixed Charges
(Line 5) ("Fixed Charge Coverage Ratio") :1
--------------

-2-
<PAGE> 69
7. As listed in Section 8.9, for
the date of this Certificate,
the Fixed Charge Coverage Ratio
must be in an amount not less than 1.25:1
===============
8. Company is in compliance?
(Circle yes or no) Yes/No
===============

-3-

<PAGE> 70

SCHEDULE 6.2

SUBSIDIARIES

JURISDICTION OF PERCENTAGE
NAME INCORPORATION OWNERSHIP

<S> <C> <C>
APAC Teleservices of
Illinois, Inc. Illinois 100%

APAC Teleservices of
Michigan, Inc. Michigan 100%
</TABLE>
<PAGE> 71

SCHEDULE 8.11

PERMITTED DEBT

LENDER LIEN AMOUNT

FIRSTAR BANK -
MILWAUKEE CERTAIN EQUIPMENT $84,135

COMERICA BANK - ILLINOIS CERTAIN EQUIPMENT $84,235

BANC ONE LEASING CERTAIN EQUIPMENT $64,623

COMERICA BANK - ILLINOIS CERTAIN EQUIPMENT $7,574

E/S LEASING CERTAIN EQUIPMENT $76,535

GE CAPITAL LEASING CERTAIN EQUIPMENT $59,063

AT&T CAPITAL LEASING CERTAIN EQUIPMENT $40,883

TOTAL: $417,048

<PAGE> 1
EXHIBIT 10.14

[APAC LETTERHEAD]

VIA UPS

April 16, 1996

Mr. John C. Dontje
123 Bramblewood Lane
Lewisberry, PA 17339

Dear John:

We are very happy that you have decided to join APAC. Your title will
be Regional Vice President of Operations and you will report to Don Berryman.
As agreed, the following employment terms will apply:

1. Your starting base salary will be $125,000 per annum.

2. You will be a participant in APAC's MBO Bonus Plan with a 30%
of salary participation. Assuming that APAC meets its budgeted
performance and you meet your individual and team performance
goals, your 1996 MBO Bonus would be $37,500, prorated for less
than a full year of service. Your 1996 MBO goals will be set
upon commencement of your employment.

3. You will be entitled to the benefits, vacation and perquisites
normally available to a Regional Vice President.

4. You are being granted options to purchase five thousand (5,000)
shares of APAC stock at an exercise price equal to the mean
between the high and the low price at which APAC's
common stock traded yesterday as reported by Bloomberg
Financial Markets, such options to be issued pursuant to the
option grant materials attached hereto.

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

<PAGE> 2
Mr. John C. Dontje
April 16, 1996
Page 2

6. Your employment will be full-time and best efforts and, initially, you
will work from your home. If we decide to relocate you, we will
provide our standard relocation package for the costs associated with
your relocation.

7. Your commencement date will be May 1, 1996, or earlier, if possible.

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

Best personal regards.

Very truly yours,

Marc S. Simon
Marc S. Simon
Chief Financial Officer

Accepted by:

John C. Dontje
- ----------------------
John C. Dontje

Dated: April 17, 1996

MSS:wsl
enclosures

<PAGE> 1
EXHIBIT 10.15

[APAC LETTERHEAD]

July 25, 1996

Mr. Robert C. Froetscher
1083 Skokie Ridge Drive
Glencoe, IL 60022

Dear Bob:

We are very happy that you have decided to join APAC. Your title will
be Senior Vice President/General Manager - Operations and you will report to
me. As agreed, the following employment terms will apply:

1. Your starting base salary will be $200,000 on an annualized basis.

2. You will be a participant in APAC's CPR Bonus Plan with a fifty
percent (50%) of salary participation. Assuming that APAC meets
its budgeted performance and you meet your individual and team
performance goals, your 1997 CPR Bonus would be $100,000.
Your 1996 CPR Bonus will be guaranteed, prorated for the portion
of the year that you are employed by APAC.

3. You will be entitled to the benefits, vacation and perquisites
normally available to senior management level employees.

4. You are being granted options to purchase seventy five thousand
(75,000) shares of APAC stock at an exercise price equal to the
mean between the high and the low price at which APAC's common
stock traded today as reported by Bloomberg Financial Markets,
such options to be issued pursuant to the option grant materials
attached hereto. If your performance meets expectations of senior
management, you will be granted options to purchase an
additional twenty five thousand (25,000) shares, such options to
be issued one year from when your employment commences and to
granted at an exercise price equal to the then fair market value
of APAC's stock.

<PAGE> 2
Robert C. Froetscher
July 25, 1996
Page Two

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

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

7. Your effective commencement date is August 19, 1996, or such sooner
date as you are available.

8. You will be based in our Deerfield, Illinois office.

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

Best personal regards.

Very truly yours,

Marc S. Simon
Marc S. Simon
Chief Financial Officer

Accepted by:

Robert C. Froetscher
- -------------------------
Robert C. Froetscher

Dated: July 25, 1996

MSS:wsl
enclosures

<PAGE> 1
EXHIBIT 10.16

[APAC LETTERHEAD]

May 2, 1996

Mr. James M. Nikrant
2865 Parkwood Lane
Aurora, Illinois 60504

Dear Jim:

We are very happy that you have decided to join APAC. Your title will
be Senior Vice President Sales Solutions and you will report to Marc Simon. As
agreed, the following employment terms will apply:

1. Your starting base salary will be $220,000 on an annualized
basis.

2. You will be a participant in APAC's CPR Bonus Plan with a 50% of
salary participation. Assuming the APAC meets its budgeted
performance and you meet your individual and team performance
goals, your 1996 CPR Bonus would be $110,000, prorated for less
than a full year of service.

3. You will be entitled to the benefits, vacation and perquisites
normally available to comparable level employees.

4. You are being granted options to purchase Ten Thousand (10,000)
shares (on a pre-split basis) of APAC stock at an exercise
price equal to the mean between the high and the low price at
which APAC's common stock traded today as reported by Bloomberg
Financial Markets, such options to be issued pursuant to the
option grant materials attached hereto.

In addition, you will be granted options to purchase an
additional Ten Thousand (10,000) shares (on a pre-split basis)
on December 31, 1996 and a further Ten Thousand (10,000) shares
(on a pre-split basis) on December 31, 1997 at exercise prices
equal to the mean between the high and low price at which APAC's
common stock traded on the last business day prior to such dates
as reported by Bloomberg Financial Markets.

<PAGE> 2
James M. Nikrant
May 2, 1996
Page Two

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

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

7. Your effective commencement date is May 8, 1996, or
sooner.

8. You will be based in our Cedar Rapids, IA, office and we
will provide you with our customary relocation benefits
package in connection with your relocation to the Cedar
Rapids, IA, area. We will also provide you with an
automobile in Cedar Rapids on an as needed basis.

9. In the event your employment is terminated without
cause during the first twelve months of your employment
we will provide you with severance equal to ninety days
of your base salary.

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

Best personal regards.

Very truly yours,

Marc S. Simon
Marc S. Simon
Chief Financial Officer

Accepted by:

James M. Nikrant
- -------------------------------
James M. Nikrant

Dated: May 3, 1996

MSS:wsl
enclosures

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the
incorporation by reference in this Registration Statement of our reports dated
February 1, 1996, included in APAC TeleServices, Inc. Form 10-K for the year
ended December 31, 1995 and to all references to our Firm included in this
Registration Statement.

ARTHUR ANDERSON LLP
-------------------
ARTHUR ANDERSON LLP

Chicago, Illinois
October 14, 1996