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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

(Mark One)

|/x/ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2000

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from  to

Commission file number: 0-26786

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

Illinois(State or other jurisdiction
of Incorporation or organization)

36-2777140(I.R.S. Employer
Identification No.)


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

Registrant's
telephone number, including area code:(847) 374-4980

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

Title of Each Class

Names of each exchange
on which registeredNone

None


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

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

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Indicate by check mark whether the Registrant (l) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes /x/ No / /

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes /x/ No / /

As
of March 9, 2001, 49,519,771 Common Shares were outstanding.

The
aggregate market value of the Registrant's Common Shares held by non-affiliates on March 9, 2001 was approximately $270,811,248.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant's Proxy Statement for Annual Meeting
of Share Owners to be held on June 8, 2001 are incorporated by reference in Part III

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PART I

Item 1.  Business.

General

APAC Customer Services, Inc. ("APAC" or the "Company") is a leading provider of comprehensive customer relationship management (CRM) and electronic CRM
(e-CRM) solutions forFortune 1000, mid-tier and emerging e-commerce companies in the banking and brokerage,
communications, healthcare, insurance, retail, utility, automotive and travel and entertainment sectors. The Company delivers a full suite of e-CRM products and services, including
e.PACSM, a multi-channel platform that supports a broad range of integrated, e-commerce-based
customer interaction capabilities. Expanding upon its core competency of CRM solutions, APAC Customer Services recently added solutions integration services to its array of customer care programs. To
help its clients better manage relationships with their customers, APAC Customer Services develops and delivers end-to-end customer care, customer acquisition and
Web-enabled CRM programs. The Company operates and manages approximately 10,500 workstations in 57 Customer Interaction Centers. The Customer Interaction Centers are managed centrally
through the application of extensive telecommunications and computer technology to promote the consistent delivery of quality service. In fiscal 2000 the Company had three primary service offerings:
Customer Acquisition, Customer Care and CustomerAssistance.com (i.e.e-CRM Solutions).

Customer Care

Services.Customer Care provides customer relationship management solutions applications supporting inbound customer care, customer
retention, direct mail response, integrated voice response, "help" line support, and customer order processing. Certain Customer Care clients rely upon the Company to provide specialized customer
service representatives such as insurance agents and computer technicians, capable of responding to more technical inquiries from customers and prospects. Customer Care generated $290.7 million
of net revenue, or 62.6% of the Company's total net revenue, in fiscal 2000, an increase of $12.1 million or 4.3% when compared to fiscal 1999. APAC believes significant opportunities to
generate new business in Customer Care exist as more companies move to outsource all or a portion of their marketing and customer service functions.

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

Clients.Customer Care directs its business development efforts primarily toward large companies with substantial inbound customer
service call volume. Within this market segment, APAC often targets those companies that operate in high-cost metropolitan areas or that are currently utilizing inefficient or expensive
technology in their customer service operations. Customer Care provided services to 37 clients in fiscal 2000. The Company's significant relationships include a large parcel delivery client, which
accounted for 24.4%, and 23.4% respectively, of the Company's Customer Care net revenue and 15.3% and 14.5% respectively of the

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Company's consolidated net revenue in fiscal 2000 and 1999. There was no other Customer Care client which accounted for more than 10% of the Company's total net revenue in 2000, 1999 and 1998.

Customer
Care operates under contracts with terms up to five years, which generally can be terminated for convenience subject to a negotiated phase out period. The Company is generally paid a fixed
fee, subject to certain performance standards, for each hour that it provides a customer service representative under its Customer Care contracts, regardless of the number of calls handled. The client
works with the Company to determine the number of customer service representatives necessary to efficiently handle the expected volume of inbound calls.

Customer Acquisition

Services.Customer Acquisition provides sales support to consumers and businesses, market research, targeted marketing plan development
and customer lead generation, acquisition and retention. Customer Acquisition generated $165.8 million of net revenue, or 35.7% of the Company's total net revenue, in fiscal 2000, an increase
of $16.8 million or 11.3% compared to fiscal 1999. The increase was primarily due to higher volume from existing clients.

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

Clients.APAC Customer Services targets those companies with large customer bases and the greatest potential to generate recurring
revenue driven by their ongoing telephone-based direct sales and marketing needs. Customer Acquisition provided services to 39 clients in fiscal 2000. Customer Acquisition generally operates under
contracts that may be terminated or modified on short notice. However, the Company tends to establish long-term relationships with its clients. The Company is generally paid a fixed fee
for each hour that it provides a sales representative under its Customer Acquisition contracts. No Customer Acquisition client accounted for more
than 10% of the Company's total net revenue in 2000 and 1999. One Communications client accounted for more than ten percent of the Company's total net revenue in fiscal year 1998.

CustomerAssistance.com

In December 1999, the Company formed a wholly-owned subsidiary, CustomerAssistance.com, which has entered the e-CRM marketplace with its
e-Commerce customer relationship management platform: e.PACSM. Based on open industry
standards, e.PACSMis a multi-channel platform that enables users to integrate a suite of Internet-based
interaction capabilities, such as collaboration, form sharing, web chat and voice over IP, with traditional customer care functions. CustomerAssistance.com provides services for Fortune 1000 and
e-Commerce companies. CustomerAssistance.com generated $7.8 million or 1.7% of the Company's consolidated revenue and provided services to 23 clients in fiscal 2000.

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The e.PACSMplatform allows the customer to select its preferred method of interaction, such as online chat
or e-mail, or request an immediate or scheduled call back from a service agent. To further assist customers, the
e.PACSMplatform allows service agents to share forms, share browser control, provide split screen
comparison functionality and even "push" web pages to a customer for their review. This real-time synchronization of customer and agent screens facilitates clear communication and enhances
overall customer satisfaction. Additional features include automated e-mail response and an "agent meet me" capability, which allows customers to call an agent and ask him or her to meet
them online.

Technology Resources

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

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

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

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

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

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Sales and Marketing

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

Human Resources

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

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

For
employee recruitment and job tracking, the addition of the e-SMART System (SiMple Accurate Record Tracking) assists the Company in selecting people who can meet and exceed expectations. The
e-SMART System is a comprehensive electronic process for applicant tracking and performance evaluation. The process begins with an applicant's search of a database to find available positions, review
job information, and learn more about the Company. After a candidate completes a series of online templates and tests, a recruiter reviews qualifications and skills, sets appointments and tracks
progress of the application.

The
Company had approximately 12,600 full and 4,100 part-time employees for a total of 16,700 employees on March 9, 2001. None of APAC's employees are subject to a collective
bargaining agreement. The Company considers its relations with its employees to be very good.

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Quality Assurance

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

Competition

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

Government Regulation

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

The
Federal Telemarketing and Consumer Fraud and Abuse Protection 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 rules under the
TCFAPA. These rules generally prohibit abusive telephone solicitation practices and impose disclosure and record keeping requirements.

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 a certain period of time. At least one state also prohibits telemarketers from requiring credit card payment and several other states
require that certain telemarketers obtain licenses and post bonds.

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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 state laws 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 Customer Services generally undertakes to indemnify its clients against claims and expenses resulting from any failure
by APAC Customer Services to comply with federal and state laws regulating telephone solicitation practices.

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 purchased
products or services to customers, any defect or deficiency in such products or services or any written or oral presentation furnished by the client to APAC Customer Services. There is increasing
Federal and state interest in privacy protections, some aspects of which could impose additional regulatory pressure on the business of the Company's clients and, less directly, on the Company's
business. APAC Customer Services 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.

Item 2.  Properties

The Company leases approximately 70,000 square feet of office space in Deerfield, Illinois. The term of this lease expires in August 2008. This space
houses corporate headquarters, the information technology center, business unit management, the e-CRM technology demonstration center, and the operations of CustomerAssistance.com. The
Company has additional facilities in Deerfield, Illinois of approximately 11,000 square feet of office space. The term of this lease expires in June 2001. The Company has approximately 85,000
square feet of office space in Cedar Rapids, Iowa. This office space is located on all or part of seven floors which are owned and/or leased by the Company and is part of an office condominium. The
Company has approximately 87,000 square feet of office space in Omaha, Nebraska and 22,000 square feet of office space in Atlanta, Georgia. The Omaha space was acquired with the purchase of ITI. The
lease for the Omaha office space expires in August 2007. Approximately 53,000 square feet of this space has been sublet. The lease for the Atlanta space expires in December 2004. All of
this space has been sublet.

The
Company also leases the facilities listed below, except for the Eau Claire, Erlanger, Newport News, Orlando, Fort Worth and High Point facilities which are not leased by the Company, but are
managed, staffed and operated by the Company on behalf of its clients. As of December 31, 2000, the

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Company operated the following Customer Interaction Centers and workstations:

Customer Acquisition Interaction Centers

|Location               |                            | Date Opened
or Acquired |  | Number of
Workstations(1)
|---------------------- | -------------------------- | ----------------------- |  | -------------------------
|
|Dubuque, Iowa          |                            | September, 1990         |  | 88                       
|Clinton, Iowa          |                            | October, 1990           |  | 80                       
|Burlington, Iowa       |                            | October, 1991           |  | 80                       
|Oskaloosa, Iowa        |                            | September, 1992         |  | 96                       
|Waterloo, Iowa         |                            | February, 1993          |  | 96                       
|Cedar Falls, Iowa      |                            | February, 1993          |  | 64                       
|Ottumwa, Iowa          |                            | November, 1993          |  | 144                      
|Decorah, Iowa          |                            | January, 1994           |  | 80                       
|Fort Madison, Iowa     |                            | March, 1994             |  | 96                       
|Keokuk, Iowa           |                            | May, 1994               |  | 80                       
|Mason City, Iowa       |                            | December, 1994          |  | 96                       
|Knoxville, Iowa        |                            | March, 1995             |  | 80                       
|Muscatine, Iowa        |                            | April, 1995             |  | 96                       
|Spencer, Iowa          |                            | May, 1995               |  | 64                       
|Davenport, Iowa        |                            | February, 1996          |  | 96                       
|Maquoketa, Iowa        |                            | February, 1996          |  | 80                       
|Kewanee, Illinois      |                            | February, 1996          |  | 96                       
|Quincy, Illinois       |                            | February, 1996          |  | 96                       
|Freeport, Illinois     |                            | March, 1996             |  | 96                       
|Rock Falls, Illinois   |                            | March, 1996             |  | 96                       
|Waverly, Iowa          |                            | March, 1996             |  | 64                       
|Jacksonville, Illinois |                            | April, 1996             |  | 96                       
|Canton, Illinois       |                            | May, 1996               |  | 96                       
|Lincoln, Illinois      |                            | May, 1996               |  | 96                       
|Pekin, Illinois        |                            | May, 1996               |  | 88                       
|Peoria, Illinois       |                            | May, 1996               |  | 160                      
|Galesburg, Illinois    |                            | June, 1996              |  | 96                       
|Mt. Vernon, Illinois   |                            | June, 1996              |  | 96                       
|Alton, Illinois        |                            | December, 1996          |  | 152                      
|Marion, Illinois       |                            | December, 1996          |  | 192                      
|Aberdeen, South Dakota |                            | May, 1998               |  | 88                       
|Grand Island, Nebraska |                            | May, 1998               |  | 88                       
|Lawton, Oklahoma       |                            | May, 1998               |  | 120                      
|Pawnee, Kansas         |                            | May, 1998               |  | 96                       
|Salina, Kansas         |                            | May, 1998               |  | 96                       
|St. Joseph, Missouri   |                            | May, 1998               |  | 96                       
|Westminster, Oklahoma  |                            | May, 1998               |  | 120                      
|                      
|                       | Total Customer Acquisition |                         |  |                          
|                      

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Customer Care Interaction Centers

|Location                         |                     | Date Opened
or Acquired |  | Number of
Workstations(1)
|-------------------------------- | ------------------- | ----------------------- |  | -------------------------
|
|Cedar Rapids, Iowa3rd Avenue    |                     | August, 1994            |  | 203                      
|Cedar Rapids, IowaPark Place I  |                     | January, 1995           |  | 120                      
|Cedar Rapids, IowaPark Place II |                     | November, 1995          |  | 162                      
|Newport News, Virginia           |                     | August, 1995            |  | 716                      
|Fort Worth, Texas                |                     | October, 1995           |  | 683                      
|High Point, North Carolina       |                     | November, 1995          |  | 620                      
|Waterloo, Iowa                   |                     | October, 1996           |  | 304                      
|Corpus Christi, Texas            |                     | October, 1996           |  | 793                      
|Columbia, South Carolina         |                     | December, 1996          |  | 577                      
|LaCrosse, Wisconsin              |                     | May, 1997               |  | 350                      
|Oklahoma City, Oklahoma          |                     | May, 1998               |  | 386                      
|Green Bay, Wisconsin(2)          |                     | May, 1998               |  | 277                      
|Omaha, Nebraska                  |                     | May, 1998               |  | 320                      
|Davenport, Iowa                  |                     | September, 1998         |  | 372                      
|Utica, New York                  |                     | December, 1998          |  | 405                      
|Erlanger, Kentucky               |                     | October, 1999           |  | 35                       
|                                
|                                 | Total Customer Care |                         |  |                          
|                                

CustomerAssistance.com Interaction Centers

|Location                |                              | Date Opened
Or Acquired |  | Number of
Workstations(1)
|----------------------- | ---------------------------- | ----------------------- |  | -------------------------
|
|Deerfield, Illinois     |                              | October, 1999           |  | 111                      
|Green Bay, Wisconsin(2) |                              | October, 2000           |  | 208                      
|Eau Claire, Wisconsin   |                              | December, 2000          |  | 195                      
|Orlando, Florida        |                              | December, 2000          |  | 45                       
|                       
|                        | Total CustomerAssistance.com |                         |  |                          
|                       

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The
Company's profitability is influenced significantly by its Customer Interaction Center capacity utilization. The Company's Customer Acquisition operations tend to be utilized primarily in the
early evening hours on weekdays and to a limited extent on weekends. The Company's Customer Care operations tend to be utilized primarily during normal business hours on weekdays and to a limited
extent on weekends. In an attempt to improve profitability and maximize utilization, the Company monitors its Customer Interaction Centers with the intention of achieving higher levels of fixed cost
absorption. The Company carefully plans the development and opening of new Customer Interaction Centers to minimize the financial impact resulting from excess capacity. To enable the Company to
respond rapidly to changing market demands, implement new programs and expand existing programs, additional Customer Interaction Center capacity may be required in the future.

Item 3.  Legal Proceedings

The Company, certain of its officers and directors and the lead underwriters of certain public offerings of the Company's securities have been named as
defendants in three purported class action lawsuits instituted by various persons who purchased the Company's Common Shares in such offerings. The suits were filed in federal district court for the
Southern District of New York on December 11, 1997, December 19, 1997 and January 5, 1998, respectively. The lawsuits were consolidated in April 1998 into one lawsuit. The
lawsuit alleges violations of the federal securities laws in connection with the Company's November 1996 Prospectus and other public statements
which are alleged to have omitted certain disclosures with respect to the Company's agreement with a large parcel delivery client. The complaint as amended seeks, among other things, unspecified
damages and an award of attorney's fees, costs and expenses. The Company filed a motion to dismiss the lawsuit on September 10, 1998. On or about November 15, 1999, the court denied the
motion to dismiss. Discovery is proceeding in this action. The Company denies all allegations of wrongdoing and continues to believe that it has meritorious defenses.

On
January 5, 2000, APAC, Inc. filed suit against the Company in the U.S. District Court for the Northern District of Georgia (Atlanta Division) alleging that the Company's use of "APAC"
in the Company's name infringes a trademark of APAC, Inc. The suit asserts violations of the federal Lanham Act and various Georgia state statutes, as well as a breach by the Company of an
agreement between APAC, Inc. and the Company. Discovery is proceeding in this action and the Company continues to defend itself vigorously.

Additionally,
the Company is subject to occasional lawsuits, governmental investigations and claims arising out of the normal conduct of its business. Management does not believe the outcome of any
pending claims will have a materially adverse impact on the Company's consolidated financial position.

Although
the Company does not believe that any of these proceedings will result in a materially adverse effect on its consolidated financial position, no assurance to that effect can be given.

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

None

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Executive Officers of the Registrant

The executive officers of the Company are as follows:

|Name                 |  | Age |  | Position                                                           
|-------------------- |  | --- |  | -------------------------------------------------------------------
|
|Theodore G. Schwartz |  | 47  |  | Chairman and Director                                              
|Peter M. Leger       |  | 50  |  | President, Chief Executive Officer and Director                    
|John R. Bowden       |  | 46  |  | Senior Vice President                                              
|Carlos E. Galarce    |  | 40  |  | Senior Vice President and Chief Information Officer                
|John L. Gray         |  | 43  |  | Senior Vice President                                              
|Gary S. Holter       |  | 46  |  | Senior Vice President and Chief Financial Officer                  
|Bruce M. Masterson   |  | 47  |  | Senior Vice President                                              
|Warren N. Rothman    |  | 55  |  | Senior Vice President, Human Resources                             
|Steven A. Shlensky   |  | 39  |  | Senior Vice President, Strategic Planning and Corporate Development
|L. Clark Sisson      |  | 39  |  | Senior Vice President                                              
|Linda R. Witte       |  | 48  |  | Senior Vice President, General Counsel and Secretary               
|J. Eric Smith        |  | 43  |  | Vice President                                                     
|

Theodore
G. Schwartz has served as the Company's Chairman since its formation in May 1973.

Peter
M. Leger joined the Company in October 1999 as President and Chief Operating Officer. In January 2000 Mr. Leger was appointed Chief Executive Officer. From
October 1998 through September 1999 Mr. Leger was President and Chief Executive Officer of Credit Management Solutions, Inc. Prior to October 1998 Mr. Leger
served in various capacities with Automatic Data Processing, most recently as President of ADP Dealer Services Group.

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

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

John
L. Gray, Senior Vice President, joined the Company as Senior Vice President, Customer Assistance.com in January 2000. From October 1995 to January 2000, Mr. Gray held
the positions of Senior Vice President, Marketing and E-Commerce, Senior Vice President, Global R & D and Marketing and Vice President, Marketing and Product Management,
respectively, for Automatic Data Processing, Inc. Prior to October 1995 Mr. Gray was Vice President, Retail Product Marketing & Management for AT&T Global Solutions.

Gary
S. Holter joined the Company as Senior Vice President and Chief Financial Officer in August 1999. From January 1997 to

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February 1999 Mr. Holter was Chief Financial Officer of GeoLogistics Corporation. From February 1995 through December 1996 Mr. Holter was Executive Vice President
and Chief Financial Officer of The Bekins Company, a wholly owned subsidiary of GeoLogistics Corporation. Prior to
February 1995 Mr. Holter served as Executive Vice President and Chief Operating Officer of Knapp Shoes, Inc. Mr. Holter is a certified public accountant.

Bruce
M. Masterson joined the Company in October 2000 as Senior Vice President. Prior to his position with the Company Mr. Masterson was President & Chief Operating Officer of
Mintaur Partners from November 1999 to October 2000. From December 1996 through October 1999 Mr. Masterson was President and Chief Executive Officer of Chartwell
Capital. From July 1994 through November 1996 Mr. Masterson was Chief Executive Officer of Reuters Health Information Services.

Warren
N. Rothman joined the company as Senior Vice President of Human Resources in July 1999. From September 1996 through November 1998 Mr. Rothman was Vice President of
Human Resources for Ameritech: Consumer Services (residential) Division. Prior to September 1996 Mr. Rothman served in Human Resources for Federated Department Stores.

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

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

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

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

PART II

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

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

12

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|             |                | High |        | Low
|------------ | -------------- | ---- | ------ | ---
|
|Fiscal 2000: |                |      |        |    
|             | First Quarter  |      | $16.50 |    
|             | Second Quarter |      | $11.75 |    
|             | Third Quarter  |      | $12.48 |    
|             | Fourth Quarter |      | $5.69  |    

|             |                | High |        | Low
|------------ | -------------- | ---- | ------ | ---
|Fiscal 1999: |                |      |        |    
|             | First Quarter  |      | $4.84  |    
|             | Second Quarter |      | $4.00  |    
|             | Third Quarter  |      | $4.63  |    
|             | Fourth Quarter |      | $14.06 |    
|            

As
of March 9, 2001 there were 275 holders of record of the Common Shares. The Company did not pay any dividends on its Common Shares in fiscal years 2000 or 1999. The Company currently intends
to retain future earnings to finance its growth and development and therefore does not anticipate paying any cash dividends in the foreseeable future. In addition, the Company's Credit Facility
restricts the payment of cash dividends by the Company. Payment of any future dividends will depend upon the future earnings and capital requirements of the Company and other factors the Board of
Directors considers appropriate.

13

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Item 6.  Selected Financial Data

|APAC Customer Services, Inc.
Selected Financial Data |  | (In thousands, except per share and selected statistical data)
|---------------------------------------------------- |  | --------------------------------------------------------------
|                                                     |  |                                                               

|For the Fiscal Years Ended(1) |                                                 |                                          |          |         |          |         |          |         |          |        
|----------------------------- | ----------------------------------------------- | ---------------------------------------- | -------- | ------- | -------- | ------- | -------- | ------- | -------- | -------
|
|
|
|Operating Data:               |                                                 |                                          |          |         |          |         |          |         |          |        
|                              | Customer Acquisition                            |                                          | $165,836 |         | $149,000 |         | $199,523 |         | $182,874 |        
|                              | Customer Care                                   |                                          | 290,713  |         | 278,645  |         | 225,505  |         | 167,659  |        
|                              | CustomerAssistance.com                          |                                          | 7,806    |         |         |         |         |         |         |        
|                             
|                              |                                                 | Total net revenue                        |          | 464,355 |          | 427,645 |          | 425,028 |          | 350,533
|                              | Cost of services(8)                             |                                          | 359,669  |         | 347,005  |         | 353,979  |         | 268,177  |        
|                              | Selling, general and administrative expenses(3) |                                          | 68,610   |         | 58,045   |         | 65,230   |         | 45,810   |        
|                              | Asset impairment charges(2)                     |                                          |         |         |         |         | 71,172   |         | 3,238    |        
|                             
|                              |                                                 | Operating income (loss)                  |          | 36,076  |          | 22,595  |          | (65,353 | )        | 33,308 
|                              | Interest expense, net                           |                                          | 9,350    |         | 13,365   |         | 8,139    |         | 1,499    |        
|                              | Income taxes (benefit)                          |                                          | 10,056   |         | 3,580    |         | (5,200   | )       | 12,100   |        
|                             
|                              | Income (loss) from continuing operations        |                                          | 16,670   |         | 5,650    |         | (68,292  | )       | 19,709   |        
|                              | Gain (loss) from discontinued operations(4)     |                                          | 511      |         |         |         | (11,028  | )       | (18,726  | )      
|                              | Cumulative effect of accounting change(5)       |                                          |         |         |         |         |         |         | (2,200   | )      
|                             
|                              | Net income (loss)                               |                                          | $17,181  |         | $5,650   |         | $(79,320 | )       | $(1,217  | )      
|                             
|Net income (loss) per share:  |                                                 |                                          |          |         |          |         |          |         |          |        
|                              | Basic:                                          |                                          |          |         |          |         |          |         |          |        
|                              |                                                 | Continuing operations                    |          | $0.35   |          | $0.12   |          | $(1.40  | )        | $0.36  
|                              |                                                 | Discontinued operations                  |          | 0.01    |          |        |          | (0.23   | )        | (0.39  
|                             
|                              |                                                 | Net Income (loss)                        |          | $0.36   |          | $0.12   |          | $(1.63  | )        | $(0.03 
|                             
|                              | Diluted:                                        |                                          |          |         |          |         |          |         |          |        
|                              |                                                 | Continuing operations                    |          | $0.33   |          | $0.12   |          | $(1.40  | )        | $0.36  
|                              |                                                 | Discontinued operations                  |          | 0.01    |          |        |          | (0.23   | )        | (0.39  
|                             
|                              |                                                 | Net Income (loss)                        |          | $0.34   |          | $0.12   |          | $(1.63  | )        | $(0.03 
|                             
|                              | Weighted average shares outstanding:            |                                          |          |         |          |         |          |         |          |        
|                              |                                                 | Basic:                                   |          | 48,286  |          | 47,341  |          | 48,609  |          | 47,453 
|                              |                                                 | Diluted:                                 |          | 50,952  |          | 47,822  |          | 48,609  |          | 48,505 
|                             
|Statistical Data:             |                                                 |                                          |          |         |          |         |          |         |          |        
|                              | Number of Customer Interaction Centers(6):      |                                          |          |         |          |         |          |         |          |        
|                              |                                                 | Customer Acquisition                     |          | 37      |          | 43      |          | 62      |          | 56     
|                              |                                                 | Customer Care                            |          | 16      |          | 16      |          | 15      |          | 12     
|                              |                                                 | CustomerAssistance.com                   |          | 4       |          |        |          |        |          |       
|                              | Number of workstations(6):                      |                                          |          |         |          |         |          |         |          |        
|                              |                                                 | Customer Acquisition                     |          | 3,640   |          | 4,148   |          | 5,991   |          | 5,584  
|                              |                                                 | Customer Care                            |          | 6,323   |          | 6,718   |          | 6,729   |          | 5,186  
|                              |                                                 | CustomerAssistance.com                   |          | 559     |          |        |          |        |          |       
|                              | Net revenue per workstation(7):                 |                                          |          |         |          |         |          |         |          |        
|                              |                                                 | Customer Acquisition                     |          | $46,458 |          | $31,500 |          | $36,178 |          | $33,666
|                              |                                                 | Customer Care                            |          | $42,342 |          | $41,374 |          | $39,035 |          | $33,075
|                              |                                                 | CustomerAssistance.com                   |          | $50,492 |          |        |          |        |          |       
|Balance Sheet Data:           |                                                 |                                          |          |         |          |         |          |         |          |        
|                              |                                                 | Cash and short-term investments          |          | $41,192 |          | $18,876 |          | $3,543  |          | $17    
|                              |                                                 | Net assets of discontinued operations(4) |          |        |          | 10,028  |          | 7,096   |          | 15,318 
|                              |                                                 | Working capital                          |          | 51,060  |          | 51,957  |          | 17,748  |          | 34,090 
|                              |                                                 | Capital expenditures                     |          | 15,236  |          | 7,789   |          | 17,076  |          | 43,742 
|                              |                                                 | Total assets                             |          | 231,795 |          | 236,480 |          | 267,502 |          | 185,831
|                              |                                                 | Long-term debt, less current maturities  |          | 84,483  |          | 115,987 |          | 132,427 |          | 1,863  
|                              |                                                 | Share owners' equity                     |          | 73,811  |          | 48,622  |          | 41,824  |          | 124,783

14

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NOTES (000's except for Note 7):

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

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

15

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DESCRIPTION OF BUSINESS

The Company is a leading provider of comprehensive customer relationship management (CRM) and electronic CRM (e-CRM) solutions for Fortune 1000, mid-tier and emerging e-commerce
companies in the banking and brokerage, communications, healthcare, insurance,
retail, utility, automotive and travel and entertainment sectors. The Company delivers a full-suite of electronic CRM products and services, including
e-PACSM, a multi-channel platform that supports a broad range of integrated,
e-commerce-based customer integration capabilities. Expanding upon its core competency of CRM solutions, APAC Customer Services recently added solutions integration services to its array
of customer care programs. To help its clients better manage relationships with their customers, APAC Customer Services develops and delivers end-to-end customer care, customer
acquisition and Web-enabled CRM programs. In December 1998, the Company's management approved a plan to sell Paragren's software development business. Accordingly, Paragren was
reported as a discontinued operation, and the consolidated financial statements for fiscal years 1998 and 1997 have been reclassified to segregate the operating results and net assets of the business.
The sale of Paragren's software business was completed in January 2000. As of December 31, 2000, the Company operated and managed approximately 10,500 workstations in 57 customer
interaction centers and had three primary service offerings: Customer Acquisition, Customer Care and CustomerAssistance.com.
(i.e.e-CRM Solutions).

Significant Clients

The nature of the industry is such that the Company is dependent on several large clients for a significant portion of its annual net revenue. The Company's ten
largest clients collectively accounted for 66.1% of the Company's net revenue in fiscal 2000. The Company has one client, a parcel delivery client, which individually accounted for more than 10% of
the Company's consolidated net revenues. This client accounted for 15.3% of the Company's consolidated net revenues and 24.4% of the Company's Customer Care net revenues in fiscal 2000, compared to
14.5% and 23.4% respectively, in fiscal 1999.

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

As
a result of the facilities management programs, the Company expects that its overall gross margin will continue to fluctuate as net revenue attributable to fully outsourced programs vary in
proportion to net revenue attributable to the facilities management program. Based on the foregoing, management believes that the Company's operating margin, which is income from operations, excluding
unusual charges, expressed as a percentage of net revenue is a better measure of "profitability" on a period-to-period basis than gross margin. Operating margin may be less
subject to fluctuation as the proportion of the Company's business portfolio attributable to fully outsourced programs versus facilities management program changes.

There
can be no assurance that the Company will be able to retain any of its largest clients or that the volumes of its most profitable or largest programs will not be reduced, or that the Company
would be able to replace such

16

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clients or programs with clients or programs that generate a comparable amount of revenue or profits. Consequently, the loss of one or more of its significant clients could have a materially adverse
effect on the Company's business, results of operations and financial condition.

Results of Operations

The following tables set forth statement of operations data as a percent of net revenue from services performed by the Company for the fiscal years ended
December 31, 2000, January 2, 2000 and January 3, 1999, (fiscal 2000, fiscal 1999 and fiscal 1998, respectively).

|                                                                         |                                              | 2000                     |      | 1999  |      | 1998  |     
|------------------------------------------------------------------------ | -------------------------------------------- | ------------------------ | ---- | ----- | ---- | ----- | ----
|
|Net revenue:                                                             |                                              |                          |      |       |      |       |     
|                                                                         | Customer Acquisition                         |                          | 35.7 | %     | 34.8 | %     | 46.9
|                                                                         | Customer Care                                |                          | 62.6 |       | 65.2 |       | 53.1
|                                                                         | CustomerAssistance.com                       |                          | 1.7  |       |     |       |    
|                                                                         |                                             
|                                                                         |                                              | Total net revenue        |      | 100.0 |      | 100.0 |     
|Operating expenses:                                                      |                                              |                          |      |       |      |       |     
|                                                                         | Cost of services                             |                          | 77.4 |       | 81.1 |       | 83.3
|                                                                         | Selling, general and administrative expenses |                          | 14.8 |       | 13.6 |       | 15.3
|                                                                         | Asset impairment charges                     |                          |     |       |     |       | 16.8
|                                                                         |                                             
|                                                                         |                                              | Total operating expenses |      | 92.2  |      | 94.7  |     
|                                                                         |                                             
|Operating income (loss)                                                  |                                              | 7.8                      |      | 5.3   |      | (15.4 | )   
|Interest expense, net                                                    |                                              | 2.0                      |      | 3.2   |      | 1.9   |     
|                                                                         |                                             
|Income (loss) from continuing operations before income taxes             |                                              | 5.8                      |      | 2.1   |      | (17.3 | )   
|Provision (benefit) for income taxes                                     |                                              | 2.2                      |      | 0.8   |      | (1.2  | )   
|                                                                         |                                             
|Income (loss) from continuing operations                                 |                                              | 3.6                      |      | 1.3   |      | (16.1 | )   
|Gain (loss) discontinued operations, less income tax provision (benefit) |                                              | 0.1                      |      |      |      | (2.6  | )   
|                                                                         |                                             
|Net income (loss)                                                        |                                              | 3.7                      | %    | 1.3   | %    | (18.7 | )%  
|                                                                         |                                             

Fiscal 2000 Compared to Fiscal 1999

Net revenue increased 8.6% to $464.4 million in fiscal 2000 from $427.6 million in fiscal 1999, an increase of $36.8 million. Customer Care
net revenue increased by $12.1 million or 4.3% over fiscal 1999 levels. The increase in Customer Care net revenue was due primarily to growth in call volumes with new and existing clients and
higher rates, partially offset by the reduction in volumes from under performing and expired contracts. Customer Acquisition net revenue increased by $16.8 million, or 11.3% over fiscal 1999
levels. This increase in Customer Acquisition net revenue was primarily due to rate increases, new programs for existing clients, new client programs and a more favorable business mix.
CustomerAssistance.com contributed $7.8 million of revenue.

Cost
of services increased $12.7 million in fiscal 2000, or 3.7% to $359.7 million from $347.0 million in fiscal 1999. This increase on 8.6% revenue growth was due to operational
improvements in both Customer Care and Customer Acquisition. Cost of services for fiscal 1999 include the reversal of $4.9 million of accrued telephone charges that had been recorded in the
fourth quarter of 1998. Cost of services in 2000 includes $1.4 million of such credits recorded in the third and fourth quarters. Customer Acquisition gross profit margins improved to 26.8% in
fiscal 2000 from 16.4% in the previous year on improved business mix, better capacity utilization, increased productivity and a reduction in fixed costs which resulted from the restructuring plans
implemented in fiscal 1999 that reduced the number of workstations and corresponding excess capacity. Customer Care also contributed with an increase in

17

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gross profit to 21.4% in fiscal 2000 from 20.2% in fiscal 1999. This increase resulted primarily from improved workforce management efforts.

Selling,
general and administrative expenses increased to $68.6 million in fiscal 2000 from $58.0 million in fiscal 1999, an increase of $10.6 million or 18.3%. Fiscal 1999
expenses included $7.6 million of restructuring expenses. Excluding these charges, selling, general and administration expenses increased $18.2 million in fiscal 2000 or 36%. As a
percent of net revenue, selling, general and administrative expenses increased to 14.8% in fiscal 2000 from 11.8% in fiscal 1999 before restructuring charges. This increase was primarily due to
additional investments in the areas of people, adding marketing, sales and senior management personnel, and non-recurring costs related to the development of a new technology platform,
e.PACSM, the development of new product service offerings related to CustomerAssistance.com ("CA.com") and
vertical sales and solutions, management and infrastructure required for CustomerAssistance.com, and the new headquarters, operational facilities and associated personnel relocation in Deerfield, IL.

In
fiscal 1999, the Company recorded restructuring charges of $7.6 million associated with the closure of 21 Customer Acquisition Interaction Centers and reductions in the salaried workforce.
The facility closure charge included $5.4 million for the write-down of property and equipment, $0.9 million for employee severance costs and $1.3 million for lease
termination costs.

The
Company generated operating income of $36.1 million for fiscal 2000 compared to $22.6 million for fiscal 1999. For the Customer Care business unit, operating income for fiscal 2000
was $22.1 million, or 7.6% of net revenue, compared to operating income of $26.5 million, or 9.5% of net revenue, for the same period in the prior year, as the increase in gross profit
dollars in 2000 resulting from higher gross profit margins were offset by higher selling, general and administrative expenses as previously discussed. The Customer Acquisition business unit generated
operating income of $21.5 in fiscal 2000, compared to $3.7 million before restructuring charges, for the same period in fiscal 1999. The positive operating performance of the Customer
Acquisition business unit in fiscal 2000 was primarily due to increased net revenue and the significant improvement in gross margins related to the successful implementation of the restructuring plans
initiated in fiscal 1999 to reduce excess capacity and improve operating performance.

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

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

Fiscal 1999 Compared to Fiscal 1998

Net revenue increased to $427.6 million in fiscal 1999 from $425.0 million in fiscal 1998, an increase of $2.6 million. Customer Care net
revenue increased by $53.1 million or 23.5% over fiscal 1998 levels. The increase in Customer Care net revenue was due primarily to growth in call volumes with existing clients and the full
year inclusion of the results of ITI Marketing ("ITI"). Customer Acquisition net revenue decreased by $50.5 million or 25.3% below fiscal 1998 levels. This decrease in Customer Acquisition net
revenue was primarily due to the consolidation of certain large clients and the loss of other clients previously associated with ITI substantially reducing outbound telemarketing call

18

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volumes available to the Company. The decrease also reflects the Company's strategy to balance call center capacity with demand for customer acquisition services.

Cost
of Services decreased $7.0 million, or 2.0% to $347.0 million from $354.0 million in fiscal 1998. The decrease in the cost of services includes the reversal of nonrecurring
telephone charges originally recorded during fiscal 1998. The Company reversed $4.9 million in 1999 of accrued telephone charges recorded in the fourth quarter of 1998. This reversal resulted
from the Company negotiating favorable dispositions of costs associated with certain guaranteed minimum usage telecommunications contracts during the second and third quarters of fiscal 1999.
Excluding both the charge in 1998 and the reversal in 1999, cost of services was virtually unchanged at 82.3% in 1999 compared to 82.1% in 1998.

Selling,
general and administrative expenses decreased to $50.4 million in fiscal 1999 from $56.2 million in fiscal 1998, a decrease of $5.8 million or 10.3%. As a percent of net
revenue, selling, general and administrative expenses decreased to 11.8% in fiscal 1999 from 13.2% in fiscal 1998. This decrease was primarily due to reductions in workforce and related expense
savings achieved through restructuring initiatives and the consolidation of the administrative functions of ITI.

During
fiscal years 1999 and 1998, the Company recorded restructuring charges of $7.6 million and $9.0 million, respectively, in connection with the consolidation of the Customer
Acquisition business unit, closure of certain customer interaction centers and reductions in the salaried workforce. During fiscal 1999, the Company closed 19 customer interaction centers containing
approximately 1,843 seats. In fiscal 1998, the Company also adjusted the carrying value of the Customer Acquisition business unit's long-lived assets to their fair value. This adjustment
resulted in a non-cash impairment charge of $69.7 million to write-off goodwill and intangible assets acquired with the acquisition of ITI. Additionally, the Company
recorded a non-cash impairment charge of $1.5 million on certain capitalized software abandoned during 1998.

The
Company generated operating income of $22.6 million for fiscal 1999. Excluding the restructuring charges, operating income for fiscal 1999 was $30.2 million compared to
$14.8 million (before restructuring and asset impairment charges) for fiscal 1998. For the Customer Care business unit, operating income for fiscal 1999 was $26.5 million, or 9.5% of net
revenue, compared to operating income (before restructuring and asset impairment charges) of $15.8 million, or 7.0% of net revenue, for the same period in fiscal 1998. Customer Care operating
income increased $10.7 million (before restructuring and asset impairment charges), principally due to increased net revenue and a more profitable client mix. The Customer Acquisition business
unit generated operating income of $3.7 million prior to restructuring charges of $7.6 million in fiscal 1999, compared to an operating loss of $1.0 million before restructuring
and asset impairment charges, for the same period in fiscal 1998. The operating performance of the Customer Acquisition business unit in fiscal 1999 was affected by decreased net revenue, the cost of
underutilized customer interaction center capacity and higher direct wages, partially offset by the reversal in fiscal 1999 of $4.9 million in accrued telephone charges recorded in the fourth
quarter of fiscal 1998. While the full year performance for Customer Acquisition was down compared to 1998, operating performance in the 3rd and 4th quarters of fiscal 1999
were significantly improved over the comparable periods in fiscal 1998. Improved operating performance coupled with reduced workstation capacity contributed to the improved financial performance.

Net
interest expense for fiscal 1999 increased by $5.2 million compared to fiscal 1998. This increase reflects a full year of interest and related debt costs in fiscal 1999 on the
$150.0 million term loan used to finance the purchase of ITI. While full year fiscal 1999 net interest expense was up significantly

19

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compared to fiscal 1998, the quarterly trend was decreasing as total debt levels were being reduced and positive results from the Company's working capital management efforts have contributed to
increased cash balances and lower net interest expense.

The
change in the Company's effective income tax rate to 38.8% in fiscal 1999 from (7.1)% in fiscal 1998 was primarily due to the effect of the write off of non-deductible goodwill and
asset impairment charges in 1998.

New Accounting Pronouncements

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

This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. As a result of SFAS No. 137, "Accounting for Derivative Instruments and Hedging ActivitiesDeferral of the Effective Date of SFAS
No. 133", the Company will adopt this standard in the first quarter of fiscal 2001. Management believes that the impact of SFAS No. 133 will not have a material effect on the Company's
financial condition or results of operations.

SEC Staff Accounting Bulletin:
No. 101Revenue Recognition in Financial Statements:

In December 1999, the staff of the Securities and Exchange Commission issued its Staff Accounting Bulletin (SAB) no. 101 "Revenue Recognition."
SAB No. 101 provides guidance on the measurement and timing of revenue recognition in financial statements of public companies. Changes in accounting policies to apply the guidance of SAB
No. 101 were required to be adopted by recording the cumulative effect of the change in the fiscal quarter ending March 31, 2000. No such adjustment was required for the Company and the
adoption of this pronouncement did not effect the accounting policies or results of operations of the Company in fiscal 2000.

Liquidity and Capital Resources

The following table sets forth consolidated statements of cash flow data for the Company for years ended December 31, 2000, January 2, 2000, and
January 3, 1999, respectively.

|                                                 |  | 2000  |   | 1999  |   | 1998   |  
|------------------------------------------------ |  | ----- | - | ----- | - | ------ | -
|
|Net cash provided by operating activities        |  | $41.4 |   | $47.3 |   | $45.9  |  
|Net cash used by investing activities            |  | 1.7   |   | (7.8  | ) | (166.3 | )
|Net cash provided (used) by financing activities |  | (20.8 | ) | (24.2 | ) | 123.9  |  
|                                                 | 
|Net increase (decrease) in cash                  |  | $22.3 |   | $15.3 |   | $3.5   |  
|                                                 | 

Cash
provided by operations during fiscal 2000 decreased $5.9 million from fiscal 1999 as significantly improved operating results and a decrease in accounts receivable in fiscal 2000 were
offset by a change in timing differences relating to net deferred tax assets, and changes in net assets of discontinued operations.

The
Company spent $15.2 million and $7.8 million, net of disposals and retirements in fiscal 2000 and 1999, respectively, for capital expenditures, primarily information technology in
fiscal 2000, and construction of additional customer interaction center capacity for Customer Care clients and to upgrade equipment in existing centers in 1999. These capital expenditures were funded
with cash provided by operations. In conjunction with the move to the new headquarters facility in Deerfield in fiscal

20

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2000, the Company has spent approximately $5.5 million for furniture, renovations and technology equipment. On March 28, 2000 the Company sold an aggregate of 695,652 common shares held
in treasury to a member of the Board of Directors, for $5,000,000 in cash, or $7.1875 per share.

At
January 2, 2000, the Company had a $75.0 million Revolving Credit Facility ("Revolving Facility") available for general working capital purposes and capital expenditures. On
January 20, 2000, the Company amended the Credit Facility, reducing the Revolving Facility to $50.0 million. As of December 31, 2000, there were no borrowings outstanding under
the Revolving Facility. The Company made $27.0 million of repayments on its Term Loan during fiscal 2000, $11.0 million of which was made as a result of the sale of Paragren, resulting
in a balance outstanding at December 31, 2000, of $103 million. $20.0 million in scheduled principal payments will be made in fiscal 2001.

The
Company expects that cash from future operations and available borrowings under the Revolving Facility will be sufficient to meet normal operating needs, fund any planned capital expenditures and
repay debt obligations during fiscal year 2001.

Quarterly Results

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

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

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

21

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products and services; fluctuations in quarterly results of operations due to timing of clients' initiation and termination of large programs; changes in competitive conditions affecting the Company's
industry; the ability of the Company's clients to terminate contracts with the Company on a relatively short notice; changes in the availability and cost of qualified employees; variations in the
performance of the Company's automated system and other technological factors; changes in government regulations affecting the teleservices and telecommunications industries; and competition from
other outside providers of customer relationship management solutions and in-house customer relationship operations.

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

Reliance on Major Clients

Because a substantial portion of the Company's revenue is generated from relatively few clients, the loss of a significant client or clients could have a
materially adverse effect on the Company. The Company had clients which individually accounted for more than 10% of the Company's net revenue for fiscal years 2000, 1999, and 1998. The Company's ten
largest clients collectively accounted for 66.1% of the Company's net revenue. The Company's largest client in fiscal 2000 was a large parcel delivery client, which accounted for 15.3% of the
Company's net revenue in fiscal 2000. The Company's second largest client in fiscal 2000 was a financial services subsidiary of a national retailer, which accounted for 9.1% of the Company's net
revenue during that period. The Company's third largest client in fiscal 2000 was a major telecommunications client which accounted for 8.1% of the Company's net revenue during the period. In fiscal
1999, two clients accounted for 14.5% and 10.1% of the Company's net revenue and in fiscal 1998, two clients accounted for 16.1% and 13.5% of the Company's net revenue, respectively. Many of the
Company's clients are concentrated in the business and consumer products, parcel delivery, financial services, insurance, retail, health care and pharmaceuticals, and telecommunications industries. A
significant downturn in any of these industries or a trend in any of these industries not to use, or to reduce their use of, telephone-based sales, marketing or customer management solutions could
have a materially adverse effect on the Company's business. The Company generally operates under contracts, which may be terminated on short notice, most of which do not have minimum volume
requirements. Additionally, the Company's contracts do not typically ensure that it will generate a minimum level of revenues or generate a minimum level of volume, and the profitability of each
client program may fluctuate, sometimes significantly, throughout the various stages of such program.

The
Company's contract with its parcel delivery client was extended for three years, beginning September 20, 1999, after which the Agreement is subject to automatic one year renewals. Pursuant
to the Amendment, however, the client has the right to terminate any of the services contemplated by the Agreement or the entire Agreement upon prior notice to the Company. In the event of
termination, the affected services would be phased out over a period of not less than nine months from the notice of termination. The client agreed to use its best efforts not to reduce revenue for
the terminated services under the Agreement by more than one third per quarter during the ramp down period. The contract is a facilities management contract. Under this facilities management program,
the Customer Interaction Centers where the work is performed are owned by the client, but are staffed and managed by the Company.

There
can be no assurance that the Company will be able to retain any of its largest clients, that such clients will not terminate their contracts before their scheduled expiration date or that the
volumes of its most profitable or largest programs will not be reduced, or

22

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that the Company would be able to replace such clients or programs with clients or programs that generate a comparable amount of revenue or profits. Consequently, the loss of one or more of its
significant clients could have a materially adverse effect on the Company's business, results of operations and financial condition.

Factors Affecting Ability to Manage and Sustain Growth

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

Competitive and Fragmented Industry; Potential Future Competing Technologies and Trends

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

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

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

Reliance on Technology

The Company has invested significantly in sophisticated and specialized telecommunications and computer technology, and has focused on the application of this
technology to provide customized solutions to meet its clients needs. The Company anticipates that it will be necessary to continue to select, invest in and develop new and enhanced technology on a
timely basis in the future in order to maintain its competitiveness. The Company's

23

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future
success will depend in part on its ability to continue to develop information technology solutions which keep pace with evolving industry standards and changing client demands. In addition, the
Company's business is highly dependent on its computer and telephone equipment and software systems, and the temporary or permanent loss of such equipment or systems, through casualty or operating
malfunction, could have a materially adverse effect on the Company's business.

Inability to Effectively Implement and Expand Our Internet Products and Services.

An important part of the Company's growth strategy includes providing a full suite of electronic customer relationship management products and services over the
Internet. The effective implementation and growth of our Internet based products and services is dependent on the anticipated growth in and industry trends towards outsourcing and
co-sourcing of Internet based marketing and customer service operations and a variety of other external and internal factors.

The
Internet based information and services market is new and rapidly evolving. The Company's Internet strategy would be materially adversely affected if Internet usage does not continue to grow or
grows slowly. Internet usage may be inhibited for a number of reasons, such as inadequate network infrastructure, system failures, delays or other difficulties, security and privacy concerns, and the
unavailability of cost-effective, high-speed access to the Internet.

The
Company's ability to provide reliable, high quality Internet products and services is dependent on the efficient and uninterrupted operation of our computer and communications hardware and
software systems. These systems are vulnerable to damage or interruption from human error, natural disasters, telecommunication failures, power outages, break-ins, sabotage, computer
viruses, intentional acts of vandalism and similar events. Any system failure, including network, software, or hardware, whether internal or external to the Company, that causes an interruption in our
service or a decrease in responsiveness of our Internet site could result in reduced traffic, reduced revenue and harm to our reputation, brand and relationship with our clients.

The
success of the Company's Internet products and services is dependant on the timely development, integration and continued enhancement of our Internet products and services
including: the effective and timely marketing to, and level of acceptance and increased utilization by, existing and new clients of the Company; the accurate estimation by the Company of the level of
need and demand for customer support and service through the use of the Internet; the ability of the Company to hire, train and retain qualified technology and other personnel in connection with its
development, implementation and/or enhancement efforts and the operation of CustomerAssistance.com; the compatibility of CustomerAssistance.com and other Internet products and services with existing
systems of the Company's clients and the extent of the technical problems arising with respect to obtaining such compatibility; and the introduction of new competitive products and services in the
Company's industry by other companies and, in connection therewith, the ability of the Company to maintain a leadership role in both traditional and Internet based products and services.

Dependence on Key Personnel

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

24

---

retain additional qualified management personnel.

Dependence on Labor Force

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

Dependence on Telephone Service

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

Government Regulation

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 particularly with respect to the activities of its Customer Acquisition business. The FCC rules under 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 TCFAPA broadly authorizes the FTC to issue regulations prohibiting
misrepresentation in telemarketing 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 telecommunications, 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. There is increasing Federal and state interest in privacy protections, some aspects of which could impose additional regulatory
pressure on the business of the Company's clients and, less directly, on the Company's business. The Company's 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.

Potential Fluctuations in Quarterly Operating Results

The Company could experience quarterly variations in revenue and operating income

25

---

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

Volatility of Stock Price

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

Control by Principal Share Owner

Mr. Schwartz, the Company's Chairman, beneficially owns approximately 39.7% of the outstanding Common Shares. In addition, two trusts, established by
Mr. Schwartz, each beneficially own approximately 5.3% of the outstanding Common Shares. As a result, Mr. Schwartz is able to exercise significant control over the outcome of
substantially all matters requiring action by the Company's share owners. Such voting concentration may have the effect of discouraging, delaying or preventing a change in control of the Company.

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

The Company is exposed to the impact of U.S. interest rate changes directly related to its normal operating and funding activities. The Company enters into
derivatives in order to minimize these risks, but not for trading purposes and has entered into interest rate agreements which effectively fix all of its term loan obligations. As a result, the
interest rate on approximately 99% of debt obligations as of December 31, 2000 are fixed.

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

26

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Item 8.  Financial Statements and Supplementary Data

The following financial information is included in this Report:

|                                                                                                                                  |  | Page
|--------------------------------------------------------------------------------------------------------------------------------- |  | ----
|
|Report of Independent Public Accountants                                                                                          |  | 28  
|Consolidated Statements of Operations for the Fiscal Years Ended December 31, 2000, January 2, 2000, and January 3, 1999          |  | 29  
|Consolidated Balance Sheets as of December 31, 2000, and January 2, 2000                                                          |  | 30  
|Consolidated Statements of Share Owners' Equity for the Fiscal Years Ended December 31, 2000, January 2, 2000 and January 3, 1999 |  | 31  
|Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2000, January 2, 2000 and January 3, 1999           |  | 32  
|Notes to Consolidated Financial Statements                                                                                        |  | 33  
|

27

---

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Share Owners of
APAC Customer Services, Inc.:

We
have audited the accompanying consolidated balance sheets of APAC CUSTOMER SERVICES, INC. and subsidiaries as of December 31, 2000 and January 2, 2000, and the related
consolidated statements of operations, share owners' equity and cash flows for the years ended December 31, 2000, January 2, 2000 and January 3, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of APAC Customer Services, Inc. and Subsidiaries as of
December 31, 2000 and January 2, 2000, and the results of its operations and its cash flows for the years ended December 31, 2000, January 2, 2000 and January 3,
1999, in conformity with accounting principles generally accepted in the United States.

Arthur
Andersen LLP

Chicago,
Illinois
January 31, 2001

28

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|APAC Customer Services, Inc.
Consolidated Statements of Operations |  | (Dollars in thousands)
|------------------------------------------------------------------ |  | ----------------------
|                                                                   |  |                       

|For the Fiscal Years Ended           |                                                                                                                                                                                                                       |                               |         |          |         |          |        
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------- | -------- | ------- | -------- | -------
|
|
|
|Net Revenue                          |                                                                                                                                                                                                                       | $464,355                      |         | $427,645 |         | $425,028 |        
|Operating Expenses:                  |                                                                                                                                                                                                                       |                               |         |          |         |          |        
|                                     | Cost of services                                                                                                                                                                                                      |                               | 359,669 |          | 347,005 |          | 353,979
|                                     | Selling, general and administrative expenses                                                                                                                                                                          |                               | 68,610  |          | 58,045  |          | 65,230 
|                                     | Asset impairment charges                                                                                                                                                                                              |                               |        |          |        |          | 71,172 
|                                     |                                                                                                                                                                                                                      
|                                     |                                                                                                                                                                                                                       | Total operating expenses      |         | 428,279  |         | 405,050  |        
|                                     |                                                                                                                                                                                                                      
|                                     | Operating income (loss)                                                                                                                                                                                               |                               | 36,076  |          | 22,595  |          | (65,353
|Interest Expense                     |                                                                                                                                                                                                                       | 9,350                         |         | 13,365   |         | 8,139    |        
|                                     |                                                                                                                                                                                                                      
|                                     | Income (loss) from continuing operations before income taxes                                                                                                                                                          |                               | 26,726  |          | 9,230   |          | (73,492
|Provision (Benefit) for Income Taxes |                                                                                                                                                                                                                       | 10,056                        |         | 3,580    |         | (5,200   | )      
|                                     |                                                                                                                                                                                                                      
|                                     | Income (loss) from continuing operations                                                                                                                                                                              |                               | 16,670  |          | 5,650   |          | (68,292
|Discontinued Operations:             |                                                                                                                                                                                                                       |                               |         |          |         |          |        
|                                     | Loss from operations of Paragren Technologies, Inc., less income tax benefit of ($1,100)                                                                                                                              |                               |        |          |        |          | (2,628 
|                                     | Gain (loss) on disposal of Paragren Technologies, Inc., net of income tax provision (benefit) of $321 and ($1,100) respectively, and a provision of $3,000 in fiscal 1998 for operating losses during disposal
period |                               | 511     |          |        |          | (8,400 
|                                     |                                                                                                                                                                                                                      
|                                     |                                                                                                                                                                                                                       | Total discontinued operations |         | 511      |         |         |        
|                                     |                                                                                                                                                                                                                      
|Net Income (Loss)                    |                                                                                                                                                                                                                       | $17,181                       |         | $5,650   |         | $(79,320 | )      
|                                     |                                                                                                                                                                                                                      
|Net Income (Loss) Per Share:         |                                                                                                                                                                                                                       |                               |         |          |         |          |        
|Basic:                               |                                                                                                                                                                                                                       |                               |         |          |         |          |        
|                                     | Income (loss) from continuing operations                                                                                                                                                                              |                               | $0.35   |          | $0.12   |          | $(140  
|                                     | Gain (loss) from discontinued operations                                                                                                                                                                              |                               | 0.01    |          |        |          | (0.23  
|                                     |                                                                                                                                                                                                                      
|                                     |                                                                                                                                                                                                                       | Net income (loss)             |         | $0.36    |         | $0.12    |        
|                                     |                                                                                                                                                                                                                      
|Diluted:                             |                                                                                                                                                                                                                       |                               |         |          |         |          |        
|                                     | Income loss from continuing operations                                                                                                                                                                                |                               | $0.33   |          | $0.12   |          | (1.40  
|                                     | Gain (loss) from discontinued operations                                                                                                                                                                              |                               | 0.01    |          |        |          | (0.23  
|                                     |                                                                                                                                                                                                                      
|                                     |                                                                                                                                                                                                                       | Net income (loss)             |         | $0.34    |         | $0.12    |        
|                                     |                                                                                                                                                                                                                      
|Weighted Average Shares Outstanding: |                                                                                                                                                                                                                       |                               |         |          |         |          |        
|                                     | Basic                                                                                                                                                                                                                 |                               | 48,286  |          | 47,341  |          | 48,609 
|                                     | Diluted                                                                                                                                                                                                               |                               | 50,952  |          | 47,822  |          | 48,609 
|                                     |                                                                                                                                                                                                                      

See
Notes to Consolidated Financial Statements.

29

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|APAC Customer Services, Inc.
Consolidated Balance Sheets |  | (Dollars in thousands)
|-------------------------------------------------------- |  | ----------------------
|                                                         |  |                       

|                                          |                                                                                                                                | December 31,
2000          |         | January 2,
2000 |        
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------- | --------------- | -------
|
|ASSETS                                    |                                                                                                                                |                            |         |                 |        
|Current assets                            |                                                                                                                                |                            |         |                 |        
|                                          | Cash and cash equivalents                                                                                                      |                            | $41,192 |                 | $18,876
|                                          | Accounts receivable, less allowances of $3,089 and $1,560, respectively                                                        |                            | 65,346  |                 | 72,031 
|                                          | Net assets of discontinued operations                                                                                          |                            |        |                 | 10,028 
|                                          | Other current assets                                                                                                           |                            | 13,333  |                 | 14,346 
|                                          |                                                                                                                               
|                                          |                                                                                                                                | Total current assets       |         | 119,871         |        
|Property and equipment, net               |                                                                                                                                | 54,480                     |         | 65,884          |        
|Goodwill and other intangible assets, net |                                                                                                                                | 47,757                     |         | 52,541          |        
|Deferred taxes                            |                                                                                                                                | 2,789                      |         |                |        
|Other assets                              |                                                                                                                                | 6,898                      |         | 2,774           |        
|                                          |                                                                                                                               
|                                          |                                                                                                                                | $231,795                   |         | $236,480        |        
|                                          |                                                                                                                               
|LIABILITIES AND SHARE OWNERS' EQUITY      |                                                                                                                                |                            |         |                 |        
|Current liabilities                       |                                                                                                                                |                            |         |                 |        
|                                          | Current maturities of long-term debt                                                                                           |                            | $20,508 |                 | $16,808
|                                          | Accounts payable                                                                                                               |                            | 8,210   |                 | 7,588  
|                                          | Accrued liabilities:                                                                                                           |                            | 40,093  |                 | 38,928 
|                                          |                                                                                                                               
|                                          |                                                                                                                                | Total current liabilities  |         | 68,811          |        
|                                          |                                                                                                                               
|Long-term debt, less current maturities   |                                                                                                                                | 84,483                     |         | 115,987         |        
|Deferred taxes                            |                                                                                                                                |                           |         | 2,623           |        
|Other liabilities                         |                                                                                                                                | 4,690                      |         | 5,924           |        
|Commitments and contingencies             |                                                                                                                                |                            |         |                 |        
|Share owners' equity                      |                                                                                                                                |                            |         |                 |        
|                                          | Common shares, $0.01 par value; 200,000,000 shares authorized; issued: 49,520,906 shares in 2000 and 49,079,617 shares in 1999 |                            | 495     |                 | 491    
|                                          | Additional paid-in capital                                                                                                     |                            | 100,344 |                 | 94,945 
|                                          | Retained earnings (deficit)                                                                                                    |                            | (23,982 | )               | (41,163
|                                          | Treasury shares; 866,704 and 1,609,000 shares, respectively, at cost                                                           |                            | (3,046  | )               | (5,651 
|                                          |                                                                                                                               
|                                          |                                                                                                                                | Total share owners' equity |         | 73,811          |        
|                                          |                                                                                                                               
|                                          |                                                                                                                                | $231,795                   |         | $236,480        |        
|                                          |                                                                                                                               

See
Notes to Consolidated Financial Statements.

30

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|APAC Customer Services, Inc.
Consolidated Statements of Share Owners' Equity |  | (Dollars in Thousands)
|---------------------------------------------------------------------------- |  | ----------------------
|                                                                             |  |                       

|                           |                                                                           |            |         |      |   | Additional
Paid-In
Capital |       |          |         | Total
Treasury
Shares |        | Share Owners'
Equity |        
|-------------------------- | ------------------------------------------------------------------------- | ---------- | ------- | ---- | - | -------------------------- | ----- | -------- | ------- | --------------------- | ------ | -------------------- | -------
|
|
|
|Balance, December 28, 1997 |                                                                           | 48,794,367 |         | $488 |   | $91,788                    |       | $32,507  |         | $                    |        | $124,783             |        
|                           | Net loss                                                                  |            |        |      |  |                            |      |          | (79,320 | )                     |       |                      | (79,320
|                           | Exercise of employee stock options, including related income tax benefits |            | 41,837  |      |  |                            | 948   |          |        |                       |       |                      | 948    
|                           | Issuance of Common Shares through employee stock purchase plan            |            | 57,669  |      | 1 |                            | 353   |          |        |                       |       |                      | 354    
|                           | Stock option and warrant transactions                                     |            |        |      |  |                            | 710   |          |        |                       |       |                      | 710    
|                           | Purchase of 1,609,000 treasury shares                                     |            |        |      |  |                            |      |          |        |                       | (5,651 | )                    | (5,651 
|                           |                                                                          
|Balance, January 3, 1999   |                                                                           | 48,893,873 |         | 489  |   | 93,799                     |       | (46,813  | )       | (5,651                | )      | 41,824               |        
|                           | Net income                                                                |            |        |      |  |                            |      |          | 5,650   |                       |       |                      | 5,650  
|                           | Exercise of employee stock options, including related income tax benefits |            | 93,418  |      | 1 |                            | 546   |          |        |                       |       |                      | 547    
|                           | Issuance of Common Shares through employee stock purchase plan            |            | 92,326  |      | 1 |                            | 266   |          |        |                       |       |                      | 267    
|                           | Stock option and warrant transactions                                     |            |        |      |  |                            | 334   |          |        |                       |       |                      | 334    
|                           |                                                                          
|Balance, January 2, 2000   |                                                                           | 49,079,617 |         | $491 |   | 94,945                     |       | (41,163  | )       | (5,651                | )      | 48,622               |        
|                           | Net income                                                                |            |        |      |  |                            |      |          | 17,181  |                       |       |                      | 17,181 
|                           | Exercise of employee stock options, including related income tax benefits |            | 370,974 |      | 3 |                            | 2,485 |          |        |                       |       |                      | 2,488  
|                           | Issuance of Common Shares through employee stock purchase plan            |            | 70,315  |      | 1 |                            | 362   |          |        |                       |       |                      | 363    
|                           | Sale of 742,296 treasury shares                                           |            |        |      |  |                            | 2,395 |          |        |                       | 2,605  |                      | 5,000  
|                           | Stock option and warrant transactions                                     |            |        |      |  |                            | 157   |          |        |                       |       |                      | 157    
|                           |                                                                          
|Balance, December 31, 2000 |                                                                           | 49,520,906 |         | $495 |   | $100,344                   |       | $(23,982 | )       | $(3,046               | )      | $73,811              |        
|                           |                                                                          

See
Notes to Consolidated Financial Statements.

31

---

|APAC Customer Services, Inc.
Consolidated Statements of Cash Flows |  | (Dollars in Thousands)
|------------------------------------------------------------------ |  | ----------------------
|                                                                   |  |                       

|For the Fiscal Years Ended                |                                                                                                       |                                                         |                                                  |         |         |         |         
|----------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------ | ------- | ------- | ------- | --------
|
|
|
|Operating Activities:                     |                                                                                                       |                                                         |                                                  |         |         |         |         
|                                          | Net income (loss)                                                                                     |                                                         | $17,181                                          |         | $5,650  |         | $(79,320
|                                          | Depreciation and amortization                                                                         |                                                         | 31,177                                           |         | 34,420  |         | 35,470  
|                                          | Deferred income taxes                                                                                 |                                                         | (4,761                                           | )       | 5,932   |         | (8,130  
|                                          | Asset impairment charges                                                                              |                                                         |                                                 |         |        |         | 71,172  
|                                          | Loss from discontinued operations                                                                     |                                                         |                                                 |         |        |         | 11,028  
|                                          | Changes in operating assets and liabilities, net of effects of acquisition and restructuring charges: |                                                         |                                                  |         |         |         |         
|                                          |                                                                                                       | Receivables                                             |                                                  | 6,685   |         | 3,346   |         
|                                          |                                                                                                       | Other current assets                                    |                                                  | (2,393  | )       | 1,289   |         
|                                          |                                                                                                       | Accounts payable                                        |                                                  | 622     |         | 1,883   |         
|                                          |                                                                                                       | Accrued expenses                                        |                                                  | 12      |         | (2,121  | )       
|                                          |                                                                                                       | Discontinued operations                                 |                                                  | (8,330  | )       | (2,932  | )       
|                                          |                                                                                                       | Increase in other assets                                |                                                  | 1,208   |         | (105    | )       
|                                          |                                                                                                      
|                                          |                                                                                                       |                                                         | Net cash provided by operating activities        |         | 41,401  |         | 47,362  
|Investing Activities:                     |                                                                                                       |                                                         |                                                  |         |         |         |         
|                                          | Proceeds from sale of Paragren Technologies, Inc                                                      |                                                         | 17,000                                           |         |        |         |        
|                                          | Purchase of property and equipment, net of disposals                                                  |                                                         | (15,236                                          | )       | (7,789  | )       | (17,076 
|                                          | ITI Holdings, Inc. acquisition costs, net of cash acquired                                            |                                                         |                                                 |         |        |         | (149,229
|                                          |                                                                                                      
|                                          |                                                                                                       |                                                         | Net cash provided (used) by investing activities |         | 1,764   |         | (7,789  
|Financing Activities:                     |                                                                                                       |                                                         |                                                  |         |         |         |         
|                                          | Proceeds from issuance of long-term debt                                                              |                                                         |                                                 |         |        |         | 150,000 
|                                          | Net payments on revolving credit facilities                                                           |                                                         |                                                 |         |        |         | (23,600 
|                                          | Payments on long-term debt                                                                            |                                                         | (27,804                                          | )       | (15,754 | )       | (7,102  
|                                          | Payment of debt issuance costs                                                                        |                                                         |                                                 |         |        |         | (2,031  
|                                          | Decrease in book overdraft                                                                            |                                                         |                                                 |         |        |         | (4,679  
|                                          | (Decrease) increase in customer deposits and other liabilities                                        |                                                         | (1,052                                           | )       | (9,634  | )       | 14,985  
|                                          | Stock option and warrant transactions, including related income tax benefits                          |                                                         | 3,007                                            |         | 1,148   |         | 2,011   
|                                          | Sale (purchase) of treasury shares                                                                    |                                                         | 5,000                                            |         |        |         | (5,651  
|                                          |                                                                                                      
|                                          |                                                                                                       |                                                         | Net cash provided (used) by financing activities |         | (20,849 | )       | (24,240 
|                                          |                                                                                                      
|Net Increase in Cash and Cash Equivalents |                                                                                                       | 22,316                                                  |                                                  | 15,333  |         | 3,526   |         
|Cash and Cash Equivalents:                |                                                                                                       |                                                         |                                                  |         |         |         |         
|                                          | Beginning of year                                                                                     |                                                         | 18,876                                           |         | 3,543   |         | 17      
|                                          |                                                                                                      
|                                          | End of year                                                                                           |                                                         | $41,192                                          |         | $18,876 |         | $3,543  
|                                          |                                                                                                      
|Supplemental Disclosures:                 |                                                                                                       |                                                         |                                                  |         |         |         |         
|                                          | Cash flow information:                                                                                |                                                         |                                                  |         |         |         |         
|                                          |                                                                                                       | Cash payments for interest (net of amounts capitalized) |                                                  | $11,104 |         | $12,797 |         
|                                          |                                                                                                       | Cash payments for income taxes                          |                                                  | $7,325  |         | $106    |         
|                                          |                                                                                                      

See
Notes to Consolidated Financial Statements.

32

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|APAC Customer Services, Inc.
Notes to Consolidated Financial Statements |  | (Dollars in thousands, except as otherwise indicated)
|----------------------------------------------------------------------- |  | -----------------------------------------------------
|                                                                        |  |                                                      

1.  Summary of Significant Accounting Policies

Description of Business

APAC Customer Services, In. ("APAC" or the "Company") is a leading provider of comprehensive customer relationship management (CRM) and electronic CRM
(e-CRM) solutions for Fortune 1000, mid-tier and emerging e-commerce companies in the financial services, communications, healthcare, insurance, retail, utility,
automotive and travel and entertainment sectors. The Company delivers a full suite of e-CRM products and services, including e.PACSM, a multi-channel platform that supports a
broad range of integrated, e-commerce-based customer interaction capabilities. Expanding upon its core competency of CRM solutions, APAC Customer Services recently added solutions
integration services to its array of customer care programs. To help its clients better manage relationships with their customers, APAC Customer Services develops and delivers
end-to-end customer care, customer acquisition and Web-enabled CRM programs.

Consolidation

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

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

Use of Estimates

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

Fiscal Year

The Company operates on a 52-/53-week fiscal year that ends on the Sunday closest to December 31. Fiscal years for the
consolidated financial statements included herein ended on December 31, 2000, (52 weeks), January 2, 2000 (52 weeks), and January 3, 1999 (53 weeks).

Cash Equivalents

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

Trade Receivables

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

Long-lived Assets

Long-lived assets are comprised of property and equipment, capitalized software and intangible assets. Long-lived assets are reviewed
for impairment whenever events or circumstances indicate that the carrying value

33

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of an asset may not be recoverable. For long lived assets held for use an impairment loss is recognized when the estimated undiscounted cash flows produced by an asset are less than the asset's
carrying value.

Property and Equipment.Property and equipment are recorded at cost and depreciated on a straight-line basis, using
estimated useful lives of up to 15 years for building and leasehold improvements, 3 to 7 years for telecommunications equipment, and 3 to 7 years for workstations and office
equipment. Total depreciation expense for property and equipment for fiscal years 2000, 1999 and 1998 was $23,231, $25,770 and $28,862 respectively.

Capitalized Software.The Company capitalizes certain costs related to the purchase and installation of computer software for internal
use. Amortization is provided on a straight-line basis over estimated useful lives ranging up to 5 years. Amortization of capitalized software costs for fiscal years 2000, 1999 and
1998 was $3,408, $3,721 and $2,837 respectively.

Intangible Assets.Goodwill and other intangible assets are amortized on a straight-line basis over the expected period of
benefit ranging from 4 to 21 years. Total amortization of goodwill and other intangible assets for fiscal years 2000, 1999 and 1998 was $4,185, $4,494 and $5,130, respectively.

Revenue Recognition

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

Accounting for Stock-Based Compensation

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

Interest Rate Agreements

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

Comprehensive Income

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

2.  New Accounting Pronouncements

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

This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for

34

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hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. As a result
of SFAS No. 137, "Accounting for Derivative Instruments and Hedging ActivitiesDeferral of the Effective Date of SFAS No. 133", the Company will adopt this standard in the
first quarter of fiscal 2001. Management believes that the impact of SFAS No. 133 will not have a material effect on the Company's financial condition or results of operations.

SEC Staff Accounting Bulletin: No. 101Revenue Recognition in Financial Statements:

In December 1999, the staff of the Securities and Exchange Commission issued its Staff Accounting Bulletin (SAB) No. 101 "Revenue Recognition."
SAB No. 101 provides guidance on the measurement and timing of revenue recognition in financial statements of public companies. Changes in accounting policies to apply the guidance of SAB
No. 101 were required to be adopted by recording the cumulative effect of the change in the fiscal quarter ending March 31, 2000. No such adjustment was required for the Company and the
adoption of this pronouncement did not effect the accounting policies or results of operations of the Company in fiscal 2000.

3.  Supplemental Balance Sheet Data

Consolidated Balance Sheet

|                                          |                                     | December 31,
2000 |         | January 2,
2000 |        
|----------------------------------------- | ----------------------------------- | ----------------- | ------- | --------------- | -------
|
|Deferred tax assets                       |                                     | $4,860            |         | $5,511          |        
|Refundable Federal income taxes           |                                     |                  |         | 4,310           |        
|Prepaid expenses                          |                                     | 4,901             |         | 3,857           |        
|Non-trade receivables                     |                                     | 3,572             |         | 668             |        
|                                          |                                    
|                                          | Other current assets                |                   | $13,333 |                 | $14,346
|                                          |                                    
|Building and leasehold improvements       |                                     | $32,554           |         | $30,833         |        
|Telecommunications equipment              |                                     | 74,928            |         | 74,144          |        
|Workstations and office equipment         |                                     | 16,228            |         | 14,740          |        
|Capitalized software                      |                                     | 15,778            |         | 12,780          |        
|Construction in progress                  |                                     | 3,232             |         | 1,463           |        
|Accumulated depreciation and amortization |                                     | (88,240           | )       | (68,076         | )      
|                                          |                                    
|                                          | Property and equipment, net         |                   | $54,480 |                 | $65,884
|                                          |                                    
|Goodwill                                  |                                     | $28,317           |         | $28,916         |        
|Assembled workforce                       |                                     | 3,600             |         | 3,600           |        
|Customer relationships                    |                                     | 28,493            |         | 28,493          |        
|Accumulated amortization                  |                                     | (12,653           | )       | (8,468          | )      
|                                          |                                    
|                                          | Goodwill and other intangibles, net |                   | $47,757 |                 | $52,541
|                                          |                                    
|Payroll and related items                 |                                     | $23,128           |         | $22,248         |        
|Income taxes payable                      |                                     | 3,174             |         |                |        
|Acquisition-related costs                 |                                     | 392               |         | 1,145           |        
|Telecommunications expenses               |                                     | 1,145             |         | 3,619           |        
|Customer deposits                         |                                     | 437               |         | 1,489           |        
|Other accrued liabilities                 |                                     | 11,817            |         | 10,427          |        
|                                          |                                    
|                                          | Accrued liabilities                 |                   | $40,093 |                 | $38,928
|                                          |                                    

35

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4.  Acquisition of ITI Holdings, Inc.

Acquisition

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

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

In
connection with the acquisition, the Company provided a total of $21.2 million in estimated costs to close facilities, terminate unfavorable contracts, write-off uncollectible
trade receivables and reduce the workforce by 135 employees. The amounts provided included $6.5 million for facilities, $9.7 million for contracts, $2.4 million for trade
receivables and $2.6 million for employee severance. Of this reserve, $12.9 million has been utilized or paid through December 31, 2000 and $6.7 million has been taken as a
reduction of goodwill. The remaining balance of acquisition related reserves was $1.6 million and $3.2 million as of December 31, 2000, and January 2, 2000, respectively.
To the extent that unused facilities covered by long-term leases were subleased and unfavorable contracts were renegotiated, a reduction in the acquisition-related reserves and goodwill
recorded as of the end of fiscal year 1998 was required during fiscal year 1999, as discussed below. The remaining reserve at December 31, 2000 will be utilized primarily for the reduction of
lease obligations over the term of such leases.

Valuation Adjustments

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

Nonrecurring Charges

During fiscal year 1998, the Company recorded two nonrecurring charges in cost of services in connection with the ITI purchase. The Company provided allowances
for doubtful accounts of $2.5 million to fully reserve trade accounts receivable balances due from two ITI clients who had filed for protection under Federal bankruptcy law. The Company also
accrued a total of $7.1 million in future telecommunications costs guaranteed under two minimum usage contracts scheduled to expire in the year 2000. As a result of the downturn in ITI's

36

---

business, the Company had not expected to achieve the minimum volumes under these contracts and, accordingly, did not expect to recover the guaranteed costs from future results of operations.

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

Asset Impairment

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

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

Pro Forma Information

The unaudited pro forma results of operations, as if the ITI acquisition had occurred at the beginning of fiscal 1998 are summarized below (in thousands, except
per share data):

|                                                           |  | 1998     |  
|---------------------------------------------------------- |  | -------- | -
|
|Net revenue                                                |  | $487,527 |  
|Income (loss) from continuing operations                   |  | (68,162  | )
|Net loss                                                   |  | (79,190  | )
|Income (loss) per diluted share from continuing operations |  | $(1.40   | )
|Net loss per diluted share                                 |  | $(1.63   | )
|                                                           | 

The
pro forma results include adjustments for unfavorable telephone contracts, goodwill and intangible asset amortization, interest expense and income taxes. The pro forma results of operations do not
necessarily represent operating results which would have occurred if the acquisition had taken place on the basis assumed above, nor are they indicative of future operating results of the combined
companies.

5.  Discontinued Operations

On August 19, 1997, the Company acquired all of the common and preferred stock of Paragren Technologies, Inc. ("Paragren"), a

37

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specialist in software-based marketing products that help its clients analyze market, customer and sales data on a real-time basis. In addition to its software solutions, systems
integration and consulting services, Paragren designs, develops and manages consumer-panel research.

In
consideration for the common and preferred stock of Paragren, the Company issued to Paragren share owners 1,991,385 shares of its Common Shares and converted existing Paragren stock options into
stock options for an additional 189,199 shares of the Company's Common Shares. The acquisition was accounted for as a purchase. The purchase price of approximately $32.9 million was allocated
to the assets acquired and the liabilities assumed based upon their estimated fair values as determined by an independent appraisal. The allocation of values to intangible assets consisted of
$1.5 million to assembled workforce and non-compete covenants, $19.8 million to in-process research and development, and $12.0 million to goodwill.

In
December 1998, the Company's management approved a plan to sell Paragren when it decided that additional investment in the software development business was not consistent with the Company's
long-term strategic goals and objectives. Accordingly, Paragren was reported as a discontinued operation, and the consolidated financial statements for fiscal year 1998 were reclassified
to segregate the operating results and net assets of the business. At that time, the Company fully expected to sell Paragren during fiscal year 1999. During fiscal year 1998, the estimated net loss
relating to the disposal of Paragren was $8.4 million, net of an income tax benefit of $1.1 million. The estimate included a reduction in asset values of $6.5 million for the
expected loss on disposal based upon a preliminary offer for the business which the Company had received. The estimate also included a provision for anticipated net operating losses until disposal of
$1.9 million, net of an income tax benefit of $1.1 million.

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

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

Summary
operating results for Paragren for fiscal years 1999 and 1998 are as follows (in thousands):

38

---

|                     |                                              | 1999                     |        | 1998    |       
|-------------------- | -------------------------------------------- | ------------------------ | ------ | ------- | ------
|
|Net revenue          |                                              | $7,465                   |        | $10,711 |       
|Operating expenses:  |                                              |                          |        |         |       
|                     | Cost of services                             |                          | 5,190  |         | 5,496 
|                     | Selling, general and administrative expenses |                          | 10,603 |         | 8,978 
|                     |                                             
|                     |                                              | Total operating expenses |        | 15,793  |       
|                     |                                             
|                     | Loss from operations                         |                          | (8,328 | )       | (3,763
|Interest income, net |                                              | (286                     | )      | 35      |       
|                     |                                             
|                     | Loss before income taxes                     |                          | (8,614 | )       | (3,728
|Income taxes benefit |                                              | (3,139                   | )      | (1,100  | )     
|                     |                                             
|Net loss             |                                              | $(5,475                  | )      | $(2,628 | )     
|                     |                                             

39

---

Net assets of discontinued operation held for sale are as follows (in thousands):

|                                      |                   | January 2, 2000
|------------------------------------- | ----------------- | ---------------
|
|Current assets                        |                   | $3,013         
|Property and equipment                |                   | 1,201          
|Goodwill and other intangibles        |                   | 7,926          
|Capitalized software                  |                   | 1,578          
|                                     
|                                      | Total assets      |                
|                                     
|Current liabilities                   |                   | 3,338          
|Deferred income taxes                 |                   | 352            
|                                     
|                                      | Total liabilities |                
|                                     
|Net assets of discontinued operations |                   | $10,028        
|                                     

6.  Restructuring Charges

Fiscal year 1999 results include three separate restructuring charges totaling $7.6 million ($4.7 million after tax) related to a program to close
a total of 24 Customer Acquisition Interaction Centers and to reduce the supporting salaried workforce. A charge of $2.0 million was recorded in the first quarter including $1.4 million
for the write-down of property and equipment and $0.6 million for employee severance costs. An additional charge of $4.0 million was recorded in the second quarter including
$2.7 million for the write-down of property and equipment, $0.3 million for employee severance costs and $1.0 million for lease termination costs. The final charge of
$1.6 million was recorded in the third quarter including $1.3 million for the write-down of property and equipment and $0.3 for lease termination costs.

The
$2.0 million of restructuring charges recorded in the first quarter of 1999 were fully utilized by the end of fiscal 1999. Of the remaining $5.6 million of restructuring charges,
$3.4 million were also utilized in 1999. During fiscal 2000, the Company utilized $1.7 million of the $2.2 million remaining restructuring accruals related to restructuring
charges recorded in the second and third quarters of fiscal 1999. The remaining balance of $0.5 million, related to one center that was not closed, was credited to cost of services in fiscal
2000.

In
the second quarter of fiscal year 1998, the Company recorded a restructuring charge of $9.0 million ($5.6 million after tax). The restructuring initiatives involved closing Customer
Interaction Centers, reconfiguring certain administrative support facilities and reducing the workforce by approximately 80 salaried employees. The 1998 restructuring charge included
$4.5 million for the write-off of leasehold improvements and equipment, $3.3 million for employee severance costs and $1.2 million for lease termination costs. All
such reserves have been utilized.

7.  Income Taxes

The provision (benefit) for income taxes for continuing operations for fiscal years 2000, 1999 and 1998 consisted of the following:

|                             |                                            | 2000    |         | 1999    |        | 1998   |        
|---------------------------- | ------------------------------------------ | ------- | ------- | ------- | ------ | ------ | -------
|
|Current provision (benefit)  |                                            | $14,817 |         | $(2,352 | )      | $3,460 |        
|Deferred provision (benefit) |                                            | (4,761  | )       | 5,932   |        | (8,660 | )      
|                             |                                           
|                             | Total provision (benefit) for income taxes |         | $10,056 |         | $3,580 |        | $(5,200
|                             |                                           

40

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A
reconciliation of the statutory Federal income tax rate to the actual effective income tax rate for continuing operations for fiscal years 2000, 1999 and 1998 is as follows:

|                                                            |                | 2000  |      | 1999 |      | 1998  |     
|----------------------------------------------------------- | -------------- | ----- | ---- | ---- | ---- | ----- | ----
|
|Statutory rate                                              |                | 35.0  | %    | 35.0 | %    | (35.0 | )%  
|State taxes, net of Federal benefit and state credits       |                | 3.6   |      | 3.6  |      | (0.2  | )   
|Non-deductible goodwill(1)                                  |                | 18.9  |      | 4.7  |      | 29.3  |     
|Utilization of net operating losses previously benefited(2) |                | (16.8 | )    |     |      |      |     
|Work Opportunity Tax credit                                 |                | (4.5  | )    | (5.8 | )    | (0.5  | )   
|Other                                                       |                | 1.4   |      | 1.3  |      | (0.7  | )   
|                                                            |               
|                                                            | Effective rate |       | 37.6 | %    | 38.8 | %     | (7.1
|                                                            |               

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

|                                |                                | December 31,
2000 |       | January 2,
2000 |       
|------------------------------- | ------------------------------ | ----------------- | ----- | --------------- | ------
|
|Deferred tax assets:            |                                |                   |       |                 |       
|Vacation accrual                |                                | $940              |       | $1,047          |       
|Self-insurance related costs    |                                | 1,669             |       | 791             |       
|Acquisition-related costs       |                                | 683               |       | 1,883           |       
|Restructuring charge            |                                |                  |       | 1,202           |       
|Revenue recognition             |                                | 1,155             |       | 1,230           |       
|Allowance for doubtful accounts |                                | 1,234             |       | 1,261           |       
|Tax loss carryforwards          |                                |                  |       | 4,471           |       
|Other                           |                                | 2,551             |       | 1,137           |       
|                                |                               
|                                | Total deferred tax assets      |                   | 8,232 |                 | 13,022
|                                |                               
|Deferred tax liabilities:       |                                |                   |       |                 |       
|Excess depreciation             |                                | 350               |       | 5,002           |       
|Change in accounting methods    |                                | 146               |       | 303             |       
|Other                           |                                | 87                |       | 358             |       
|                                |                               
|                                | Total deferred tax liabilities |                   | 583   |                 | 5,663 
|                                |                               
|Gross deferred tax assets       |                                | 7,649             |       | 7,359           |       
|                                |                               
|Valuation allowance             |                                |                  |       | (4,471          | )     
|                                |                               
|Net deferred tax assets         |                                | $7,649            |       | $2,888          |       
|

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

41

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8. Long-term Debt

Long-term debt consisted of the following:

|                                                                                                   |                      | December 31,
2000 |         | January 2,
2000
|-------------------------------------------------------------------------------------------------- | -------------------- | ----------------- | ------- | ---------------
|
|Term Loan, effective fixed interest rate of 9.1% and 9% respectively, final payment due June 2003. |                      | $103,000          |         | $130,000       
|Industrial Revenue Bonds, payable monthly at 7%, final payment due June 2008                       |                      | 1,036             |         | 1,147          
|County Development Note, payable monthly at 4%, final payment due January 2004                     |                      | 471               |         | 612            
|Promissory Note, payable monthly at 9%, final payment due September 2002                           |                      | 155               |         | 236            
|Capital leases, payable monthly at 7.8% average rate, final payment due January 2003               |                      | 329               |         | 800            
|                                                                                                  
|                                                                                                   | Total long-term debt |                   | 104,991 |                
|Lesscurrent maturities                                                                            |                      | 20,508            |         | 16,808         
|                                                                                                  
|                                                                                                   | Long-term debt, net  |                   | $84,483 |                
|                                                                                                  

As
of December 31, 2000, the carrying value of future debt obligations reasonably approximates their fair value, and the principal payments of long-term debt are due as follows:

|          
|----------
|2002      
|2003      
|2004      
|2005      
|Thereafter
|          
|          
|          

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

On
September 8, 1998, the Credit Facility was amended and restated, reducing the available borrowings to $225 million consisting of a $150 million Term Loan and a
$75 million Revolving Facility. Subsequently, there have been four amendments to the September 8, 1998 amended and restated Credit Facility. Most recently, the Fourth Amendment was
adopted on January 20, 2000.

Under
the terms of the Credit Facility as amended and in effect at the end of fiscal 2000 the total facility is $169 million, consisting of a $119 million Term Loan and a
$50 million Revolving Facility. The Company is required to make quarterly principal payments on the Term Loan, ranging from $4 million to $7 million per quarter, with a specified
final payment of $50 million due June 1, 2003. At December 31, 2000, the Company had $103 million outstanding under

42

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the Term Loan and zero outstanding on the Revolving Facility.

Under
the terms of the Credit Facility, the Company is required to maintain certain financial covenants which limit the Company's ability to incur additional indebtedness, repurchase outstanding
common shares, create liens, acquire, sell or dispose of certain assets, engage in certain mergers and acquisitions, and to make certain restricted payments. As a result, the Company is not allowed to
pay dividends on its Common Shares. The Company is in compliance with all covenants and restrictions imposed by the terms of the Credit Facility as of December 31, 2000.

Borrowings
under the Credit Facility incur a floating interest rate usually based on the LIBOR index rate, although the Company has the option of using an alternate base rate defined in the agreement.
In addition, the Company pays a commitment fee on the unused portion of the Revolving Facility as well as an annual fee on the outstanding letters of credit. As of December 31, 2000, the
Company had $4.1 million of outstanding letters of credit.

In
connection with securing the Credit Facility in 1998, the Company paid fees and expenses of $2.0 million. The debt issuance costs are recorded as deferred charges and are being amortized
over the term of the Credit Facility of five years. The amortization of deferred debt costs for fiscal years 2000, 1999 and 1998 was $0.4 million, $0.4 million and $0.2 million,
respectively.

Interest Rate Agreements

The Company has entered into various interest rate agreements with one of the parties to the Credit Facility. On May 20, 1998, the Company entered into
an interest rate swap agreement ("Swap") and an interest rate cap agreement ("Cap") to hedge a portion of the interest rate risk associated with its floating rate debt. Under the terms of the Swap,
through June 1, 2003, the Company pays a fixed interest rate of 6.0% and receives a floating rate payment based on the 30-day LIBOR rate. The Swap had an initial notional amount of
$100 million and amortizes, pro rata, with principal payments on the Term Loan. The notional amount on the Swap was reduced by $11 million, by way of sale in the open market, to reflect
the $11 million prepayment on the
Term Loan on January 18, 2000. Under the terms of the Cap, through June 1, 2003, the Company will make payments based on .45% of the outstanding notional amount of the Term Loan, and the
Company will receive payments any time the 30-day LIBOR rate exceeds 6.0%. The Cap had an initial notional amount of $50 million and amortizes, pro rata, with principal payments on
the Term Loan. At December 31, 2000, the fair market values of the Swap and Cap were $(247) and $214, respectively.

9. Commitments and Contingencies

Lease Commitments

The Company leases its Customer Interaction Centers and administrative offices. Rent expense for the fiscal years 2000, 1999, and 1998 was $8,944, $7,548 and
$8,885 respectively.

43

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Minimum future rental payments at December 31, 2000, are as follows (in thousands):

|           |                | Operating
Leases
|---------- | -------------- | ----------------
|
|2001       |                | $8,402          
|2002       |                | 6,470           
|2003       |                | 5,659           
|2004       |                | 4,719           
|2005       |                | 4,850           
|Thereafter |                | 11,688          
|          
|           | Total payments |                 
|          

Legal Proceedings

The Company, certain of its officers and directors and the lead underwriters of certain public offerings of the Company's securities have been named as
defendants in three purported class action lawsuits instituted by various persons who purchased the Company's Common Shares in such offerings. The suits were filed in federal district court for the
Southern District of New York on December 11, 1997, December 19, 1997 and January 5, 1998, respectively. The lawsuits were consolidated in April 1998 into one lawsuit. The
lawsuit alleges violations of the federal securities laws in connection with the Company's November 1996 Prospectus and other public statements which are alleged to have omitted certain
disclosures with respect to the Company's agreement with a large parcel delivery client. The complaint as amended seeks, among other things, unspecified damages and an award of attorney's fees, costs
and expenses. The Company filed a motion to dismiss the lawsuit on September 10, 1998. On or about November 15, 1999, the court denied the motion to dismiss. Discovery is proceeding in
this action. The Company denies all allegations of wrongdoing and continues to believe that it has meritorious defenses.

On
January 5, 2000, APAC, Inc. filed suit against the Company in the U.S. District Court for the Northern District of Georgia (Atlanta Division) alleging that the Company's use of "APAC"
in the Company's name infringes a trademark of APAC, Inc. The suit asserts violations of the federal Lanham Act and various Georgia state statutes, as well as a breach by the Company of an
agreement between APAC, Inc. and the Company. Discovery is proceeding in this action and the Company continues to defend itself vigorously.

Additionally,
the Company is subject to occasional lawsuits, governmental investigations and claims arising out of the normal conduct of business. Management does not believe the outcome of any
pending claims will have a materially adverse impact on the Company's consolidated financial position.

Although
the Company does not believe that any of these proceedings will result in a materially adverse effect on its consolidated financial position, no assurance to that effect can be given.

Training Bonds

At the end of the 2000, 1999 and 1998 fiscal years, the Company had guaranteed the repayment of approximately $625, $887 and $1,435 respectively, of the
remaining outstanding community college bond obligations, which were issued in connection with various job-training agreements. At December 31, 2000, the Company estimates that the
deposits made into escrow will be adequate to cover the cost of the maturing bonds.

44

---

10.  Share Owners' Equity

The authorized capital stock of APAC Customer Services, Inc. consists of (a) 200 million Common Shares, $.01 par value per share, of which
49,520,906 were issued as of December 31, 2000, and (b) 50 million Preferred Shares, $.01 par value per share, of which no shares have been issued. On August 31, 1998, the
Board of Directors authorized the Company to repurchase, from time to time at management's discretion, up to 2,500,000 shares of its outstanding Common Shares at market prices. During fiscal 1998, the
Company repurchased 1,609,000 shares at an average price of $3.50
per share. The remaining authorization has expired. In fiscal 2000 742,296 of the treasury shares previously purchased were sold, primarily to a member of the Board of Directors.

11.  Equity Instruments

Stock Options

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

Under
the Incentive Stock Option Plan, which is the result of a merger of the Incentive Stock Option Plan and the Non-employee Director Stock Option Plan, directors, officers, key
employees and non-employee consultants may be granted nonqualified stock options, incentive stock options, stock appreciation rights, performance shares and stock awards, all as determined
by a committee of the Board of Directors or by the full board in the case of non-employee Directors. A total of 11.8 million shares have been authorized for grant under the
Incentive Stock Option Plan with 2.5 million shares of this amount still subject to shareholder approval. The exercise price of incentive stock options granted may not be less than 100% of the
fair market value of the Common Shares at the date of grant. The exercise price of non-qualified stock options granted may not be less than 85% of the fair market value of the Common
Shares at the date of grant.

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

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

Stock
option activity under the Company's Executive Plan, Incentive Stock Option Plan, and Non-employee Director Stock Option

45

---

Plan for fiscal years 2000, 1999 and 1998 is as follows:

|Description                                    |  | Shares     |   | Price Range  |  | Weighted
Average
Exercise
Price
|---------------------------------------------- |  | ---------- | - | ------------ |  | -------------------------------
|
|Outstanding as of December 28, 1997            |  | 3,514,831  |   | $0.97-$38.13 |  | $11.45                         
|Granted                                        |  | 3,687,759  |   | $3.44-$14.06 |  | $9.06                          
|Exercised                                      |  | (57,679    | ) | $0.97-$13.19 |  | $5.62                          
|Canceled                                       |  | (1,756,410 | ) | $0.97-$32.25 |  | $13.51                         
|                                              
|Outstanding as of January 3, 1999              |  | 5,388,501  |   | $0.97-$38.13 |  | $6.70                          
|Granted                                        |  | 4,372,271  |   | $2.34-$13.13 |  | $4.17                          
|Exercised                                      |  | (93,418    | ) | $0.97-$8.50  |  | $5.72                          
|Canceled                                       |  | (2,495,744 | ) | $0.97-$38.13 |  | $5.66                          
|                                              
|Outstanding as of January 2, 2000              |  | 7,171,610  |   | $0.97-$38.13 |  | $5.71                          
|Granted                                        |  | 1,999,000  |   | $3.06-$15.31 |  | $7.84                          
|Exercised                                      |  | (370,974   | ) | $0.97-$8.50  |  | $5.55                          
|Canceled                                       |  | (935,200   | ) | $2.34-$25.00 |  | $9.53                          
|                                              
|Outstanding as of December 31, 2000            |  | 7,864,436  |   | $0.97-$38.13 |  | $5.66                          
|                                              
|Stock options exercisable at December 31, 2000 |  | 2,332,494  |   | $0.97-$38.13 |  | $5.73                          
|                                              

The
following table summarizes information concerning stock options outstanding as of December 31, 2000:

|                                    |                                 | Exercise Price Ranges |           | Total    
|----------------------------------- | ------------------------------- | --------------------- | --------- | ---------
|
|
|
|Outstanding as of December 31, 2000 |                                 | 4,734,095             |           | 2,814,425
|                                    | Remaining life                  |                       | 8.2 years |          
|                                    | Weighted Average Exercise Price |                       | $3.58     |          
|Exercisable as of December 31, 2000 |                                 | 1,249,439             |           | 940,639  
|                                    | Remaining life                  |                       | 6.5 years |          
|                                    | Weighted Average Exercise Price |                       | $3.30     |          
|                                   

On
August 5, 1998 the Company's Board of Directors authorized repricing of certain of its outstanding stock options having an exercise price in excess of the then current market value.
The actions were taken on the recommendation of the Compensation Committee, in order to preserve an economic incentive for continued commitment to the Company's success. On that date, all options held
by employees, other than those held by the Company's then Chief Executive Officer, President and certain other members of senior management, with an exercise price in excess of $6.50 per share, when
the then current market value was $5.38 per share, were repriced to have an exercise price of $6.50 per share. Employees at the senior vice president level had their options repriced to $8.50 per
share. After repricing, 4,264,843 options were priced between $0.97 and $8.50 per share. Options for 558,624 shares, which were not repriced on August 5, 1998 ranged in price from $9.50 to
$38.13 per share.

The
Company applies APB No. 25 in accounting for the stock option plans above. No compensation expense has been recognized for stock options when the option price equals or exceeds the fair
market value

46

---

at date of grant. In order to calculate the pro forma information below, the fair value of each option is estimated on the date of grant based on the Black-Scholes option pricing model. Assumptions
include no dividend yield, risk-free interest rates ranging from 5% to 7%, expected volatility ranging between 70% and 90%, and an expected life ranging from 7 years to
10 years. Pro forma results of operations for fiscal years 2000, 1999 and 1998 which reflect the adjustment to compensation expense to account for stock options in accordance with SFAS
No. 123 are as follows:

|                                                                      |  | 2000    |  | 1999   |  | 1998     |  
|--------------------------------------------------------------------- |  | ------- |  | ------ |  | -------- | -
|
|Net income (loss) as reported                                         |  | $17,181 |  | $5,650 |  | $(79,320 | )
|Lesscompensation expense on stock options, net of income tax benefit |  | 3,855   |  | 5,189  |  | 12,320   |  
|                                                                      | 
|Pro forma net income (loss)                                           |  | $13,326 |  | $461   |  | $(91,640 | )
|                                                                      | 
|Pro forma net income (loss) per diluted share                         |  | $0.26   |  | $0.01  |  | $(1.89   | )
|                                                                      | 

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

Stock Purchase Warrants

In March 1998, the Company entered into a Sales Agreement with a client and issued 75,000 stock purchase warrants at an exercise price of $14.25 per share in
exchange for services to be performed. Each warrant represents the right to purchase one share of the Company's Common Shares at the exercise price. Warrants representing 35,000 shares vested in
fiscal year 1998 with the balance vesting over the next four years. The warrants became exercisable on March 10, 1998, and expire on March 9, 2007. The estimated fair value of the
warrants on the date issued was $7.14 per share using the Black-Scholes option pricing model and assumptions similar to those used for valuing the Company's stock options described above. The Company
recorded $82, $153 and $250 in selling expense in fiscal years 2000, 1999 and 1998, respectively, for warrants that vested during the year.

12.  Benefit Plans

In October 1995, the Company adopted a 401(k) savings plan. Employees, meeting certain eligibility requirements as defined, may contribute up to 15% of
pretax gross wages, subject to certain restrictions. The Company makes matching contributions of 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 fiscal years 2000, 1999 and 1998, the Company made matching contributions to the plan of $411, $365 and $270, respectively.

In
fiscal year 1996, share owners of the Company adopted an employee stock purchase plan. The plan is administered by the compensation committee and permits eligible employees to purchase an aggregate
of 600,000 Common Shares at 85% of the lesser of the current market closing price of the Company's Common Shares at the beginning or end of a quarter. Employees may annually purchase Common Shares up
to the lesser of 15% of their gross wages or $25.00. During the fiscal years 2000, 1999 and 1998, 70,315, 92,326, and 57,669 Common Shares, respectively, were issued to employees under this plan.

47

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13.  Segment Information

In fiscal 2000, the Company has three reportable segments organized around divisions providing separate and distinct services to clients. The operating
divisions are managed separately because the service offerings require different technology and marketing strategies and have different operating models and performance metrics. The Customer Care
business unit provides inbound customer service, direct mail response, "help" line support and customer order processing. The Customer Acquisition business unit provides outbound sales support to
customers and businesses, market research, targeted marketing plan development and customer lead generation, acquisition and retention. CustomerAssistance.com provides Web-based customer
relationship management products and services for Fortune 1000 and "dot.com" companies.

Through
fiscal year 1999, the Company had three reportable segments organized around operating divisions providing separate and distinct services to clients. The operating divisions were managed
separately because the service offerings require different technology and marketing strategies and have different operating models and performance metrics.

The
Software Development division was managed by the Company's wholly-owned subsidiary, Paragren Technologies, Inc. ("Paragren"), which specialized in software-based consumer marketing products
to help clients analyze market, customer and sales data on a real-time basis. In December 1998 the Company adopted a plan to sell Paragren. Accordingly, the operating results of
Paragren were segregated from continuing operations and are reported separately as discontinued operations. In January 2000 Paragren was sold, see note 6 for details.

All
operating net revenue and expenses are included in the results of the business segments. Shared Services expenses which include information technology costs and corporate selling, general and
administrative expenses are allocated to the business segments primarily based upon telephone hours, consistent with management's financial expectations for the business segments. Other income and
expense, principally interest expense and gain and loss on the disposal of assets, are excluded from the determination of business segment results. Shared Services assets that include investments in
information technology and corporate assets are not allocated to the business segments. Corporate assets include cash and cash equivalents, tax assets, property and equipment associated with
information technology and selling, general and administrative functions, and certain prepaid expenses and deferred charges related to risk management and
corporate financing activities. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. There are no intersegment sales or
transfers. The Company evaluates performance based on operating earnings of the respective operating divisions.

The
nature of the industry is such that the Company receives a significant portion of its annual net revenue from several large clients. The Company's largest client, a parcel delivery company
provided 15%, 14% and 16% of annual net revenue for fiscal years 2000, 1999 and 1998, respectively, all of which was in the Customer Care division. In addition, a telecommunications company provided
10% of total annual net revenue in 1999, of which over 90% was in the Customer Care division. Another telecommunications client provided 13% of total net revenue in 1998 of which over 70% was in the
Customer Acquisition division. There were no other clients that provided greater than 10% of total revenue in 2000.

48

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Segment information for fiscal years 2000, 1999 and 1998 is as follows (in thousands):

|Fiscal Years Ended            |  | Customer
Acquisition |   | Customer
Care |  | Customer
Assistance.com |   | Software
Development |  | Shared
Services |  | Combined |  
|----------------------------- |  | -------------------- | - | ------------- |  | ----------------------- | - | -------------------- |  | --------------- |  | -------- | -
|
|December 31, 2000:            |  |                      |   |               |  |                         |   |                      |  |                 |  |          |  
|Net revenue                   |  | $165,836             |   | $290,713      |  | $7,806                  |   | $                   |  | $              |  | $464,355 |  
|Operating income (loss)       |  | 21,538               |   | 22,140        |  | (7,602                  | ) |                     |  |                |  | 36,076   |  
|Capital expenditures          |  | 573                  |   | 2,385         |  | 5,276                   |   |                     |  | 7,002           |  | 15,236   |  
|Depreciation and amortization |  | 9,118                |   | 21,634        |  | 425                     |   |                     |  |                |  | 31,177   |  
|Identifiable assets           |  | 40,701               |   | 99,894        |  | 9,718                   |   |                     |  | 81,482          |  | 231,795  |  
|                              | 
|January 2, 2000:              |  |                      |   |               |  |                         |   |                      |  |                 |  |          |  
|Net revenue                   |  | $149,000             |   | $278,645      |  |                        |   | $                   |  | $              |  | $427,645 |  
|Operating income (loss)       |  | (3,944               | ) | 26,539        |  |                        |   |                     |  |                |  | 22,595   |  
|Restructuring charge(a)       |  | 7,600                |   |              |  |                        |   |                     |  |                |  | 7,600    |  
|Capital expenditures          |  | 3,032                |   | 1,405         |  |                        |   |                     |  | 3,352           |  | 7,789    |  
|Depreciation and amortization |  | 14,663               |   | 19,757        |  |                        |   |                     |  |                |  | 34,420   |  
|Identifiable assets(c)        |  | 52,018               |   | 119,513       |  |                        |   | 10,028               |  | 54,921          |  | 236,480  |  
|                              | 
|January 3, 1999:              |  |                      |   |               |  |                         |   |                      |  |                 |  |          |  
|Net revenue                   |  | $199,523             |   | $225,505      |  |                        |   | $                   |  | $              |  | $425,028 |  
|Operating income (loss)       |  | (77,315              | ) | 11,962        |  |                        |   |                     |  |                |  | (65,353  | )
|Asset impairment charges(b)   |  | 69,700               |   | 1,472         |  |                        |   |                     |  |                |  | 71,172   |  
|Restructuring charge(a)       |  | 6,600                |   | 2,400         |  |                        |   |                     |  |                |  | 9,000    |  
|Capital expenditures          |  | 2,457                |   | 10,977        |  |                        |   |                     |  | 3,642           |  | 17,076   |  
|Depreciation and amortization |  | 17,450               |   | 18,020        |  |                        |   |                     |  |                |  | 35,470   |  
|Identifiable assets(c)        |  | 72,360               |   | 140,696       |  |                        |   | 7,096                |  | 47,350          |  | 267,502  |  
|                              | 

NOTES:

14.  Related Party Transactions

The Company utilizes McLeod USA to provide telecommunications services at certain of the Company's call centers. Clark McLeod, the Chairman and CEO of McLeod
USA is a member of the Board of Directors of the Company. During the fiscal years 2000, 1999 and 1998 the Company purchased $471, $372, and $436, respectively of telecommunications services.

The
Company entered into an alliance agreement with marchFIRST in fiscal 2000 to provide the Company with consulting services to develop and market its Internet products. Robert Bernard, former
Chairman and CEO of marchFIRST is a member of the Board of Directors of the Company. During fiscal year 2000 the Company purchased $2.4 million of consulting services from marchFIRST.

15. Quarterly Data (Unaudited)

The following is a summary of the quarterly results of operations, including income per share, for APAC Customer Services, Inc. for

49

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the quarterly periods of 2000 and 1999 fiscal years (in thousands, except per share data):

|Fiscal Years Ended                                 |  | First
Quarter |   | Second
Quarter |  | Third
Quarter |  | Fourth
Quarter |  | Full
Year
|-------------------------------------------------- |  | ------------- | - | -------------- |  | ------------- |  | -------------- |  | ---------
|
|2000 Fiscal year ended December 31, 2000:          |  |               |   |                |  |               |  |                |  |          
|Net revenue                                        |  | $118,364      |   | $118,594       |  | $113,311      |  | $114,086       |  | $464,355 
|Gross profit                                       |  | 27,342        |   | 29,983         |  | 24,852        |  | 22,509         |  | 104,686  
|Income (loss) from continuing operations(a)        |  | 3,556         |   | 3,998          |  | 4,553         |  | 4,563          |  | 16,670   
|Gain on disposal of Paragren Technologies, Inc.(c) |  | 115           |   |               |  |              |  | 396            |  | 511      
|Net income (loss)(a)                               |  | 3,671         |   | 3,998          |  | 4,553         |  | 4,959          |  | 17,181   
|Net income (loss) per share:                       |  |               |   |                |  |               |  |                |  |          
|Income (loss) from continuing operations(a)        |  | $0.07         |   | $0.08          |  | $0.09         |  | $0.09          |  | $0.33    
|Net income (loss)(a)                               |  | 0.07          |   | 0.08           |  | 0.09          |  | $0.10          |  | 0.34     
|1999 fiscal year ended January 2, 2000:            |  |               |   |                |  |               |  |                |  |          
|Net revenue                                        |  | $107,421      |   | $102,976       |  | $103,188      |  | $114,060       |  | $427,645 
|Gross profit                                       |  | 16,973        |   | 21,649         |  | 20,413        |  | 21,605         |  | 80,640   
|Income (loss) from continuing operations(a)(b)(c)  |  | (202          | ) | 1,145          |  | 1,929         |  | 2,778          |  | 5,650    
|Net income (loss)                                  |  | (202          | ) | 1,145          |  | 1,929         |  | 2,778          |  | 5,650    
|Net income (loss) per share:                       |  |               |   |                |  |               |  |                |  |          
|Income (loss) from continuing operations(a)(b)     |  | $(0.00        | ) | $0.02          |  | $0.04         |  | $0.06          |  | $0.12    
|Net income (loss)(a)(b)                            |  | (0.00         | ) | 0.02           |  | 0.04          |  | 0.06           |  | 0.12     
|                                                  

NOTES:

50

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PART III

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

None

Item 10.  Directors and Executive Officers of the Registrant.

The information required by this Item (except for the information regarding executive officers required by Item 401 of Regulation S-K which
is included in Part I under the caption "Executive Officers of Registrant") is set forth in the Company's Proxy Statement for the Annual Meeting of Share Owners to be held on June 8,
2001, under the caption "Election of Directors," which information is incorporated herein by reference.

Item 11.  Executive Compensation

The information required by this Item is set forth in the Company's Proxy Statement for the Annual Meeting of Share Owners to be held on June 8, 2001,
under the caption "Compensation of Executive Officers," which information is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is set forth in the Company's Proxy Statement for the Annual Meeting of Share Owners to be held on June 8, 2001,
under the caption "Securities Beneficially Owned by Principal Share Owners and Management," which information is incorporated hereby by reference.

Item 13.  Certain Relationships and Related Transactions

The information required by this item is set forth in the Company's Proxy Statement for the Annual Meeting of Share Owners to be held on June 8, 2001,
under the caption "Certain Transactions" which information is incorporated herein by reference.

51

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PART IV

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

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



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



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

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

None

52

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SIGNATURES

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

|                      |  | APAC Customer Services, inc.                                                     
|--------------------- |  | ---------------------------------------------------------------------------------
|Dated: March 19, 2001 |  | /s/GARY S. HOLTERGary S. Holter Senior Vice President and
Chief Financial Officer

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

|Signature                                    |  | Title                                                                           |  | Date          
|-------------------------------------------- |  | ------------------------------------------------------------------------------- |  | --------------
|                                             |  |                                                                                 |  |               
|/s/THEODORE G. SCHWARTZ*Theodore G. Schwartz |  | Chairman of the Board of Directors                                              |  | March 19, 2001
|/s/PETER M. LEGER*Peter M. Leger             |  | President, Chief Executive Officer (Principal Executive Officer) and Director   |  | March 19, 2001
|/s/GARY S. HOLTERGary S. Holter              |  | Senior Vice President and Chief Financial Officer (Principal Financial Officer) |  | March 19, 2001
|/s/CLARK E. MCLEOD*Clark E. McLeod           |  | Director                                                                        |  | March 19, 2001
|/s/THOMAS M. COLLINS*Thomas M. Collins       |  | Director                                                                        |  | March 19, 2001
|/s/ROBERT F. BERNARD*Robert F. Bernard       |  | Director                                                                        |  | March 19, 2001
|/s/PAUL G. YOVOVICH*Paul G. Yovovich         |  | Director                                                                        |  | March 19, 2001

*Gary
S. Holter, as attorney in fact for each person indicated.

53

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Share Owners of APAC Customer Services, Inc.:

We
have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of APAC Customer Services, Inc. and issued our unqualified
opinion thereon dated January 31, 2001. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements. The schedule of Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic consolidated financial statements. This schedule has been subject to
the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated
financial statements taken as a whole.

ARTHUR
ANDERSEN LLP
Chicago, Illinois
January 31, 2001

54

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Schedule II

|Valuation and Qualifying Accounts |  | (in thousands)
|--------------------------------- |  | --------------
|                                  |  |               

|Column A                         |  | Column B |  | Column C |   | Column D |  | Column E
|-------------------------------- |  | -------- |  | -------- | - | -------- |  | --------
|
|
|
|
|
|
|Allowance for doubtful accounts: |  |          |  |          |   |          |  |         
|Year ended January 3, 1999       |  | $447     |  | $3,090   |   | $3,052   |  | $2,339  
|Year ended January 2, 2000       |  | 4,250    |  | 1,080    |   |         |  | 3,770   
|Year ended December 31, 2000     |  | 1,560    |  | 1,730    |   |         |  | 201     
|Accrued Restructuring Charge:    |  |          |  |          |   |          |  |         
|Year ended January 3, 1999       |  | $       |  | $9,000   |   | $       |  | $5,264  
|Year ended January 2, 2000       |  | 3,736    |  | 7,600    |   |         |  | 9,086   
|Year ended December 31, 2000     |  | 2,250    |  | (500     | ) |         |  | 1,656   
|                                

NOTES:

55

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EXHIBIT INDEX

|Exhibit Number |  | Description                                                                                                                                                                                                                                 
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|3.1            |  | Articles of Incorporation of APAC Customer Services, Inc. are incorporated by reference to APAC Customer Services, Inc.'s quarterly Report on Form 10-Q for the quarter ended October 3, 1999.                                              
|3.2            |  | Amended and Restated Bylaws of APAC Customer Services, Inc. as amended through April 30, 2000 incorporated by reference to Exhibit 3.2 to APAC Customer Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
April 2, 2000. 
|4.1            |  | Specimen Common Stock Certificate.                                                                                                                                                                                                          
|*10.1          |  | APAC TeleServices, Inc. Amended and Restated 1995 Incentive Stock Plan, as amended, incorporated by reference to Exhibit 99.1 to APAC TeleServices, Inc.'s Current Report on Form 8-K dated April 10, 1998.                                 
|*10.2          |  | Amendment No. 1 to Amended and Restated APAC TeleServices, Inc. 1995 Incentive Stock Plan incorporated by reference to Exhibit 10.11 to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638.
|*10.3          |  | Second Amended and Restated 1995 Incentive Stock Plan incorporated by reference to APAC Customer Services, Inc.'s quarterly report on Form 10Q for the quarter ended July 2000.                                                             
|*10.4          |  | First Amendment to the Second Amended and Restated 1995 Incentive Stock Plan incorporated by reference to APAC Customer Services, Inc.s quarterly report on Form 10Q for the Quarter ended July 2, 2000.                                    
|*10.5          |  | Amended and Restated APAC TeleServices, Inc. 1995 Nonemployee Director Stock Option Plan incorporated by reference to Exhibit 10.2 to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration
No. 33-95638.  
|*10.6          |  | Employment Agreement with Marc Simon dated June 1, 2000 incorporated by reference to APAC Customer Services, Inc.'s quarterly report on Form 10Q for the quarter ended July 2, 2000.                                                        
|*10.7          |  | Employment Agreement with Peter M. Leger incorporated by reference to APAC Customer Services, Inc. Quarterly Report on Form 10-Q for the quarter ended October 3, 1999.                                                                     
|*10.8          |  | Amendment to the Employment Agreement with Peter M. Leger dated January 31, 2001.                                                                                                                                                           
|*10.9          |  | Employment and relocation agreement with L. Clark Sisson incorported by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.                                                     
|*10.10         |  | Fiscal 2000 Management Incentive Plan incorporated by reference to APAC Customer Services, Inc.'s quarterly report on Form 10Q for the quarter ended October 1, 2000.                                                                       
|*10.11         |  | Fiscal 2001 Management Incentive Plan.                                                                                                                                                                                                      
|*10.12         |  | Form of Employment Security Agreement between the Company and its Senior Management Team is incorporated by reference to APAC Customer Services, Inc.'s quarterly report on Form 10Q for the quarter ended July 2,
2000.                    
|*10.13         |  | Revised form of Employment Security Agreement between the Company and its Senior Management Team.                                                                                                                                           
|10.14          |  | Amended and Restated Credit Agreement dated September 8, 1998 and First Amendment to Agreement, incorporated by reference to APAC TeleServices, Inc.'s Quarterly Report on Form 10-Q for the period ended September 27,
1998.               

56

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|10.15   |  | Second Amendment and Waiver to Amended and Restated Credit Agreement incorported by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000 incorported by reference
to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16   |  | Third Amendment and Waiver to Amended and Restated Credit Agreement incorported by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.                                                                                                                               
|10.17   |  | Fourth Amendment to Amended and Restated Credit Agreement incorported by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.                                                                                                                                         
|**10.18 |  | Agreement with United Parcel Service General Services Inc. incorporated by reference to Exhibit 10.6 to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638.                                                                                                                     
|**10.19 |  | Amendment, dated September 22, 1999, to Agreement for In-Bound Telemarketing with United Parcel Services Global Services Co. incorporated by reference to APAC Customer Services, Inc. Quarterly Report on Form 10-Q for the
quarter ended October 3, 1999.                                                                      
|10.20   |  | Registration Rights Agreement incorporated by reference to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638.                                                                                                                                                                  
|10.21   |  | Tax Agreement incorporated by reference to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638.                                                                                                                                                                                  
|**10.22 |  | Agreement with J.C. Penney Insurance Company, dated November 1, 1994 incorporated by reference to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638                                                                                                                            
|21.1    |  | Subsidiaries of APAC Customer Services, Inc.                                                                                                                                                                                                                                                                                     
|23.1    |  | Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                                                                   
|24.1    |  | Power of attorney executed by Theodore G. Schwartz, Peter M. Leger, Clark E. McLeod, Robert F. Bernard, Thomas M. Collins, Paul G Yovovich                                                                                                                                                                                       
|       

57

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