UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

----------------------------------------------------- IN RE: APAC TELESERVICES, INC. SECURITIES LITIGATION -----------------------------------------------------

X    : : X

FIRST CONSOLIDATED AND AMENDED COMPLAINT [filed Jun. 26, 1998] 97 Civ. 9145 (BSJ)

1. This is a securities class action complaint against APAC Teleservices, Inc. ("APAC" or the "Company"), individual officers and directors of the Company and several lead underwriting firms who underwrote the $168 million Public Offering effective November 8, 1996 (the "November 1996 Offering"). The action seeks to represent all purchasers of APAC common stock from September 19, 1996 through April 21, 1997 (the "Class Period") including a Sub-Class of purchasers who purchased the common stock of APAC pursuant to or traceable to the Registration Statement and Prospectus issued in connection with the November 1996 Offering.

2. Plaintiffs' allegations are predicated upon knowledge and information of, inter alia, press releases and news reports, including but not limited to those dated September 19, 1996, October 1996, October 17, 1996, December 10, 1996, February 3, 1997, February 10, 1997, and April 20, 1997 through April 22, 1997; analyst reports, including but not limited to those dated November 7, 1996 and February 6, 1997; and a review and critical analysis of the relevant filings of APAC made with the Securities and Exchange Commission ("SEC"), including, inter alia, the registration statement (the "Registration Statement") and prospectus (the "November 1996 Prospectus" or the "Prospectus") for the $168 million November 1996 Offering and the Company's 10-Q for the quarter ended March 30, 1997. The allegations below are also based upon an extensive investigation, including interviews undertaken by plaintiffs' counsel with many former APAC employees who worked at APAC callcenters dedicated to the Company's service of United Parcel Service of America Inc. ("UPS"). The specific allegations concerning the true state of affairs with regard to APAC's UPS business are based upon information obtained from former APAC employees (including the allegations set forth in paragraphs 6, 8, 50-59, 62-67, 69, 71-72, 75, 79-82, 86, and 89). The allegations as to plaintiffs and their attorneys are made upon personal knowledge.

3. Throughout the Class Period, defendants engaged in a common plan and scheme to defraud and made material misrepresentations and omissions of fact concerning APAC's business, operations, revenues and profits, including its unique July 1995 contract with its largest client, United Parcel Service of America, Inc. ("UPS"), the nation's largest deliverer of packages (the "UPS Contract" or the "Contract"). Prior to and during the Class Period, UPS repeatedly advised APAC that APAC's work had been "unproductive," and UPS refused to pay for "unproductive time," resulting in APAC bearing substantial costs and expenses which would materially impact its revenues and profits. During the Class Period, while in possession of material adverse facts, APAC and the defendants touted APAC's expanding UPS business, revenues and profits, and failed to disclose APAC's non-performance of its obligations under the Contract, UPS's complaints concerning APAC's substantial overbilling, UPS's decision to withhold payment for up to 20% of APAC operator time, and APAC's decision to substantially cut its workforce beginning in January 1997.

4. APAC entered into the Contract with UPS in July 1995. Under the UPS Contract, APAC was obligated, among other things, to establish four call centers providing in-bound telemarketing services that met specified performance criteria. In return, UPS was obligated to pay APAC per telephone representative per hour.

5. Throughout the Class Period, rather than revealing the then present, material adverse facts and occurrences, as well as the change in the relationship between APAC and UPS, defendants misrepresented that APAC was successful in fulfilling the UPS contract and continually touted the size of its contract with UPS, which was estimated by APAC to generate between $50 and $70 million in revenues in 1996 alone, as well as the four year term of the UPS Contract, which was highly unusual in the call center industry. The UPS Contract was portrayed as evidencing APAC's successful entrance into the market for operating in-bound customer service oriented call centers. Defendants continually represented APAC's contract with UPS as material, accounting for, among other things, 35.7% of APAC's total corporate revenue for the first six months of 1996. In fact, defendants portrayed the UPS Contract as transforming the Company from one principally operating outgoing call centers to one also engaged in operating major incoming call centers.

6. Defendants' misrepresentations regarding the UPS Contract and the Company's business were materially false and misleading because they misstated APAC's performance under the UPS Contract, APAC's relationship with UPS, and the Company's financial condition and business prospects, as revealed by the following chronology:

(a) the APAC-UPS Contract from the outset gave UPS enormous power to refuse payment to APAC (which power in fact UPS began to use in January 1996) because it required APAC operators at each of the four UPS callcenters (Virginia, Texas, North Carolina and Florida) to satisfy very specific performance criteria (e.g., closing package inquiries and traces within specific periods of time (the "Requirements")). Since APAC was not satisfying these "Requirements", neither the number of workstations nor operator hours referred to in the Prospectus standing by themselves truly reflected the value of APAC's UPS business and the health and profitability of APAC. In fact, the increased number of workstations referred to in the Prospectus actually resulted in less profit for APAC since UPS was not reimbursing APAC for a substantial portion of that operator time. This fact was concealed during the Class Period.

(b) Beginning in January 1996 (as the four callcenters in Texas, Virginia, North Carolina and Florida became fully operational), and continuing through the end of the Class Period, UPS repeatedly slashed APAC invoices for so-called "unproductive time" because APAC's performance did not meet the Requirements. This fact was concealed during the Class Period.

(c) In June 1996, UPS began a policy of nonpayment for APAC operator time at the Virginia callcenter (the first center to become fully operational) where the operators failed to comply with the Requirements. This fact was concealed during the Class Period.

(d) In June 1996, UPS conducted an audit of the Texas callcenter facility, reviewing payroll, time cards, and performance data, and concluded that APAC had been substantially overbilling UPS. This fact was concealed during the Class Period.

(e) By the end of August 1996, as a result of UPS audits and repeated APAC performance failures as reflected in daily, weekly and monthly reports, UPS informed APAC that it would no longer pay for operator time at any of the four centers where the Requirements were not met. This fact was concealed during the Class Period.

(f) APAC management planned for a sharp reduction in callcenter personnel beginning in the first quarter of 1997, as a result of the foregoing adverse facts. This fact was concealed during the Class Period.

(g) As a result of APAC's underperformance and indeed failure of performance of the UPS contract, APAC's profit margins were severely eroded, which fact when disclosed would cause the price of the stock to plummet.

7. The co-lead underwriters on the three offerings of December 1995, February 1996, and November 1996 were defendants Merrill Lynch & Co. ("Merrill Lynch"), Lehman Brothers ("Lehman") and Smith Barney Inc. ("Smith"). Defendant William Blair & Company ("W. Blair") was a co-lead underwriter in the November 1996 Offering (Merrill Lynch, Lehman, Smith and W. Blair are sometimes herein referred to collectively as the "Underwriters").

8. Defendants' false portrayal of the Company's financial condition and relationship with UPS was further perpetuated by the Underwriters of the November 1996 public offering, who were required to make a proper "due diligence" before they embarked on the underwritings. Throughout the Class Period, the Underwriters, as well as APAC, repeatedly misrepresented to the investing public that APAC's UPS business was growing in profitability under the Contract and that UPS was satisfied with APAC's performance as evidenced by the supposed growth in call stations and growing revenue received by APAC. However, these representations were materially false because at the time of the November 1996 Offering, the profitability of the UPS business was declining materially since UPS had begun withholding substantial payments to APAC due to its dissatisfaction with APAC's non-performance of its obligations under the Contract.

9. On April 21, 1997 -- after APAC had put sufficient distance between Schwartz's sale of $229 million of APAC common stock in October, 1996 and in connection with the November 1996 Offering and any adverse announcement about its UPS business -- APAC shocked the market by announcing that it had not met its expected earnings for the quarter ended March 31, 1997. Furthermore, APAC reported for the first time that retroactive to January 1, 1997, UPS would be paying for only "productive" help desk time billed by APAC. APAC further stated that this policy would result in an approximately 20% reduction in billable service representatives, that APAC would be forced to absorb significant payroll costs that would "otherwise have been billed to UPS" and that APAC would have to substantially cut payroll by laying off a great number of personnel. In or about May of 1997, in APAC's Form 10-Q for the quarter ended March 31, 1997, APAC further publicly disclosed the operative material adverse changes in UPS billing and collectibility arising from the critical contractual provision of the UPS-APAC Contract; that UPS not only had the right to determine "service levels" or which operator time would be reimbursed, but that UPS had earlier advised APAC of APAC's non-performance and had exercised that right, refusing to reimburse APAC for 20% of its operator service.

10. In response to the disclosure of the material adverse facts on April 21, 1997, the price of APAC common stock price declined dramatically, falling approximately 58% from $23.375 per share on April 17, 1997, to $9.875 per share on April 22, 1997. This decline was particularly dramatic because the Underwriters had issued several analyst reports in the months preceding the November 1996 Offering, in addition to several press announcements made by APAC and the Individual Defendants, underscoring the purported expansion of APAC's business with its largest client, UPS.

11. The claims asserted below arise under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. §§ 77k, 77l(a)(2), and 77o, and Sections 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), Rule 10b-5 promulgated thereunder by the SEC, 17 C.F.R. § 240. 10b-5, and Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a).

12. Jurisdiction is conferred upon this Court by Section 27 of the Exchange Act, 15 U.S.C. § 78aa, 28 U.S.C. §§ 1331 and 1337 and Section 22 of the Securities Act, 15 U.S.C. § 77v.

13. Venue is proper in this judicial district pursuant to 28 U. S.C. § 1391(b) and (c) and Section 22 of the Securities Act. Many of the acts and transactions constituting the violations of law described in this complaint occurred within this judicial district. NASDAQ, the market wherein APAC securities were traded, is located in this District and all of the underwriter defendants except W. Blair reside within this District.

14. In connection with the acts alleged herein, the defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including the United States mails and wire services.

15. Lead Plaintiff Karen Behr purchased shares of APAC common stock during the Class Period as detailed in the Plaintiffs' Certifications attached hereto, and was damaged thereby.

16. Lead Plaintiff Dominic A. Castaldo purchased shares of APAC common stock during the Class Period as detailed in the Plaintiffs' Certifications attached hereto, and was damaged thereby.

17. Lead Plaintiff Irving Drobny purchased shares of APAC common stock during the Class Period as detailed in the Plaintiffs' Certifications attached hereto, and was damaged thereby.

18. Lead Plaintiff Donald J. Mayhall II purchased shares of APAC common stock during the Class Period as detailed in the Plaintiffs' Certifications attached hereto, and was damaged thereby.

19. Lead Plaintiff Michael Rosenberg purchased shares of APAC common stock during the Class Period as detailed in the Plaintiffs' Certifications attached hereto, and was damaged thereby.

20. Lead Plaintiff Nicholas Rotello purchased shares of APAC common stock during the Class Period as detailed in the Plaintiffs' Certifications attached hereto, and was damaged thereby.

21. Twenty-six additional Class Members came forward pursuant to notice requirements of the Private Securities Litigation Reform Act of 1995 and moved to serve as Lead Plaintiffs. Pursuant to this Court's Order dated April 28, 1998, the aforementioned Class Members have been appointed to serve as Lead Plaintiffs and to represent the claims of the Class and all others who have come forward.

22. Defendant APAC is an Illinois corporation with its principal executive offices located at One Parkway North Center, Deerfield, Illinois 60015. According to its public statements, the Company was founded in 1973 by Theodore G. Schwartz, Chairman, Chief Executive Officer and President of the Company and initially was in the business of buying and reselling radio advertising time, which business was sold in 1991. In 1985, APAC began providing telephone-based direct sales and marketing services. According to its public statements, the Company operates over 6,000 workstations in 41 telephone call centers located primarily in the Midwest; the call centers are centrally managed through the application of telecommunications and computer technology. APAC's common stock is traded on the NASDAQ National Market, a national, efficient stock exchange. As of March 3, 1997, there were 46,657,760 shares of APAC stock outstanding.

23. Theodore G. Schwartz ("Schwartz") was, during all periods relevant hereto, Chairman of the Board of Directors and Chief Executive Officer of APAC. On October 11, 1996, Schwartz sold approximately 1.7 million of his APAC common stock. Further, as noted above, defendant Schwartz and his family sold approximately 4.0 million shares in connection with the November 1996 Offering as follows:

                       Date      Number of      Price       $ Amount
                      of Sale   Shares Sold   Per Share     Received

Schwartz              11/6/96      900,000     $42.03     $37,827,000
Schwartz 1996
Charitable
Remainder Trust       11/6/96    1,100,000     $42.03     $46,233,000

Schwartz Charitable
Remainder Trust
(No. 730)             11/6/96    1,000,000     $42.03     $42,030,000

Schwartz Charitable
Remainder Trust
(No.430)              11/6/96    1,000,000     $42.03     $42,030,000

Total                            4,000,000               $168,120,000

                                                        (less approx.
                                                       $7 million in
                                                   underwriting fees)

As a result, defendant Schwartz and his family sold approximately $229 million of APAC common stock on October 11, 1996 and November 8, 1996. Schwartz was a signatory of the Registration Statement filed in connection with the November 1996 Offering.

24. Marc Simon ("Simon") was, during all relevant periods, Chief Financial Officer and a Director of APAC. Defendant Simon joined APAC in June 1995 and was elected as a Director of the Company in August 1995. As of November 4, 1996, Simon beneficially owned 121,007 shares of APAC common stock. In 1995, he received from APAC salary of $139,423, a bonus of $140,000, options whose underlying value was $565,034, and other compensation. Simon was a signatory of the Registration Statement filed with the SEC in connection with the November 1996 Offering.

25. Morris R. Shechtman ("Shechtman") was, during all relevant periods, a Director of APAC. Defendant Shechtman was elected as a Director of the Company in September 1995. As a director, Shechtman received from APAC an annual retainer of $12,000 and an option to purchase 5,000 common shares of APAC upon initial election and annually upon each reelection as a Director. In January 1996, APAC hired The Shechtman Group, a management consulting firm, of which defendant Shechtman is a director, to provide various human resource consulting related services to APAC. As of June 10, 1996, The Shechtman Group had earned $445,000 from services provided to APAC. By April 10, 1997, Shechtman beneficially held 32,770 shares of APAC common stock. Defendant Shechtman was a signatory of the Registration Statement filed with the SEC in connection with the November 1996 Offering. As shown in the table below, Shechtman sold 20,000 shares of APAC stock (almost two-thirds of his holdings) in the days immediately preceding APAC's April 20, 1997 negative announcements:

                                                       Amount From
     Date Sold      No. Shares      Share Price($)      Sales ($)

     04/11/97          2,000            23.75             47,500
     04/11/97          3,000            23.63             70,890
     04/14/97          3,000            22.13             66,390
     04/14/97          2,000            23.00             46,000
     04/16/97         10,000            23.38            233,800
                      ------                             -------
                      20,000                            $464,580

26. During the Class Period, defendants Schwartz, Simon and Shechtman (collectively the "Individual Defendants") were either: (a) responsible for the issuance or approval of materially false and misleading statements concerning the Company's operations; (b) failed to correct those statements during the Class Period; and/or (c) traded shares in the Company while in possession of the material, adverse information described herein.

27. During the Class Period, the Individual Defendants each occupied positions in the Company that made them privy to material adverse non-public information. Because of their positions of control and authority as executive officers, directors and/or controlling shareholders of APAC, they each had access to such internal information. The Individual Defendants knew or recklessly disregarded that the adverse facts specified herein were being concealed from the public. Notwithstanding the duty to refrain from selling stock to the public while in possession-of material adverse non-public information, as detailed herein, Schwartz and Shechtman sold APAC stock at artificially inflated prices during the Class Period, thereby profiting greatly from the fraudulent scheme and misuse of material non-public information.

28. Because of the Individual Defendants' positions, their ability to exercise power and influence with respect to APAC's course of conduct, their substantial holdings of APAC common stock, and because of their access to material inside information, the Individual Defendants were, at the time of the wrongs alleged herein, controlling persons of APAC within the meaning of Section 20(a) of the Exchange Act.

29. It is appropriate to treat the Individual Defendants as a group for pleading purposes and to presume that the false and misleading information conveyed in the Company's financial statements, public filings, press releases and other publications as alleged herein are the collective actions of the narrowly defined group of defendants identified above.

30. As officers and/or directors of a publicly-held company whose shares were, and are, registered with the SEC pursuant to the Exchange Act, traded on the NASDAQ, and governed by the provisions of the federal securities laws, the Individual Defendants each had a duty to disseminate accurate and truthful information with respect to the Company's financial condition and performance, operations, business, internal controls, products, markets, management, earnings and present and future business prospects, and to correct any previously issued statements that had become materially misleading or untrue, so that the market price of the Company's publicly traded securities would be based upon truthful and accurate information. Under rules and regulations promulgated by the SEC under the Exchange Act, specifically Item 303 of Regulation S-K, the Individual Defendants also had a duty to report all trends, demands or uncertainties that were reasonably likely to impact: (i) APAC's revenues and/or income; and/or (ii) previously reported financial information such that it would not be indicative of future operating results. The Individual Defendants' representations and assurances during the Class Period violated these specific requirements and obligations.

31. The Individual Defendants all participated in the drafting, preparation, and/or approval of the various statements and other communications complained of herein, were aware of or recklessly disregarded the misstatements contained therein and omissions therefrom, and were aware of their materially false and misleading nature. Because of Board membership, executive positions with APAC and other avenues of access to information not generally known by the investing public, each of the Individual Defendants had access to, and actual knowledge of, the adverse undisclosed information about APAC's contract with UPS, APAC's relationship with UPS, UPS's dissatisfaction with APAC's non-performance under the Contract, UPS's withholding of substantial payments for "unproductive time", the resulting impact this loss of revenue had on APAC's financial condition and the renegotiation of the billing arrangements under the UPS Contract; knew that these adverse facts rendered the positive representations made by and about APAC, its financial condition, relationship with UPS and business prospects materially false and misleading; knew that the market price of APAC's stock was thereby artificially inflated; and knew that such adverse facts should be disclosed.

32. In addition, the Individual Defendants, because of their positions of control and authority, were able to and did control the content of the various financial reports, press releases, presentations to securities analysts and other public statements pertaining to the Company. The Individual Defendants were provided with copies of the financial statements and documents alleged herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Accordingly, each of the Individual Defendants was responsible for the accuracy of the financial statements and public reports and releases detailed herein and is, therefore, primarily liable for the representations contained therein. The Individual Defendants, all of whom owned shares of APAC common stock, participated in the wrongdoing complained of herein in order to profit from the sale of those APAC shares, preserve their executive and/or director positions and the substantial compensation, benefits and prestige they obtained thereby.

The Underwriter Defendants

33. Defendant Merrill Lynch & Co. ("Merrill Lynch") was, at all relevant times, an investment banking firm principally located in New York County, New York at 100 Church Street, New York, NY 10007. Merrill Lynch was co-lead underwriter of three underwritings of APAC common stock in 1995 and 1996: the $68.8 million initial public offering of 4.3 million shares of APAC common stock at $16.00 per share on October 10, 1995; the $135 million secondary offering of 3 million shares of APAC common stock on February 19, 1996 at $45.00 per share and the November 1996 Offering (the "Three Offerings"). In the November 1996 Offering Merrill Lynch purchased 708,000 shares of APAC common stock, which it in turn sold to members of the investing public. For its work on three offerings over an 11-month period -- from October 1995 through November 1996 - Merrill Lynch along with other co-lead underwriting firms received fees, collectively, in excess of approximately $18.2 million. For the November 1996 Offering, the co-lead underwriters received fees of over $6,700,000.

34. Defendant Lehman Brothers ("Lehman") was, at all relevant times herein, an investment banking firm with principal offices in New York County, New York at Three World Trade Center, New York, NY 10285. Lehman was co-lead underwriter of the APAC IPO, February 1996 and November 1996 Offerings. In the November 1996 Offering Lehman purchased 708,000 shares of APAC common stock, which it in turn sold to members of the investing public. Further, as set forth below, Lehman issued favorable reports in 1996 concerning APAC wherein APAC's UPS business was discussed.

35. Defendant Smith Barney, Inc. ("Smith Barney") was, at all relevant times, an investment banking firm with principal offices in New York County, New York at 388 Greenwich Street, New York, NY 10013. Smith Barney was co-lead underwriter of the APAC IPO, February 1996 and November 1996 Offerings. In the November 1996 Offering, Smith Barney purchased 708,000 shares of APAC common stock, which it in turn sold to members of the investing public.

36. Defendant William Blair & Company ("W. Blair") was, at all times relevant hereto, a national investment banking firm and one of the co-lead underwriters in the November 1996 Offering. In the November 1996 Offering, W. Blair purchased 708,000 shares of APAC common stock, which in turn sold to members of the investing public. W. Blair also issued materially false and misleading favorable analyst reports concerning APAC in 1996 prior to the November 1996 Offering.

37. Merrill Lynch, Lehman, Smith Barney, and W. Blair are hereinafter collectively referred to as the "Underwriters" or the "Underwriter Defendants." The Underwriter Defendants substantially participated in the commission of the wrongs alleged herein through their involvement in the November 1996 Offering of shares of APAC's common stock. The Underwriter Defendants were at all relevant times entities engaged in the business of investment banking, underwriting and selling securities to the investing public. At all relevant times herein, the Underwriter Defendants had a duty to promptly disseminate truthful and accurate information with respect to APAC and its operations which they failed to do throughout the Class Period.

38. Plaintiffs bring this lawsuit pursuant to Rule 23 (a) and (b)(3) of the Federal Rules of Civil Procedure, on behalf of a class (the "Class") consisting of all persons who purchased APAC's common stock from September 19, 1996 through April 21, 1997, inclusive who were damaged thereby, including a sub-class of purchasers who purchased the common stock of APAC pursuant or traceable to the Registration Statement and Prospectus issued in connection with the November 1996 Offering (the "Sub-Class"). Excluded from the Class and Sub-Class are the defendants named herein, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which any defendant has or had a controlling interest.

39. This action is properly maintainable as a class action for the following reasons:

(a) The Class and Sub-Class for whose benefit this action is brought are so numerous that joinder of all members is impracticable. While the exact number of Class and Sub-Class members can-only be ascertained from books and records maintained by APAC and/or its agent(s), plaintiffs believe the Class and Sub-Class members number in the thousands and that those Class and Sub-Class members reside in various places throughout the country. As of March 3, 1997, there were approximately 46 million shares of APAC common stock outstanding and Schwartz and his family members sold millions of shares of common stock in the November 1996 Offering. Throughout the Class Period, APAC common stock was actively traded on the NASDAQ-National Market System;

(b) There are questions of law and fact common to members of the Class which predominate over any questions affecting only individual members. The common questions include, inter alia, the following:

(i) Whether the federal securities laws were violated by defendants' acts as alleged herein;

(ii) Whether defendants participated in and pursued the common course of conduct complained of herein;

(iii) Whether documents filed with the SEC (including the Registration Statement and Prospectus for the November 1996 Offering) and other documents, including press releases and statements disseminated to the investing public and APAC's shareholders during the Class Period, misrepresented material facts about the UPS Contract, UPS's satisfaction with APAC's performance, APAC's financial condition, risks, and business prospects;

(iv) Whether statements made by defendants to the investing public during the Class Period misrepresented material facts about the UPS Contract, UPS's satisfaction with APAC's performance, APAC's financial condition, risks, and business prospects;

(v) Whether the market price of APAC's common stock during the Class Period was artificially inflated due to the material misrepresentations and failure to correct the material misrepresentations complained of herein; and

(vi) To what extent the members of the Class and Sub-Class have sustained damages and the proper measure of damages;

(c) The claims of plaintiffs are typical of the claims of other members of the Class and Sub-Class and plaintiffs have no interests that are adverse or antagonistic to the interests of the Class;

(d) Plaintiffs are committed to the vigorous prosecution of this action and have retained competent counsel experienced in litigation of this nature. Accordingly, plaintiffs are adequate representatives of the Class and Sub-Class and will fairly and sufficiently protect the interests of the Class and Sub-Class; and

(e) Plaintiffs anticipate that there will not be any difficulty in the management of this litigation as a class action.

40. The names and addresses of the record purchasers of shares of APAC common stock purchased in the open market during the Class Period are available from defendants and their agents. Notice can be provided to such record owners by a combination of published notice and first-class mail using techniques and a form of notice similar to those customarily used in class actions arising under the federal securities laws.

41. For the reasons stated herein, a class action is superior to other available methods for the fair and efficient adjudication of this action and the claims asserted herein. Because of the size and complexity of the claims of individual Class and Sub-Class members, few, if any, Class or Sub-Class members could afford to seek legal redress individually for the wrongs complained of herein.

No Safe Harbor

42. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the misstatements pleaded in this complaint. The specific statements pleaded herein were not "forward-looking statements" when made nor did defendants identify them as such. Nor was it stated with respect to the statements forming the basis of this complaint that actual results "could differ materially from those projected." To the extent there were any forward-looking statements, there were no meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements. Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein, defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements was made, the particular speaker knew that the particular forward-looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of APAC who knew that those statements were false when made.

APAC's And The Individual Defendants' Guidance To Securities Analysts
And Use Of Them As A Conduit To Provide False And Misleading Information
To The Securities Markets

43. Defendants used communications with securities analysts to promote the Company and to artificially inflate the price of APAC stock during the Class Period.

44. At all relevant times, APAC was followed by securities analysts employed by brokerage houses which issue reports and make recommendations concerning APAC's common stock to their clients. Among the several securities firms that followed the Company during the Class Period were Lehman Brothers and Merrill Lynch.

45. In writing their reports, these analysts relied in substantial part upon information provided by the Company, public statements and reports of the Company, information provided to them privately by APAC and the Individual Defendants and assurances by the Individual Defendants and the Company that information in the analysts' reports did not materially vary from the Company's internal knowledge of its operations and prospects.

46. APAC and the Individual Defendants used their communications with analysts to assure them that their analysis and estimates of APAC's business were accurate and repeatedly advised securities analysts that the Company was on track to achieve strong earnings and earnings growth.

47. Prior to and during the Class Period, it was the Company's practice to have its top officers and key members of its management team communicate regularly with securities analysts at the firms identified above (and others), on a regular basis, to discuss, among other things, the Company's operating results and anticipated revenues and to provide detailed "guidance" to these analysts with respect to the Company's business and anticipated revenues and earnings. These communications included, but were not limited to, conference calls, meetings, and analyst briefings where the Individual Defendants discussed relevant aspects of the Company's operations and financial prospects. Additionally, as described below, APAC representatives - including certain of the Individual Defendants -- also attended "conferences" sponsored by different organizations throughout the Class Period and sponsored "conference calls" with securities analysts and institutional investors in connection with the release of earnings announcements and other major corporate events during which they promoted the Company's stock by disseminating materially misleading information about the Company.

48. APAC and the Individual Defendants knew that by participating in these regular and periodic direct communications with analysts, the Company could disseminate information to the investment community and that investors and the market would rely and act upon such information (i.e., make purchases of the Company's securities). The Individual Defendants had these communications with analysts in order to cause or encourage them to issue favorable reports concerning APAC -- which the analysts did -- and APAC and the Individual Defendants used these communications to falsely present the operations and allegedly successful prospects of APAC to the marketplace in order to artificially inflate the market price of APAC's common stock. Despite their duty to do so, the Individual Defendants failed to correct these statements (of which they were the sources or which they had caused or facilitated) during the Class Period.

49. The investment community and, in turn, investors, relied and acted upon the information communicated in these written reports that repeatedly recommended that investors purchase APAC common stock. APAC and the Individual Defendants manipulated and inflated the market price of APAC stock by falsely presenting to analysts, through regular meetings and during both telephonic and written communications, the prospects of the Company and by failing to disclose the true adverse information about the Company that was known to them.

APAC's Undisclosed Failed Performance Under Its UPS Contract

50. Beginning in 1990, APAC had been principally engaged in "call center management", i.e., providing telemarketing and sales for the insurance, financial services and telecommunications industries. However, in 1993, APAC launched an "inbound" unit to provide "800" customer-service or "help-line" support, direct-mail response and catalog order processing. This in-bound service, which APAC designated its "Service Solutions" unit, achieved $6.4 million in revenue in 1993 and $28 million in 1994. In March 1995, APAC announced that it had entered into a four-year contract with UPS to develop staff and manage four new UPS customer service centers. The UPS Contract became effective on July 10, 1995. Under the terms of the UPS Contract, APAC was to be paid a fixed fee for each hour that it provided a telephone service representative regardless of the number of calls handled. This contract was estimated to generate approximately $50 million in revenue in 1996 alone. Indeed, APAC's retention of a massive contract with UPS in March 1995 became the driving force behind its initial public stock offering on October 25, 1995.

51. The Contract provided, inter alia, that APAC would establish four call centers in Virginia, Texas, North Carolina and Florida to provide in-bound telemarketing services. Under the Contract, training was to begin in Virginia, Texas, North Carolina and Florida on July 10, 1995, September 13, 1995, and January 15, 1996 respectively, and operations were to-begin for those same call centers on August 2, 1995, October 4, 1995, November 8, 1995 and February 1, 1996. After an applicable "ramp-up" period, APAC agreed that it would "meet or exceed each of the applicable UPS requirements".

52. These requirements were set forth in detail in an Attachment to the Contract ("the "Requirements"). These Requirements provided benchmarks against which to measure APAC's performance under the Contract. Failure to perform according to the Requirements gave UPS the right to alter the terms of its payments for APAC's facilities dedicated to UPS work. The Requirements included the following:

• percentages of package inquiries closed within one day and two days;

• number of inquiries closed within more than seven days;

• percentage of "second request inquiries" (where no response was received by the inquiring party or incorrect information was initially given);

• number of tracing "service failures" where the shipper was not notified within one hour after the inquiry was received "tracing failures";

• number of tracing inquires closed per hour;

• requirement that the shipper be notified of damaged package;

• rating on employee's phone technique (i.e., communication skills, professionalism and courtesy)

53. The terms of the Contract required APAC to meet or exceed the Requirements. In the event that APAC failed to perform its obligations under the Contract, UPS had the right, without liability to UPS, to "obtain the services elsewhere" for the duration of APAC's failure to perform. The threat to take UPS business away from APAC was made repeatedly throughout the Class Period by UPS and had particular force because APAC was aware that it was constantly being compared with Teletech Holdings, Inc., a competitor of APAC, which serviced three UPS call centers for the same UPS inbound telemarketing business.

54. The call centers operated by having hundreds of telephone operators (known as call service representatives or "CSRs") receiving incoming calls from UPS customers. The CSRs were given support by supervisors or coaches. Thus, for example, at APAC's High Point, North Carolina facility, there were approximately 400 CSRs supported by approximately 50 "coaches". For the first few months of the Contract, UPS personnel remained on site to train operators and coaches on UPS procedures so that accurate information would be given to UPS customers.

55. Beginning as early as 1995, APAC was unable to satisfy the Requirements under the Contract:

• UPS customers were consistently given inaccurate information;

• APAC operators did not know how to track UPS packages; and

• APAC operators did not know UPS pickup procedures and schedules.

56. APAC's nonperformance was thoroughly documented in daily, weekly, and monthly reports listing APAC's lack of compliance with each Requirement at each call center. UPS generated daily data reflecting the number of tracing inquiries closed per hour, the number of inquiries closed within one, two and seven days, and the number of timely and untimely notices sent to shippers of damaged packages at each of the facilities. Operator time was also recorded and reported on daily time sheets filled out by operators and on the Delivery Information Weekly Operation Report ("DIWOR") based upon computer use at each workstation. Moreover, every month a meeting was held with APAC senior management, the four APAC site directors, the four UPS site directors, and UPS management wherein APAC's nonperformance was discussed. Given the detailed and continuous regimen of reports and meetings documenting APAC's nonperformance, the defendants clearly knew or intentionally and recklessly disregarded APAC's nonperformance and the financial consequences of UPS's slashing of APAC's bills for "unproductive time."

57. By June 1996, UPS had (at daily and weekly meetings at the sites and monthly meetings with APAC senior management) repeatedly communicated its dissatisfaction with APAC's inability to satisfy the Requirements and, as a result, had slashed APAC's billing. However, while particular invoices had been cut, at first no uniform enforcement of the Requirements had been implemented by UPS either on a call center-wide or company-wide basis. In June 1996, UPS began to enforce the Requirements at the Virginia Facility. UPS ceased paying APAC for hours where performance was deficient under the Contract. Thus, for example, UPS would not compensate for APAC operator time where that operator failed to close the requisite inquiries or tracers per hour. This new UPS practice resulted in additional cost and expenses for the Virginia Facility and lost revenue and income, causing profit margins to decline. Defendants' repeated failure to disclose these developments to the investing public created a materially false impression that APAC's business relationship with UPS was strong and that UPS was satisfied with APAC's performance. Thus, the investing public was falsely led to believe that UPS would continue to increase its use of APAC services.

58. In or about June 1996, an audit was conducted at the Texas call center. Approximately four UPS auditors requested all billing information from September 1995 through the end of May 1996. These auditors reviewed approximately thirty boxes of records. Following this audit, UPS accused APAC of massive overbilling and threatened to cut payments even further. Defendants' failure to disclose this development perpetuated the materially false impression that APAC's financial condition was strengthening as a result of increasing revenue earned from its contract with UPS. In reality, APAC's financial status was worsening as UPS increasingly voiced its dissatisfaction with APAC's service. In fact, throughout the Class Period, UPS threatened to take UPS business away from APAC and to give it to one of its competitors, Teletech International, Inc., which serviced three UPS call centers for the same UPS inbound telemarketing business. Thus, defendants' repeated statements emphasizing a positive relationship between APAC and UPS and representing UPS's satisfaction with APAC's performance were materially misleading and false.

59. By the end of August 1996, UPS informed APAC that it was going to enforce the performance criteria at all four centers, thus materially decreasing the number of operators for whom UPS would pay. Based upon this information, APAC management planned staff reductions immediately following Christmas season 1996. Gregory MacFarland, a senior corporate Vice-President reporting to defendants Simon and Schwartz, was directly involved in the determination of staff reductions to occur in the first quarter in 1997. Despite these events leading to the decline in the profitability of the UPS Contract, defendants continued to tout APAC's performance with UPS.

Pre-Class Period Positive Statements Regarding APAC's UPS Business

60. Following the successful completion of the February 1996 Offering and in anticipation of yet another "windfall" secondary offering, defendants Schwartz and Simon bombarded the investment community with further positive claims about APAC's operations generally and its relationship with UPS in particular.

61. At the April 16, 1996, Lehman Brothers Selected Growth Stock Conference, as reported in a Lehman Report dated April 23, 1996, APAC senior management stated that the driving force behind APAC revenue for the first quarter of 1996 was UPS's growing use of APAC's services and the increasing profitability of APAC's UPS business. In this Lehman Report:

[APAC] Management estimated that it would double its 1996 revenues based solely on existing year-end 1995 clients. Operating profit margins in calendar 1995 were 13.1 %, based on a blend of 15.6% from non-UPS business and 2.5% from the big UPS contract. With the first quarter operating margin at 15.5% (compared with 15.7% a year ago) it is clear that business with UPS is getting more profitable.

APAC management further stated that APAC will employ more workstations than it previously employed: 7,600 -- as opposed to the previously forecasted 7,200 -- generating an average $40,000 of revenue and $12,000 of gross profit per workstation.

62. The statements in the April 23, 1996 Lehman Report were materially false and misleading because beginning in January 1996, UPS began slashing APAC's bills to eliminate payment for APAC service that UPS found unsatisfactory under the terms of the UPS Contract. Thus, contrary to these misrepresentations, it was not clear that business with UPS was getting more profitable. In reality, APAC's income and profit margins from the UPS Contract were declining.

63. On May 24, 1996, in an interview on the Dow Jones Investor Network, defendant Simon falsely touted the strength of APAC's relationship with UPS:

Our performance and our quality is what is going to win the day every day. We do have a four-year agreement with UPS. We're hopeful that we're going to support their needs and that we'll be in a position to stick with them for a long time after that.

Simon's statements were materially false and misleading because he failed to disclose UPS's expressed dissatisfaction with APAC's performance and quality of service, which was known to APAC since January 1996. Thus, it was materially false and misleading to portray APAC as a company which was providing its clients with satisfactory performance and high-quality service when, in reality, APAC's non-performance and lack of quality were causing APAC to lose income and to experience declining margins in its work for its largest client, UPS.

64. On June 26, 1996, at a presentation given by defendants Schwartz and Simon at a William Blair & Co. Investment Conference, Schwartz, the head of APAC Service Solutions, stated that he saw a "tremendous flow of opportunity" in terms of demand. This statement was materially false and misleading because APAC was in fact losing business and payments from its largest client, UPS. Thus, the demand for APAC's services was not increasing, but rather decreasing, negatively affecting APAC's financial condition and business prospects.

65. In an analyst Report dated July 23, 1996, defendant underwriter Merrill Lynch further reported the "greater than anticipated" growth in APAC's UPS business:

UPS Revenue Estimate Escalates - We now project that UPS's contribution to 1996 revenue could be as much as $75 million, which is about $10 million more than we expected less than two months ago and $20 million more than we expected at the time of APAC's IPO. The incremental revenue reflects the increase in the number of workstations dedicated to UPS and higher productivity per workstation. We now think that APAC is operating more than 2,600 workstations devoted to UPS, up from 2,200 at March 31, 1996. For the full year that these workstations will be operating in 1997, we project that they could contribute more than $80 million to next year's revenue. By our projection, this would represent about 21 % of estimated 1997 revenue, compared to 29% of revenue in 1996.

These statements were false and misleading because they failed to disclose UPS's growing dissatisfaction with APAC's non-performance and the strained relationship between APAC and UPS. These omissions were material because the investing public was mistakenly led to believe that APAC would continue to reap increasing financial benefits from its contract with UPS.

66. As a result of this stream of falsely positive announcements, defendants conditioned the market into believing that APAC was performing well under the UPS Contract and that it was expanding its business with UPS. In stark contrast to this portrayal, UPS was dissatisfied with APAC's non-performance of its obligations under the UPS Contract and had begun withholding payments to APAC, thereby affecting APAC's financial condition.

Materially False And Misleading
Statements Issued During The Class Period

67. The Class Period commences on September 19, 1996. On that date, in an article published in Investor's Business Daily, defendant Simon reiterated the Company's falsely positive message of growth both in the Sales Solution and Service Solution areas stating in pertinent part:

We see opportunities for continued growth, both in outbound sales and marketing, and in inbound customer service. Our goal is to be the industry leader on both sides.

Simon further stated that APAC "ha[s] been very successful at beginning with a small amount of work with clients and earning the right to expand the services to those clients by offering the quality and service they've come to expect[.]" Simon's statements were materially false and misleading because at this time, Simon knew that one of APAC's largest clients, UPS, was in reality significantly decreasing the services requested of APAC due to UPS's dissatisfaction with APAC's non-performance under the Contract. Moreover, Simon failed to disclose that APAC would receive lower revenues, income and operating margins from the UPS Contract as a result of UPS's withholding of substantial payments.

68. Following the publication of this article, the price of APAC's common stock rose from $54.50 per share on September 18, 1996 to $57.00 per share on September 19, 1996.

69. In or about October 1996, in an interview of defendant Schwartz done by Telemarketing and Call Center Solutions, Schwartz falsely portrayed APAC as a company satisfying its client's demands, by stating that:

Whether it's teleservices or some other value-added function that is being outsourced, client companies choose the provider that delivers the best bottomline performance. Period. Our growth at APAC is the direct result of our track record in contributing superior value to clients. That is by generating increased sales and improved customer service on a consistent, predictable basis, we continue to distinguish ourselves in today's highly competitive marketplace. Clients are drawn by our documented results.

These were very specific, positive statements which gave rise to a duty on the part of Schwartz to disclose all facts regarding APAC's contract with UPS, one of its largest clients, and to correct the false positive impression that all of APAC's clients were satisfied with the quality of work provided by APAC. In fact, at this point in time UPS, a significant client representing 35.7% of APAC's total corporate revenue and 75.7% of the Company's Service Solutions net revenue in the first twenty-six weeks of fiscal 1996, was already clearly dissatisfied with APAC's work, leading UPS to withhold payments due APAC.

70. Defendant Schwartz knew that UPS was dissatisfied with APAC's work and withholding of payments to APAC because Schwartz, as he stated in his October 1996 interview of with Telemarketing and Call Center Solutions, believed strongly in "studying performance statistics" and talking to clients "frequently":

companies in the teleservices industry "should talk to [their] clients -- and [their] clients' customers -- as frequently as possible. If not directly, at least by studying performance statistics and talking with those who do interact directly with these constituents. Try to meet with your counterparts on the client side. Ask them what they like and dislike about our business. Listen closely, [and] take good notes[.] (Emphasis supplied)

71. On October 17, 1996, APAC issued a press release announcing third quarter 1996 profits of $8.62 million, or $0.18 per share as opposed to $1.35 million or $0.03 per share for the same period in 1995. APAC also reported that revenues had increased 212% to $75.4 million, from $24.1 million for the same period in the previous year. Additionally, APAC announced that for the nine months ended September 30, 1996, earnings more than quadrupled, to $20.46 million, or $0.43 per share from pro forma profits of $4.7 million, or $0.12 per share in the 1995 period, while revenues nearly tripled from $64.8 million to $188.6 million. This press release was materially false and misleading because it failed to disclose the revenue that APAC was losing from the UPS Contract and because it failed to state that this and previously reported financial information would-not be indicative of future operating results because of the status of the UPS Contract. At this point in time, UPS had clearly expressed its displeasure with APAC's overbilling and had begun cutting back its payments to APAC. Thus, APAC's costs and expenses were increasing as a direct result of UPS's actions.

72. On November 7, 1996, Merrill Lynch issued a buy recommendation for APAC emphasizing APAC's growth and "foothold" in the industry, as well as its positive increasing projected earnings. These statements were materially false and misleading because at this time, APAC was losing business from its largest client, UPS, and was losing revenue and experiencing declining margins as a result of UPS's refusing to pay APAC because of its overbilling and poor performance.

The Materially False And Misleading November 1996 Prospectus

73. On October 15, 1996, APAC had announced a third public offering by defendants Schwartz and Simon of their own shares of APAC common stock. Defendant Schwartz and his family trusts were to sell 4 million shares of common stock with an estimated value of $168 million.

74. The November 1996 Prospectus repeated nearly verbatim the paragraphs concerning UPS contained in the prospectuses for APAC's initial public offering in October 1995 and its secondary offering in February 1996.

75. Material misrepresentations and omissions in the November 1996 Prospectus included the following:

(a) the Prospectus purported to describe APAC's "current" business relationship with UPS including that, under the terms of the Contract, billing was based upon the hours billed by the operators at the four UPS dedicated call centers. "The Company is paid a fixed fee for each hour that it provides a telephone service representative under the UPS agreement." (November 1996 Prospectus, p. 23). UPS was in fact not paying fees on a fixed per hour per telephone representative basis. The Prospectus failed to disclose that fact and that UPS had slashed APAC's billings:

(i) after commencement of operations in 1995 and early 1996 "ramp up" period at the four call centers, UPS slashed APAC's billings where APAC had "unproductive time" or operator activity failed to meet the Requirements of the Contract;

(ii) in or about June 1996, UPS stopped paying for any operator time at the Virginia facility which failed to satisfy the Requirements under the Contract;

(iii) in or about June 1996, UPS audited APAC's Texas call center and found hundreds of thousands of dollars in alleged overbillings;

(iv) by approximately the end of August 1996 at the North Carolina, Texas and Florida call centers, UPS stopped paying for operator time that failed to satisfy Requirements under the Contract.

(b) the Prospectus referred to the number of "current" workstations at the four UPS call centers (November 1996 Prospectus, p. 28) which represented an approximate 40% increase (836 workstations) over the amount listed nine months earlier in the February 1996 Prospectus, but failed to disclose UPS's decision not to compensate APAC for the substantial increases in workstations and operators based upon UPS's finding that APAC service was unproductive;

(c) the Prospectus touted APAC's "reputation for quality service" and maintenance of "efficiency" which was purportedly supported by both APAC's self-monitoring as well as customer evaluations (November 1996 Prospectus, p. 25). This statement was materially false and misleading because with respect to at least one of APAC's biggest customers, UPS, APAC's poor performance was found to be unacceptable under the Contract;

(d) under the section headed "Service Solutions", the Prospectus contained a reference to UPS as a "significant" client (November 1996 Prospectus, p. 23), but omitted any reference to UPS's refusal prior to the November 1996 Offering to pay APAC for operator time where the performance of APAC's operators failed to satisfy the Requirements;

(e) the Prospectus' inclusion of the risk factor entitled "Reliance on Major Clients and Key Industries", (November 1996 Prospectus, p. 7) was materially false and misleading because it stated that the Company "generally operates under contracts which may be terminated on short notice." (Id.) (see also November 1996 Prospectus, p. 23) However, the Prospectus specifically stated that the Contract with UPS was unusual, i.e., one which could not be terminated on short notice, since the UPS Contract had a four and a half year term and could only be terminated by a material breach of the Contract or through change in control. (November Prospectus 1996, p. 23) Thus, although reliance on major customers such as UPS is referred to as a risk under the "Risk Factor" section because APAC's contracts were generally for short terms, the Prospectus elsewhere specifically states that UPS was contractually bound to a long-term contract, thus negating the purported "risk" to APAC;

(f) the Prospectus described the terms of the UPS Contract including stating that payment by UPS to APAC was based on the number of telephone operators regardless of the number of calls received. (November 1996 Prospectus, p. 23) This, however, was materially false and misleading because APAC was not meeting the Requirements pursuant to the UPS Contract at the time of the Offering and that regardless of the increase of 836 workstations at UPS call centers, APAC's earnings from UPS would dramatically decrease due to the costs and expenses that APAC was incurring as a result of UPS's withholding of substantial payments for service that UPS found unacceptable;

(g) the Prospectus' reference to UPS in "Risk Factors" was false and misleading (November 1996 Prospectus, p. 7) because it described a "possible" loss of business -- not an "actual" loss of both revenue and profit;

(h) the Prospectus repeatedly touted the fact that APAC operated approximately 8,000 workstations in 57 telephone call centers (November 1996 Prospectus, p. 3 and p. 20), but failed to disclose that UPS was not compensating APAC for the workstations APAC was operating for UPS because of UPS's determination that APAC services were unproductive;

(i) the Prospectus emphasized that APAC's "innovative approach to providing quality service distinguishe[d] it from its competitors and has led to the Company's rapid growth rate and its retention of key clients." (November 1996 Prospectus, p. 3) This statement was materially false and misleading because with respect to UPS, APAC's poor performance was unacceptable to UPS and as a result, UPS was decreasing that amount of work requested of APAC under the UPS Contract;

(j) the Prospectus referred to APAC's service as a "seamless extension of each client's business" (November 1996 Prospectus, p. 4), but failed to disclose that UPS, one of its largest clients, had found APAC's service to be unacceptable and was withholding substantial payments to APAC for substandard service;

(k) the Prospectus represented that APAC believed that its Service Solutions would continue to grow significantly through fiscal 1996 and 1997 as certain contracts came "fully on-line" (November 1996 Prospectus, p. 5), but failed to disclose that its business with one of its largest clients, UPS, was actually decreasing as a result of UPS's dissatisfaction with APAC's service;

(l) the Prospectus lauded APAC's increase in net revenue from fiscal 1993 to the first twenty-six weeks of fiscal 1996, as well as its increased income for that same time period (November 1996 Prospectus, p. 15), but failed to disclose that APAC was not expecting this trend to continue because UPS, its largest client, had begun withholding payment to APAC for service it had found unacceptable; and

(m) the Prospectus represented that Service Solutions' net revenue had increased $42.8 million or 522% from 1995 to 1996, "primarily as a result of the commencement of services under the Company's agreement with UPS" (November 1996 Prospectus 1996, p. 16), but failed to disclose that UPS had begun withholding payment to APAC due to its dissatisfaction with APAC's service which would continue to adversely impact APAC's net revenue.

76. Despite significant adverse developments in APAC's relationship with UPS, the only modifications relating to UPS in the November 1996 Prospectus from prior representations in the earlier prospectuses were to make the characterization of the UPS Contract even more positive. The changes were essentially "numerical," reflecting the purported increase in APAC's UPS revenue and number of dedicated workstations:

(a) the November 1996 Prospectus represented that UPS constituted 75.7% of the first twenty-six weeks of 1996 Revenue: "[S]ignificant relationships include UPS, Western Union and Quill Corporation, which clients accounted for approximately 75.7%, 3.4% and 3.3%, respectively, of the Company's Service Solutions net revenue in the first twenty-six weeks of fiscal 1996." (November 1996 Prospectus, p. 23); and

(b) the November 1996 Prospectus confirmed the purported dramatic expansion of UPS business. The Prospectus reported that in just the nine months between the February and November 1996 Offerings the number of workstations at the facilities dedicated solely to UPS business increased approximately 46.6% (from 1,794 to 2,630). (November 1996 Prospectus, p. 28)

Defendants Reap Millions Based On
Artificially Inflated Stock Price

77. Defendant Schwartz, motivated by his desire to reap $168 million on the November Offering, ensured that no truthful and accurate information concerning APAC's UPS business reached the public investors prior to November 8, 1996. Schwartz's failure to disclose the deteriorating relationship with UPS and UPS's withholding of substantial payments due to APAC was material. Schwartz knew that if the market learned of APAC's non-performance under the UPS Contract and declining UPS revenue, the November 1996 Offering could not have come to market -- and certainly not at $42 per share.

78. The Underwriters failed to disclose material information concerning APAC's financial condition and business relationship with UPS. The Underwriter Defendants simply repeated the "pat phrases" concerning UPS found in the earlier October 1995 IPO and February 1996 Offering in the November 1996 Prospectus, failing to ensure that the November 1996 Prospectus properly disclosed all material information about APAC's business and prospects.

Materially False And Misleading Statements
Post-November 1996 Offering

79. On or about December 10, 1996, APAC announced its expansion of business in the Midwest accompanied by the hiring of 300 additional employees in three communities. These statements were materially false and misleading because they misled the public into believing that APAC was expanding due to its increasing business and revenues. However, at this time, APAC was in fact losing business from its largest client, UPS, as well as revenue due to UPS's slashing of APAC's bills.

80. On or about February 3, 1997, APAC issued a press release reporting a 171.80% increase in 1996 revenues, and a 308% increase in net income. Revenues increased from $101.7 million to $276.4 million as net income went from $7.5 million to $30.6 million. For the fourth quarter, revenues rose 137.9%, from $36.9 million to $87.8 million, as net income increased 260.7%, from $2.8 million to $10.1 million. These statements were materially false and misleading because they led the investing public to believe that APAC's relationship with UPS was strong and that UPS was satisfied with APAC's performance. However, in reality, APAC was losing revenue and experiencing decreasing margins due to UPS's withholding of substantial payments because of UPS's dissatisfaction with APACs overbilling and poor performance.

81. On February 6,1997, on the heels of APAC's announcements about its fourth quarter earnings, Merrill Lynch issued a buy recommendation for APAC based on APAC's "better than expected quarter." Defendant Merrill Lynch's repeated emphasis of APAC's positive earnings and increased growth was materially misleading and false because it led investors to believe that APAC was going to continue its financial success. However, at this time, the relationship between APAC and UPS was deteriorating and APAC was incurring increasing costs and expenses as a result of UPS's slashing of APAC's bills.

82. As the DM News reported on or about February 10, 1997, APAC's Vice President of Marketing, Dan Bauer, stated that one key factor behind those strong numbers was APAC's emphasis on integrated solutions for clients, which often takes a customized approach. Bauer stated: "It relates most directly to our offerings and products." This statement was materially false and misleading because Bauer failed to disclose the adverse impact of APAC's failure under the UPS Contract on APAC's earnings and margins because of the increasing costs and expenses APAC was absorbing.

83. In response to this news, APAC's stock price initially increased from $33.50 per share on February 10, 1997 to $35.125 on February 11, 1997, and then to $39.00 per share on February 14, 1997.

APAC Begins To Reveal The Truth

84. On Sunday, April 20, 1997, APAC announced its financial results for the quarter ended March 31, 1997. APAC stated that "its revenues, margins and earnings were affected by a mutual decision that resulted in its absorbing certain costs incurred in the first quarter related to the staffing requirements of a large outsourcing client."

85. On Monday, April 21, 1997, as reported on the Dow Jones News Service, APAC and UPS announced that "UPS wants to modify its help-desk service agreements toward paying outsourcing agencies only for 'productive' help-desk time ... as opposed to billing simply for total help-desk billable hours."

86. It was further reported that while the negotiations purportedly took place "over the last 10 days" the effect of the cutback would "be retroactive to Jan. 1 so the entire first quarter will be affected". Although the announcement finally alerted investors to the material adverse changes in APAC's contract with UPS, defendants had known about UPS's cutback at least eight months earlier, i.e., by August 30, 1996. Indeed, prior to August 30, 1996, APAC had already begun planning for and commencing implementation of the cutbacks, including conducting significant layoffs, and administering leave without pay at the UPS call centers.

87. The market reaction to these announcements was dramatic. APAC's common stock price plummeted from $21.50 per share on Friday, April 18, 1997 to $11.125 per share on Monday, April 21, 1997 with over 13.5 million shares trading. This volume was nearly 3375%, or 33.75 times, APAC's average trading volume of approximately 400,000 shares. Further, the drop in APAC's common stock price was actually greater since the stock price on April 17, 1997 (the day before the announcement) was $23.375 per share and dropped to $21.50 on April 18, 1997 on volume of approximately 2,030,000 shares -- a volume approximately 500% greater than its prior daily average trading volume.

88. Similarly, on April 22, 1997 -- the day after the announcement of the UPS cutback -- APAC's common stock price declined even further from $11.125 per share on April 21, 1997 to $9.875 per share on April 22, 1997. On April 22, 1997, the volume of trading also dramatically increased to approximately 4,522,010 shares from the average 400,000 share daily trading volume in the preceding months.

89. In the Company's Form 10-Q for the quarter ended March 30, 1997, as well as for the quarter ended June 29, 1997, the Company quantified the UPS cutback to be approximately 20% of its "billable service":

During the first quarter of 1997, UPS reduced the number of billable service representatives and support positions by approximately 20% resulting in the Company absorbing payroll costs that otherwise would have been billed to UPS. The Company is taking steps to reduce payroll costs to restore historical margins on the UPS contract over the balance of the year by eliminating service representatives and other support positions. (Emphasis supplied)

Defendants had failed to disclose UPS's refusal to pay APAC for "unproductive time" and the adverse impact this was having on APAC's financial condition when it first became known to them. UPS's cutbacks not only had a material impact on APAC's financial condition, but also adversely impacted its business prospects. It was only in this Form 10-Q that APAC disclosed for the first time that UPS had the absolute right to determine "service levels" of those APAC operators who were "productive" and for whom UPS was obligated to pay.

90. Plaintiffs repeat and reallege each and every allegation contained above, except to the extent that any allegations contained above that may be interpreted to sound in fraud which such allegations are not incorporated in the present claim.

91. This Claim is brought pursuant to Section 11 of the Securities Act, 15 U.S.C. § 77k, on behalf of the Sub-Class, against all defendants.

92. The Registration Statement, when it became effective, was inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and concealed and failed adequately to disclose material facts as described above.

93. Plaintiffs and the other members of the Sub-Class purchased APAC's common stock pursuant to and traceable to the Registration Statement.

94. APAC is the registrant for the shares sold to plaintiffs and other members of the Sub-Class. The defendants named herein were responsible for the contents and dissemination of the Registration Statement and the November 1996 Prospectus.

95. As issuer of the shares, APAC is strictly liable to plaintiffs and the Sub-Class Members for the misstatements and omissions. As the underwriters of the November 1996 Offering, the Underwriters are also strictly liable. As signatories for the November 1996 Offering, the Individual Defendants are also strictly liable.

96. None of the defendants named herein made a reasonable investigation or possessed reasonable grounds for the belief that the statements contained in the Registration Statement and the November 1996 Prospectus were true and without omissions of any material facts and were not misleading.

97. Defendants issued, caused to be issued and participated in the issuance of materially false and misleading written statements to the investing public which were contained in the November 1996 Prospectus, which misrepresented or failed to disclose, inter alia, the facts set forth above. By reasons of the conduct herein alleged, each defendant violated, and/or controlled a person who violated, Section 11 of the Securities Act.

98. Plaintiffs and the Sub-Class Members have sustained damages. The value of APAC shares has declined substantially subsequent to and due to defendants' violations.

99. At the times they purchased APAC shares, plaintiffs and other members of the Sub-Class were without knowledge of the facts concerning the wrongful conduct alleged herein and could not have reasonably discovered those facts prior to the November 1996 Offering. Less than one year elapsed from the time that plaintiffs discovered or reasonably could have discovered the facts upon which this complaint is based to the time that plaintiffs filed their Complaint. Less than three years elapsed from the time that the securities upon which this Claim is brought were bona fide offered to the public to the time plaintiffs filed their Complaint.

100. Plaintiffs repeat and reallege each and every allegation contained above, except to the extent that any allegations contained above that may be interpreted to sound in fraud which such allegations are not incorporated in the present claim.

101. This Claim is brought by plaintiffs pursuant to Section 12(a)(2) of the Securities Act on behalf of the Sub-Class against defendants APAC, Schwartz and the Underwriter Defendants.

102. Defendants Schwartz, APAC and the Underwriter Defendants were sellers, offerors, and/or solicitors of sales of the shares offered pursuant to the Prospectus.

103. The November 1996 Prospectus contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and concealed and failed to disclose material facts. APACs, Schwartz's and the Underwriter Defendants' actions of solicitation included participating in the preparation of the false and misleading November 1996 Prospectus.

104. APAC, Schwartz and the Underwriter Defendants owed to the purchasers of APAC shares, including plaintiffs and other Sub-Class Members purchasers of APAC shares, the duty to make a reasonable and diligent investigation of the statements contained in the offering materials, including the November 1996 Prospectus contained therein, to insure that such statements were true and that there was no omission to state a material fact required to be stated in order to make the statements contained therein not misleading.

105. Plaintiffs and other members of the Sub-Class purchased APAC shares pursuant to and traceable to the defective Prospectus. Plaintiffs did not know, or in the exercise of reasonable diligence could not have known, of the untruths and omissions contained in the Prospectus.

106. Plaintiffs, individually and representatively, hereby offer to tender to defendants those securities which plaintiffs and other Sub-Class Members continue to own, on behalf of all members of the Sub-Class who continue to own such securities, in return for the consideration paid for those securities together with interest thereon.

107. By reason of the conduct alleged herein, APAC, Schwartz and the Underwriter Defendants violated, and/or controlled a person who violated, 12(a)(2) of the Securities Act. Accordingly, plaintiffs and members of the Sub-Class who hold APAC shares purchased pursuant to the November 1996 Prospectus have the right to rescind and recover the consideration paid for their APAC shares and, hereby elect to rescind and tender their APAC shares to APAC, Schwartz and the Underwriter Defendants. Plaintiffs and Sub-Class members who have sold their APAC shares are entitled to rescissory damages.

108. Less than three years elapsed from the time that the securities upon which this Claim is brought were sold to the public to the time of the filing of this action. Less than one year elapsed from the time when plaintiffs discovered or reasonably could have discovered the facts upon which this Claim is based to the time of the filing of this action.

109. Plaintiffs repeat and reallege each and every allegations contained above, except to the extent that any allegations contained above that may be interpreted to sound in fraud, which such allegations are not incorporated in the present claim.

110. The Individual Defendants, by reason of their duty to APAC and the investing public, and their control of APAC and its statements, and by reason of their acts as described herein, controlled APAC within the meaning of Section 15 of the Securities Act.

111. The Individual Defendants thus violated Section 15 of the Securities Act and are liable for the acts of APAC which caused damages to plaintiffs and the Class.

112. Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth herein.

113. During the Class Period, APAC and the Individual Defendants, and each of them, carried out a plan, scheme and course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing public, including plaintiffs and other Class Members, as alleged herein; (ii) artificially inflate and maintain the market price of APAC securities; and (iii) cause plaintiffs and other members of the Class to purchase APAC common stock at inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions set forth herein.

114. APAC and the Individual Defendants: (a) employed devices, schemes, and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to maintain artificially high market prices for APAC's securities in violation of Section 10(b) of the Exchange Act and Rule 10b-5. All defendants are sued either as primary participants in the wrongful and illegal conduct charged herein or as controlling persons as alleged below.

115. In addition to the duties of full disclosure imposed on APAC and the Individual Defendants as a result of their making of affirmative statements and reports, or participation in the making of affirmative statements and reports to the investing public, the defendants had a duty to promptly disseminate truthful information that would be material to investors in compliance with the integrated disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. Sections 210.01 et seq.) and Regulation S-K (17 C.F.R. Sections 229.10 et seq.) and other SEC regulations, including accurate and truthful information with respect to the Company's operations, financial condition and earnings so that the market price of the Company's common stock would be based on truthful, complete and accurate information.

116. APAC and the Individual Defendants, individually and in concert, directly and indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a continuous course of conduct to conceal adverse material information about the business, operations and future prospects of APAC as specified herein. These defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure investors of APAC's value and performance and continued substantial growth, which included the making of, or the participation in the making of, untrue statements of material facts and omitting to state material facts necessary in order to make the statements made about APAC and its business operations and future prospects in the light of the circumstances under which they were made, not misleading, as set forth more particularly herein, and engaged in transactions, practices and a course of business which operated as a fraud and deceit upon the purchasers of APAC common stock during the Class Period.

117. Each of the Individual Defendants, primary liability, and controlling person liability, arises from the following facts: (i) the Individual Defendants were high-level executives and/or directors at the Company during the Class Period and members of the Company's management team or had control thereof; (ii) each of these defendants, by virtue of his responsibilities and activities as a senior officer and/or director of the Company was privy to and participated in the creation, development and reporting of the Company's internal budgets, plans, projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and familiarity with the other defendants and was advised of and had access to other members of the Company's management team, internal reports and other data and information about the Company's finances, operations, and revenues at all relevant times; and (iv) each of these defendants was aware of the Company's dissemination of information to the investing public which they knew or recklessly disregarded was materially false and misleading.

118. APAC and the Individual Defendants had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them. Defendants' material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing APAC's operating condition and future business prospects from the investing public and supporting the artificially inflated price of its securities. As demonstrated by defendants' overstatements and misstatements of the Company's business and operations throughout the Class Period, defendants, if they did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by deliberately refraining from taking those steps necessary to discover whether those statements were false or misleading.

119. At all relevant times, the market for APAC common stock was an efficient market for the following reasons, among others:

(a) APAC common stock met the requirements for listing and was listed and actively traded on NASDAQ, a highly efficient and automated market;

(b) As a regulated issuer, APAC filed periodic public reports with the SEC and NASDAQ; and

(c) APAC regularly communicated with public investors via established market communication mechanisms, including through regular disseminations of press releases on the national circuits of major newswire services and through other wide-ranging public disclosures, such as communications with the financial press and other similar reporting services; and

(d) APAC was followed by several securities analyst's employed by major brokerage firms who wrote reports which were distributed to the sales force and certain customers of their respective brokerage firms which issued research reports on APAC during the Class Period were those identified in this Complaint.

120. As a result, the market for APAC securities promptly digested current information regarding the Company from all publicly available sources and reflected such information in APAC's stock price. Under these circumstances, all purchasers of APAC shares on the open market during the Class Period suffered similar injury through their purchase of shares at artificially inflated prices and a presumption of reliance applies to plaintiffs' claims arising under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. Plaintiffs will also rely upon the presumption of reliance established by a material omission of fact as it pertains to these same Section 10(b) and Rule 10b-5 claims.

121. As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market prices of APAC securities were artificially inflated during the Class Period. In ignorance of the fact that market prices of APAC's publicly-traded securities were artificially inflated, and relying directly or indirectly on the false and misleading statements made by defendants, or upon the integrity of the market in which the securities trade, and/or on the absence of material adverse information that was known to or recklessly disregarded by defendants but not disclosed in public statements by defendants during the Class Period, plaintiffs and the other members of the Class acquired APAC's securities during the Class Period at artificially high prices and were damaged thereby.

122. At the time of said misrepresentations and omissions, plaintiffs and other members of the Class were ignorant of their falsity, and believed them to be true. Had plaintiffs and the other members of the Class and the marketplace known of the true financial condition and business prospects of APAC, which were not disclosed by defendants, plaintiffs and other members of the Class would not have purchased or otherwise acquired their APAC securities during the Class Period, or, if they had acquired such securities during the Class Period, they would not have done so at the artificially inflated prices which they paid.

123. By virtue of the foregoing, defendants have violated Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder.

124. As a direct and proximate result of defendants' wrongful conduct, plaintiffs and the other members of the Class suffered damages in connection with their purchases of the Company's securities during the Class Period.

125. Plaintiffs repeat and reallege each and every allegation contained above as if fully set forth herein.

126. The Individual Defendants acted as controlling persons of APAC within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, and their ownership and contractual rights, participation in and/or awareness of the Company's operations and/or intimate knowledge of the Company's regulatory status. The Individual Defendants had the power to influence and control and did influence and control, directly or indirectly, the decision-making of the Company, including the content and dissemination of the various statements which plaintiffs contend are false and misleading. The Individual Defendants were provided with or had unlimited access to copies of the Company's reports, press releases, public filings and other statements alleged by plaintiffs to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected.

127. In particular, each of these defendants had direct and supervisory involvement in the day-to-day operations of the Company and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same.

128. As set forth above, APAC and the Individual Defendants each violated Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of defendants' wrongful conduct, plaintiffs and other members of the Class suffered damages in connection with their purchases of the Company's common stock during the Class Period.

WHEREFORE, plaintiffs, on their own behalf and on behalf of the Class and Sub-Class, pray for judgment as follows:

A. Declaring plaintiffs to be proper class representatives and this action to be a proper class action;

B. Awarding plaintiffs and all other members of the Class and Sub-Class damages against all defendants jointly and severally in an amount which may be proven at trial, together with prejudgment interest thereon;

C. Awarding plaintiffs legal fees and expert fees, together with interest, costs and disbursements; and

D. For such other relief as to this Court appears just and proper.

Dated:

New York, New York June 26, 1998

SCHOENGOLD & SPORN, P.C.            /s/ By: _______________________________     Samuel P. Sporn     Joel P. Laitman     Jay P. Saltzman 233 Broadway New York, New York 10279 (212) 964-0046 MILBERG, WEISS, BERSHAD HYNES &   LERACH, LLP            /s/ By: _______________________________     Paul D. Young One Pennsylvania Plaza New York, NY 10119-0165 (212) 594-5300 Attorneys for Plaintiffs

Source: Scanned paper copy of court-stamped document