10-K 1 w58411ke10-k.txt TELESRECTRUM WORLDWIDE INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PERSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NO. 0-21107 TELESPECTRUM WORLDWIDE INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 23-2845501 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 443 SOUTH GULPH ROAD, KING OF PRUSSIA, PA 19406 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) 610-878-7400 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED NONE NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ ] NO [X] 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. [X] As of April 16, 2002, the aggregate market value of the common stock held by non-affiliates of the registrant was $430,188. Such aggregate market value was computed by reference to the closing sale price of the common stock as reported on the OTC Bulletin Board on such date. For purposes of making this calculation only, the registrant has defined affiliates as including all directors, executive officers and beneficial owners of more than five percent of the common stock of the registrant. As of April 16, 2002, there were 32,737,815 shares of the registrant's common stock outstanding. TABLE OF CONTENTS

~~DELAWARE~~PART ~~23-2845501~~I ~~(STATE~~Item OR1. ~~OTHER~~Business ~~JURISDICTION~~1 OFItem (I2.R Properties 7 Item 3.S Legal Proceedings 7 Item 4. ~~EMPLOYER~~Submission ~~INCORPORATION~~of ORMatters ~~ORGANIZATION)~~to ~~IDENTIFICATION~~a ~~NUMBER)~~Vote of Security Holders 7 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 8 Item 6. Selected Financial Data 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 24 Item 8. Financial Statements and Supplementary Data 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 56 PART III Item 10. Directors and Executive Officers of the Registrant 57 Item 11. Executive Compensation 59 Item 12. Security Ownership of Certain Beneficial Owners and Management 63 Item 13. Certain Relationships and Related Transactions 64 PART IV Item 14. Exhibits, Financial Statement Schedule, and Report on Form 8-K 65

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS We have made forward-looking statements in this Form 10-K including the information concerning possible or assumed future results of our operations, and such statements include those preceded by, followed by or that include words such as "anticipates," "believes," "expects," "intends" or similar expressions. For those forward-looking statements, we claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. You should understand that the following important factors, in addition to those discussed elsewhere in this document, particularly under "Risk Factors," could affect our future results and could cause those results to differ materially from those expressed in our forward-looking statements: - our overall financial condition, which has made it difficult for us to retain clients; - the effects of the change of control as a result of the recapitalization described herein; - our need to obtain additional financing to pursue our business objectives; - our results of operations being dependent on one or more significant clients; - adverse effects on results of operations if we do not maintain sufficient capacity utilization; - adverse effects on our Company if we do not obtain and implement new or enhanced technology; - adverse effects on our results of operations if we do not avoid high personnel turnover; - our reliance on telecommunications companies; - changes in laws regulating our industry; - fluctuations in quarterly operating results causing our stock price to change; and - events directly or indirectly relating to our Company causing our stock price to be volatile. TELESPECTRUM WORLDWIDE INC. PART I ITEM 1. BUSINESS TeleSpectrum Worldwide Inc. was incorporated in Delaware in April 1996 and provides inbound and outbound telemarketing, inbound customer service, and interactive voice response to clients in certain targeted industries. As of December 31, 2001, we operated 19 call centers located in 10 states and Ontario, Canada and employed approximately 5,800 persons. During 2001, we closed 14 call centers, announced the closure of two additional call centers and reduced the number of employees by approximately 2,600. The reduction in operations was made in response to a number of factors, including a weakening economy and the effects of the September 11th tragedy, both of which led to industry-wide declining revenues and excess capacity. During the fourth quarter of 2001, we became in default of the terms of our Amended and Restated Credit Agreement dated April 16, 2001. At such time, we entered into negotiations with our bank group to restructure our existing debt. On April 29, 2002, we entered into an agreement with our bank lenders that resulted in a recapitalization of our balance sheet and a reduction of our debt. As a result of the recapitalization, the amounts due under our existing credit facilities totaling approximately $161 million at the time of the recapitalization, which consisted of outstanding debt, accrued interest and fees, were converted into (a) a three-year term facility of $25 million under an amended and restated credit agreement, (b) $40 million of our Series A Preferred Stock, and (c) shares of our Series B Convertible Preferred stock which will convert into common stock representing 95% of our common outstanding after such conversion. The three year term facility is secured by, among other things, our assets and outstanding trade receivables, bears interest at a base rate as defined in the agreement plus 400 basis points, and matures in May 2005. Under the terms of the Agreement, we are required to meet certain financial covenants, including a fixed charge coverage ratio and EBITDA targets. The Series A Preferred Stock has a 10% annual dividend rate, which accrues and is payable either in cash or in additional shares of Series A Preferred Stock. A portion of the Series B Convertible Preferred Stock was converted into shares of our common stock immediately after the closing of the recapitalization, and the remainder will convert into shares of common stock as soon as we amend our Certificate of Incorporation to increase the authorized number of shares of common stock. Such amendment will require the approval of our shareholders. After the recapitalization, our Board of Directors is comprised of five members, including J. Peter Pierce, our Chairman and Chief Executive Officer, and Christopher Williams, our Chief Operating Officer, who are continuing as directors, and three designees of the bank group. In addition to entering into the amended credit agreement and completing the recapitalization with our bank lenders, on April 29, 2002 other debt balances outstanding to unsecured creditors were restructured from $15.3 million to approximately $0.7 million, with cash payments of $1.5 million. Certain commercial liabilities, primarily accounts payable, which had a carrying value of $3.7 million as of December 31, 2001, were also settled through cash payments of $0.9 million and notes payable of $0.3 million. Additional settlements were reached with certain of our landlords that will result in a reduction of $3.4 million of future lease commitments through cash payments of $0.4 million and notes payable of $0.2 million. As part of our debt restructuring, we divested ourself of our ownership interest in eSatisfy.com, Inc. As a result of these transactions, we anticipate recording an extraordinary gain on the restructuring of the above obligations. The amount of the gain, in part, will be determined based on the fair value of the Series A and Series B Preferred Stock issued to the lenders. The amount of the gain is subject to change based on the results of an independent appraisal we expect to obtain during 2002. We believe that the debt restructuring and recapitalization will provide us with the ability to service our debt payments and meet our other obligations while alleviating customer concerns regarding our ability to perform at high levels. The following table represents a proforma estimate of our December 31, 2001 balance sheet as if the recapitalization had occurred at that time: 1 CONSOLIDATED BALANCE SHEETS RECAPITALIZATION ANALYSIS DECEMBER 31, 2001

~~NAME~~(unaudited) EFFECT OF ~~EACH~~RECAPITALIZATION ~~EXCHANGE~~-------------------------- ~~TITLE~~ACTUAL OFESTIMATED ~~EACH~~PROFORMA ~~CLASS~~12/31/01 ONCHANGE ~~WHICH~~12/31/01 ~~REGISTERED~~--------- --------- --------- ASSETS: Cash $ 6,391 $ (2,093) $ 4,298 Other current assets 35,400 (1,028) 34,372 --------- --------- --------- Total current assets 41,791 (3,121) 38,670 Total non current assets 14,868 (560) 14,308 --------- ~~NONE~~--------- ~~NONE~~--------- Total assets $ 56,659 $ (3,681) $ 52,978 ========= ========= ========= LIABILITIES: Current liabilities 36,161 (13,066) 23,095 Senior debt 159,064 (134,064) 25,000 Non current liabilities 8,139 (5,806) 2,333 --------- --------- --------- Total non current liabilities 167,203 (139,870) 27,333 Total liabilities 203,364 (152,936) 50,428 --------- --------- --------- Stockholder's equity/(deficit) (146,705) 149,255 2,550 --------- --------- --------- Total liabilities and stockholders' equity/(deficit) $ 56,659 $ (3,681) $ 52,978 ========= ========= =========

We began our operations when we completed our initial public offering in 1996 and on the same day acquired our six initial operating businesses, including the consulting business Technical Assistance Research Programs, Inc. ("TARP"). Through acquisitions in 1996 and 1997 and our merger with International Data Response Corporation ("IDRC") in 1999, we expanded our capabilities beyond traditional telemarketing and outsourced call center services and significantly increased our available capacity. We sold our market research business in January 1998 and our direct mail and fulfillment business in March 1998. During the third quarter of 1999, we launched ChannelCare, our branded multi-channel Customer Relationship Management (CRM) solutions for large corporations and high growth technology companies. ChannelCare was able to provide web-based sales and service, e-mail response, web telephony, video and real-time chat, as well as traditional customer service solutions within a multi-channel contact environment. While we successfully implemented several installations in this arena, we were not able to achieve the necessary scale and accordingly, we abandoned this technology in 2000. During the first quarter of 2000, we placed all of the assets and liabilities related to TARP into a new wholly owned corporation called eSatisfy.com ("eSatisfy"). eSatisfy then acquired Customer Insites, Inc. ("CI") by exchanging 27.6% of its common stock for all of the issued and outstanding capital stock of CI. The original strategic plan was to capitalize on the potential offered by the internet and provide customer satisfaction surveys for internet traffic. eSatisfy quickly ramped up the infrastructure and technological investments necessary to support the projected growth. eSatisfy was unsuccessful in implementing that strategic plan and during the fourth quarter of 2000 scaled back to the operational level in place prior to undertaking the internet strategy. As part of our reduction of debt obligations to our unsecured creditors as described above, we divested ourselves of our ownership interest in eSatisfy. 2 INDUSTRY OVERVIEW Telemarketing involves the direct communication of information to current or prospective customers by telephone. Indirect marketing methods, such as radio, television and print advertising, employ a "one-to-many" approach to convey marketing information that can position products and services within a broad market context. Direct market methods such as telemarketing employ a "one-to-one" approach. This method delivers a marketing message directly to a specific current or prospective customer and elicits an immediate customer response. Many businesses have combined traditional indirect marketing methods, such as advertising, with the direct marketing methods, such as telemarketing, to obtain greater returns from their investments in marketing activities. We believe that over-capacity currently exists within the industry, which has resulted in pricing pressures on existing and new business. We anticipate that these pressures will continue into the future. A significant amount of telemarketing services, both inbound and outbound, are performed by prospective clients' in-house operations. This provides a significant outsourcing opportunity for third party providers. Advances in computer and telecommunications technology have assisted telemarketing and customer care companies to more accurately identify and contact current and prospective customers, as well as provide more accurate, timely and complete customer and product information to the customer service representatives. Providers of telemarketing and customer care services can offer clients economies of scale in sharing the cost of new technology among a larger base of users than might be possible with in-house operations, while at the same time better matching available capacity to fluctuating client demand. SERVICES OVERVIEW Our call centers continue to provide traditional forms of customer service to our clients through our telservices segment. These services include responding to customer calls via customer service representatives (CSRs), interactive voice response services, call center management and consulting services. Responding to customer calls involves the processing of customer inquiries by CSRs. The customer will typically call a toll-free "800" or "888" number which is routed to one of our centers. The incoming call is identified by the number dialed and linked to a CSR that is trained and available to handle the call. At the same time, through the latest computer telephony integration technology, relevant customer and/or product information is delivered to the CSR's computer screen, complete with prompts and response text necessary to handle the inquiry. When the call is completed, information is stored and delivered to the client's central data files. Our interactive voice response services involve responding to incoming customer calls via automated systems. Where required, these calls are transferred to CSRs. Our call center management services involve running most aspects of a client's call center, including recruiting and staffing the CSRs, managing the operations, and providing reports that analyze the performance of the client's call center. We also provide business-to-consumer and business-to-business outbound telemarketing services through our teleservices segment. These services involve the placing of telephone calls on behalf of our clients, normally as part of our client's efforts to sell their products or to obtain new customers. Our clients provide us with the list of customers or prospective customers to be called. These lists consist of individuals or businesses that have characteristics that would indicate that they are potential purchasers of a client's products or services. Our telemarketing sales representatives (TSRs) use prepared scripts when making the calls. These scripts are either prepared by our client or us and contain written questions and answers that are designed to assist the TSR in handling these calls. We use our computerized call management systems to make these calls. These systems have predictive dialers that automatically dial telephone numbers, determine if live connections have been made and present connected calls to our TSRs. COMPETITION The telemarketing and CRM industries are intensely competitive. We compete with numerous independent telemarketing and CRM firms as well as the in-house operations of many of our existing or prospective clients. We compete for telemarketing and CRM services based on quality, technological expertise, customer service, price, value, range of service offerings, financial stability and available capacity. 3 Most businesses that are significant consumers of telemarketing and CRM services utilize more than one firm to outsource their business and often reallocate work among various firms from time to time. Clients often request telemarketing and CRM services to be provided on an individual project basis, and we frequently are required to compete for individual projects as they are initiated. SALES AND MARKETING As of December 31, 2001, we employed 6 sales personnel. Sales personnel are compensated by salary and commissions based on sales performance. We generally operate under short-term cancelable contractual relationships with our telemarketing clients. Our CRM client contracts are generally for one to three years. Our prices often include an initial fee, a base service charge and separate charges for ancillary services. Service charges for teleservices are based upon hourly rates or minute rates. Charges for other services are normally assessed on a fee-for-service basis. TARGETED INDUSTRIES We target our marketing efforts toward clients in the following principal industries: Telecommunications We provide customer acquisition services for major telecommunications companies for their long distance, cellular and cable products and services. We also provide customer acquisitions services for regional telecommunications companies for their advanced telephone features. We offer clients telemarketing services for their consumer and business customers. In addition, we answer incoming customer service calls and provide customer care consulting services for the telecommunications industry. The telecommunications industry provided 32%, 38%, and 40% of our total revenues in the years ended December 31, 1999, 2000 and 2001, respectively. Financial Services We provide banks and other financial services clients with a wide range of services, including: - acquiring new customers; - encouraging product use; - encouraging credit card balance transfers; - regaining customers; and - customer service The financial services industry provided 28%, 27%, and 25% of our total revenues in the years ended December 31, 1999, 2000, and 2001, respectively. Insurance We work with large consumer insurance companies and their agents, complementing their sales efforts by telemarketing products such as life and accidental death and dismemberment insurance. In addition, we answer incoming customer service and sales calls. As of December 31, 2001, we employed 283 licensed insurance agents collectively holding state insurance licenses from 48 states. These agents provide customer acquisition services for our clients. The insurance industry provided 10%, 9%, and 12% of our total revenues in the years ended December 31, 1999, 2000, and 2001, respectively. Pharmaceutical and Health Care We offer pharmaceutical clients with product support and customer service for their business and consumer customers. We also perform customer care consulting for clients in the health care industry. 4 Utilities We offer large public and private utilities with the following services: - deregulation education for consumers; - customer service; - consumer affairs services - collection efforts; and - customer service surveys. Consumer Products We provide consumer products clients with customer service, order entry and customer acquisition services. Technology We provide product support and customer service for clients in the computer hardware and software industries. We also provide business-to-business telemarketing such as product sales, lead generation and customer qualification. We also provide call center management services for technology clients. Government We provide government agencies and quasi-government agencies with a wide range of services either directly or through strategic alliances. These services include customer service and transaction processing. PERSONNEL AND TRAINING As of December 31, 2001, we employed approximately 5,411 individuals on a full-time basis and 371 individuals on a part-time basis. TSRs and CSRs account for approximately 4,872 employees of our total workforce of 5,782. Our ability to hire, train, and manage qualified employees is critical to our ability to provide high quality services to our clients. One of our call centers is unionized and relations are satisfactory. GOVERNMENT REGULATION Our sales practices are regulated at both the federal and state level. The Federal Telephone Consumer Protection Act of 1991 (TCPA), enforced by the Federal Communications Commission (FCC), imposes restrictions on unsolicited automated telephone calls to residential subscribers. Under the TCPA it is unlawful to initiate telephone solicitations to residential telephone subscribers before 8:00 a.m. or after 9:00 p.m., local time at the subscriber's location, or to use automated telephone dialing systems or artificial or prerecorded voices to call certain subscribers. The FCC rules further require telemarketers to have procedures in place to maintain a list of residential customers who do not want to receive telephone solicitations. The Federal Trade Commission (FTC) regulates both general sales practices and telemarketing specifically. Under the Federal Trade Commission Act (FTC Act), the FCC has broad authority to prohibit a variety of advertising or marketing practices that may constitute "unfair or deceptive acts and practices." The FTC also administers the Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 (TCFAPA). Under the TCFAPA, the FTC has issued regulations prohibiting a variety of deceptive, unfair or abusive practices in telemarketing sales. Generally, these rules prohibit misrepresentations of the cost, quality, terms, restrictions, performance or characteristics of products or services offered by telephone solicitation or of refund, cancellation or exchange policies. The regulations also regulate the use of prize promotions in telemarketing to prevent deception and require that a telemarketer identify promptly and clearly the seller on whose behalf the telemarketer is calling, the purpose of the call and the nature of the goods or services offered. The regulations also require that telemarketers maintain records on various aspects of their business. 5 Most states have enacted statues similar to the FTC Act prohibiting unfair or deceptive acts and practices. A number of states have enacted legislation and other states are considering enacting legislation to regulate telemarketing. For example, telephone sales in certain states are not final until a written contract is delivered to and signed by the buyer, and such a contract often may be canceled within three business days. At least one state also prohibits telemarketers from requiring credit card payment, and several other states require certain telemarketers to obtain licenses, post bonds or submit sales scripts to the state's attorney general. Most states also have enacted legislation that requires telemarketers to subscribe and adhere to state-run "do not call" lists. Extensive federal legislation that would, among other things, establish a national do not call list has been proposed. We are also affected by laws applicable to our clients' businesses. For example, "anti-slamming" legislation requires telecommunication carriers to provide substantial verification from their customers that they have authorized a change in the carrier of their telephone service. This legislation places penalties on telecommunications carriers that do not obtain the required verification. In addition, our employees who complete the sale of insurance products are required to be licensed by various state insurance commissions and to participate in regular education programs, which we currently provide. Violation of the rules and regulations, applicable to telemarketing practices may result in injunctions against certain operations, monetary penalties or disgorgement of profits; moreover, such violations may give rise to private actions for damages. We believe we are in compliance with applicable rules and regulations. 6 ITEM 2. PROPERTIES Our corporate headquarters are located in 21,000 square feet of rented office space in King of Prussia, Pennsylvania. As of December 31, 2001, we operated the following material facilities:

~~PART~~NUMBER IOF ~~Item~~WORKSTATIONS 1.------------ ~~Business~~TELESERVICES ~~.................................................................................................~~CENTERS 1-------------------- ~~Item~~Beckley, 2.WV ~~Properties~~270 ~~...............................................................................................~~Charleston, 5WV ~~Item~~240 3.Endicott, ~~Legal~~NY ~~Proceedings..........................................................................................~~240 5Huntington, ~~Item~~WV 4.240 ~~Submission~~Salisbury, ofNC ~~Matters~~103 toWheeling, aWV ~~Vote~~240 ofAliquippa, ~~Security~~PA ~~Holders........................................................~~240 5Duluth, ~~PART~~MN II182 ~~Item~~Bemidji, 5.MN ~~Market~~106 ~~for~~North ~~the~~Bay, ~~Registrant's~~Ontario ~~Common~~190 ~~Equity~~Toronto, ~~and~~Ontario ~~Related~~175 ~~Stockholder Matters~~St.~~.................................~~ 6Catherine, ~~Item~~Ontario 6.228 ~~Selected~~Woodlawn, ~~Financial~~MD ~~Data....................................................................................~~305 6Great ~~Item~~Arrow 7.(Buffalo, ~~Management's~~NY) ~~Discussion~~312 ~~and~~San ~~Analysis~~Diego, ofCA ~~Financial~~444 ~~Condition~~Phoenix, ~~and~~AZ ~~Results~~263 of----- ~~Operations......................~~Total 8TeleServices ~~Item~~3,778 ~~7A.~~----- ~~Quantitative~~TELESERVICES ~~and~~MANAGED ~~Qualitative~~CENTERS ~~Disclosures~~---------------------------- ~~about~~White ~~Market~~Plains, ~~Risk.................................................~~NY 2250 ~~Item~~Littleton, 8.MA ~~Financial~~25 ~~Statements~~Colorado and Supplementary Data................................................................ 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................... 22 PART III Item 10. Directors and Executive Officers of the Registrant......................................................... 22 Item 11. Executive Compensation..................................................................................... 23 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................. 23 Item 13. Certain Relationships and Related Transactions............................................................. 23 PART IV Item 14. ExhibitsSprings, ~~Financial~~CO ~~Statement~~5 ~~Schedule,~~----- ~~and~~Total ~~Report~~TeleServices onManaged ~~Form~~80 8-~~K.............................................~~---- 23Total ~~Index~~3,858 ~~to Financial Statements and Schedule................................................................. F-1~~=====

The Teleservices Managed Centers are not owned or leased by us but are operated by us as managed call centers for clients. ITEM 3. LEGAL PROCEEDINGS We are from time to time involved in litigation incidental to our business. We do not believe that the resolution of any existing litigation will result in a material adverse effect on our business, results of operations, or financial condition. See Note 11 to our consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We did not submit any matters to a vote of security holders during the fourth quarter of 2001. 7 TELESPECTRUM WORLDWIDE INC. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock trades on the OTC Bulletin Board under the symbol TLSP. Prior to October 30, 2000, our common stock was traded on the Nasdaq National Market. However, our common stock failed to maintain a minimum bid price and, accordingly, was delisted at the close of business on October 30, 2000. The following table sets forth, for the periods indicated, the high and low sales price for each share of our common stock as reported on the Nasdaq National Market through October 30, 2000 and the high and low bid quotations for our common stock as reported on the OTC Bulletin Board thereafter.

~~NUMBER~~High OFLow ~~ACQUISITION SERVICES CENTERS WORKSTATIONS~~ ----~~------------------------~~ ---~~---------~~ ~~Beckley,~~2001 WVFirst ~~270~~Quarter ~~Charleston,~~$ WV1.07 ~~240~~$ ~~Endicott,~~0.30 NYSecond ~~240~~Quarter ~~Fayetteville,~~0.66 NC0.50 ~~116~~Third ~~Huntington,~~Quarter WV0.50 ~~240~~0.08 ~~Salisbury,~~Fourth NCQuarter ~~104~~0.11 ~~Scranton,~~0.01 PA2000 ~~240~~First ~~Steubenville,~~Quarter OH9.813 ~~180~~6.063 ~~Wheeling,~~Second WVQuarter ~~240 Winnipeg, Manitoba 218 Aliquippa, PA 240 Pittsburgh, PA 180 Duluth, MN 182 Fergus Falls, MN 114 Bemidji, MN 104 Milbank, SD 116 North Bay, Ontario 190 Toronto, Ontario 516 St~~7.250 ~~Catherine, Ontario 228 ----- Total Acquisition Services~~ 3~~,958~~.063 ~~-----~~Third ~~CHANNELCARE~~Quarter ~~CENTERS~~4.500 ~~-------------------~~0.625 ~~Annapolis,~~Fourth MDQuarter ~~200~~0.875 Linthicum, MD 136 Woodlawn, MD 347 Great Arrow (Buffalo, NY) 312 San Diego, CA 444 Chantilly, VA 66 Barbourville, KY 126 King of Prussia, PA 98 University 250 ----- Total ChannelCare 1,979 ----- CHANNELCARE MANAGED CENTERS --------------------------- White Plains, NY 35 Littleton, MA 40 Cheektowaga, NY 330 ----- 405 ----- Total 6,342 =====0.234

On March 31, 2002 there were 280 holders of record of the shares of our outstanding common stock and the closing price for a share of common stock as reported by the OTC Bulletin Board was $0.01. We have not paid any dividends since our inception. The declaration and payment of dividends in the future will be determined by the board of directors in light of conditions then existing, including our earnings, financial condition, bank covenants and capital requirements. Our current lending agreements prohibit the payment of dividends. 8 ITEM 6. SELECTED FINANCIAL DATA You should read the data set forth below together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes thereto included elsewhere herein.

~~High~~YEAR ~~Low~~ENDED DECEMBER 31 --------------- ---------------------------------------------------------- 2001 2000 (1) 1999 ~~First~~1998 ~~Quarter~~1997 ~~12.000~~--------- --------- --------- --------- --------- (In Thousands - except per share amounts) Statement of Operations: Revenues $ 218,235 $ 303,568 $ 266,810 $ 167,428 $ 178,922 --------- --------- --------- --------- --------- Operating Expenses: Cost of Services 172,956 237,171 195,573 130,406 154,846 Selling, general and administrative 51,550 70,220 53,898 41,785 41,793 Impairment - long lived assets (3) 26,078 171,151 -- -- 139,072(2) Restructuring charge (4) 7~~.938~~,474 ~~Second~~10,254 ~~Quarter~~-- -- -- Goodwill amortization 1,167 8,449 4,431 1,178 7,249 --------- --------- --------- --------- --------- Total operating expenses 259,225 497,245 253,902 173,369 342,960 --------- --------- --------- --------- --------- Operating income (loss) (40,990) (193,677) 12,908 (5,941) (164,038) Interest (expense) income, net (21,886) (17,279) (7,026) (1,246) (1,876) Investment gain -- -- -- -- 1,760 --------- --------- --------- --------- --------- Income (loss) before taxes, minority interest and extraordinary item: (62,876) (210,956) 5,882 (7,187) (164,154) Income tax benefit -- -- -- 247 2,310 Minority interest -- 7,836 -- -- -- --------- --------- --------- --------- --------- Income (loss) before extraordinary item (62,876) (203,120) 5,882 (6,940) (161,844) Extraordinary loss on early extinguishment of debt (20,286) -- -- -- -- --------- --------- --------- --------- --------- Net Income (loss) $ (83,162) $(203,120) $ 5,882 $ (6,940) $(161,844) ========= ========= ========= ========= ========= Basic earnings (loss) per share Income (loss) before extraordinary $ (1.~~563~~91) $ (6.~~063~~42) ~~Third~~$ ~~Quarter~~0.21 8$ (0.~~375~~27) 5$ (6.~~250~~42) ~~Fourth~~Extraordinary ~~Quarter~~item 7(0.~~625~~62) 4-- -- -- -- --------- --------- --------- --------- --------- Net Income (loss) $ (2.~~000~~53) ~~2000~~$ ~~First~~(6.42) ~~Quarter~~$ 90.~~813~~21 $ (0.27) $ (6.~~063~~42) ~~Second~~========= ~~Quarter~~========= 7========= ========= ========= Diluted earnings (loss) per share Income (loss) before extraordinary $ (1.~~250~~91) 3$ (6.~~063~~42) ~~Third~~$ ~~Quarter~~0.18 4$ (0.~~500~~27) $ (6.42) Extraordinary item (0.~~625~~62) ~~Fourth~~-- ~~Quarter~~-- -- -- --------- --------- --------- --------- --------- Net Income (loss) $ (2.53) $ (6.42) $ 0.~~875~~18 $ (0.~~234~~27) $ (6.42) ========= ========= ========= ========= ========= DECEMBER 31, ------------------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Balance Sheet Data: Cash and cash equivalents $ 6,391 $ 5,258 $ -- $ 794 $ 774 Working capital 5,630 9,879 13,912 16,702 20,655 Total Assets 56,659 124,867 318,407 103,689 144,721 Current maturities 3,608 3,844 16,411 820 30,160 Long-term debt, net of current maturities 166,588 132,413 113,846 2,876 3,800 Stockholders equity (deficit) (146,705) (64,273) 139,433 76,568 80,377

------------------------------------------------------------------------ (1) Results include the merger with IDRC from June 30, 1999. (2) This impairment charge for goodwill was recorded in the fourth quarter of 1997. (3) The impairment charge for goodwill was recorded in the fourth quarters of 2001 and 2000. See Note 6 to Consolidated Financial Statements. (4) Restructuring charge recorded in connection with closed facilities. See Note 3 to our Consolidated Financial Statements (5) Minority interest represents the portion of e-Satisfy.com not owned by the Company (27.6%) 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESTRUCTURING/RECAPITALIZATION On April 29, 2002, the Company completed the restructuring of its existing bank debt and certain other commercial liabilities, primarily accounts payable and lease obligations. As a result of the restructuring, on a proforma basis the Company's restructured debt and other current liabilities were reduced from $166.7 million and $7.6 million, respectively, to $25.2 million and $0.5 million, respectively. We believe that the debt restructuring and recapitalization will provide the Company the ability to service its debt payments and meet its obligations while alleviating customer concerns regarding the Company's ability to perform. The restructuring may further enable the Company to obtain new business and retain existing business previously at risk of loss due to the financial situation of the Company. In connection with the debt restructuring, the Company entered into agreements with its bank lenders pursuant to which an amount totaling approximately $161 million at the time of the restructuring due under the Company's existing credit facilities was converted into: (a) a three-year term facility of $25 million; (b) $40 million of the Company's Series A Preferred Stock; and (c) approximately $96 million of the Company's Series B Convertible Preferred Stock. RESULTS OF OPERATIONS Background During 2001, we provided services to our customers through our Teleservices and eSatisfy segments. The Teleservices segment provides both business-to-consumer and business-to-business acquisition services, primarily direct sales initiated by us on behalf of our clients. In addition, this segment provides customer service expertise to our clients. Our customer service expertise includes the more traditional inbound services of customer care support, typically through toll-free telephone numbers, for activities such as responses to clients' customer service inquiries, catalogue sales and electronic order processing and consulting services to a wide range of clients. The eSatisfy.com segment, a customer satisfaction research company, measures, monitors and improves the customer service experience. eSatisfy incurred significant losses during 2001 and 2000 resulting in a deficiency of net assets in its balance sheet. Since the Company funded 100% if its operations, we are recognizing 100% of eSatisfy's operating loss in the consolidated statement of operations. As discussed below, the remainder of the goodwill arising from eSatisfy and its predecessor TARP was written off during the fourth quarter of 2001. As part of the recapitalization described above, the Company divested itself of its ownership interest in eSatisfy. Earnings before interest, taxes, depreciation and amortization ("EBITDA") EBITDA represents net income (loss) before income taxes, interest income and expense, depreciation, amortization and charges for nonrecurring items. EBITDA should not be considered in isolation or as a substitute for earnings from continuing operations, cash flows or other data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. EBITDA is being presented because we believe that it provides useful information regarding our ability to incur and service debt. The unadjusted EBITDA for the year ended December 31, 2001 derived from our consolidated results of operations was negative $46.0 million. EBITDA during the same period was $8.7 million after excluding the effects of items which were non-recurring in nature such as: the impairment of long-lived assets ($26.1 million); restructuring charges ($7.5 million); the write-off of shareholder loans ($1.0 million); and the early extinguishment of debt ($20.3 million). The unadjusted EBITDA for the year ended December 31, 2000 derived from our consolidated results of operations was ($160.7) million. EBITDA during the same period was $23.1 million after excluding the effects of eSatisfy.com, and items which were non-recurring in nature. The gross impact of these non-recurring items were comprised primarily of impairment of long-lived assets ($171.1 million), restructuring charges ($10.3 million), bad debts and other software write-downs (totaling $5.7 million) offset by the effect of eSatisfy.com. 10 The following discussions should be read in conjunction with "Selected Financial Data" and the consolidated financial statements contained elsewhere herein. Comparison of the Results of Operations for 2001 to 2000 RESULTS OF OPERATIONS (dollars in millions)

~~PERIOD~~YEAR ~~FROM~~ENDED ~~APRIL~~AS ~~26,~~A ~~1996 (INCEPTION) TO~~ YEAR ENDED AS A DECEMBER 31, PERCENTAGE OF DECEMBER 31, PERCENTAGE OF 2001 REVENUES 2000 REVENUES ---- -------- ---- -------- ~~2000~~Revenues: ~~1999~~Teleservices ~~(3)~~$213.4 ~~1998~~98% ~~1997~~$ ~~1996~~297.2 ~~(1)~~98% ~~----~~eSatisfy 4.8 2 6.4 2 -------- ---- ---- --- ----- ~~(IN~~Total ~~THOUSANDS~~Revenue -218.2 ~~EXCEPT~~100 ~~PER~~303.6 ~~SHARE~~100 ~~AMOUNTS)~~Cost ~~STATEMENT~~of ~~OF OPERATIONS~~services: ~~Revenues~~Teleservices $171.1 ~~303,568~~78 $232.3 ~~266,810~~78 $eSatisfy ~~167,428~~1.9 $1 ~~178,922~~4.9 $77 ~~53,154~~ ------- ---~~----~~ ------- ---~~----~~ ~~------~~Total ~~Operating~~cost ~~Expenses: Cost~~ of services ~~237,171~~173.0 ~~195,573~~79 ~~130,406~~237.2 ~~154,846~~78 ~~33,010~~ Selling, general and administrative ~~70,220~~51.5 ~~53,898~~24 ~~41,785~~70.2 ~~41,793~~23 ~~14,058~~ Impairment - long -lived assets ~~171,151~~26.1 ~~(4)~~12 -171.1 -56 ~~139,072~~Restructure ~~(2)~~charge -7.5 ~~Restructuring~~3 ~~charge~~ 10~~,254~~.3 ~~(5)~~4 -Amortization -of -goodwill -1.2 ~~Goodwill~~1 ~~amortization~~ 8~~,449~~ .4~~,431~~ ~~1,178~~3 ~~7,249 2,147~~ ------- ---~~----~~ ------- ---~~----~~ ~~------~~ Total operating expenses ~~497,245~~259.3 ~~253,902~~119 ~~173,369~~497.2 ~~342,960~~164 ~~49,215 ------- ------- ------- ------- ------~~ Operating ~~income~~loss (~~loss~~41.1) (~~193,677~~19) ~~12,908~~ (~~5,941~~193.6) (~~164,038~~64) ~~3,939~~ Interest (expense~~) income~~, net (~~17,279~~21.8) (~~7,026~~10) (~~1,246~~17.3) (~~1,876~~6) ~~433 Investment gain~~ - - - ~~1,760~~ - --~~-----~~ ---~~----~~ ------- ---~~----~~ ~~------~~Loss ~~Income (loss) from continuing operations~~ before taxes (~~210,956~~62.9) ~~5,882~~(29) (~~7,187~~210.9) (~~164,154~~70) ~~4,372~~ Income tax benefit ~~(expense)~~-- -- -- ~~247~~-- ~~2,310 (1,693)~~ Minority interest -- -- 7~~,836~~.8 3 Extraordinary loss on early Extinguishment of debt (620.3) -(9) - - - -~~------~~ ------- ---~~----~~ ------- ---~~---~~ ~~Income~~Loss ~~(loss)~~ from continuing operations $ (~~203,120) $ 5,882 $ (6,940) $ (161,844) $~~ 83.2~~,679 ========== ======= ======== ========== ======= Basic earnings (loss~~) ~~per share from continuing operations $~~ (~~6.42~~38%) $ ~~0.21 $~~ (0203.271) $ (~~6.42~~67%) ~~$ 0.15~~ ======~~====~~ ===~~====~~ ======== ===~~======= ======= Diluted earnings (loss) per share from continuing operations $ (6.42) $ 0.18 $ (0.27) $ (6.42) $ 0.15 ========== ======= ======== ========== =======~~

REVENUES Our total revenues for the twelve months ended December 31, 2001 were $218.2 million, representing a decrease of $85.4 million or 28% from the 2000 total of $303.6 million. The decrease resulted from the economic environment in 2001, the effect of September 11, and the financial condition of the Company that resulted in the loss of business and customer attrition. TeleServices Segment Our TeleServices segment revenues were $213.4 million for the twelve months ended December 31, 2001. These revenues accounted for 98% of our total revenue and represented a decrease of $83.8 million or 28% of 2000 revenues of $297.2 million. The decrease resulted from the factors listed above. 11 eSatisfy.com Segment Our eSatisfy.com segment revenues were $4.8 million for the twelve months ended December 31, 2001. These revenues accounted for 2% of total revenue and decreased by $1.6 million or 25% from the twelve months ended December 31, 2000 due to the factors discussed above. COST OF SERVICES Our cost of services was $173.0 million for the twelve months ended December 31, 2001, a decrease of $64.2 million or 27% from cost of services of $237.2 million for the twelve months ended December 31, 2000. As a percentage of total revenues, cost of services were 79% and 78% for the twelve months ended December 31, 2001 and 2000, respectively. The increase in cost of services as a percentage of revenue can be attributed to lower revenue per hour due to competitive pricing pressures and lower utilization of call center capacity. Teleservices Segment Our Teleservices segment cost of services for the twelve months ended December 31, 2001 was 80% of teleservices revenues and decreased by $61.2 million or 26% from the twelve months ended December 31, 2000. Costs of services for the twelve months ended December 31, 2000 were 78% of Teleservices revenues. The increase in cost of services as a percentage of revenue can be attributed to lower revenue per hour due to competitive pricing pressures and lower utilization of call center capacity. eSatisfy.com Segment Our eSatisfy.com segment cost of services accounted for 40% of our eSatisfy.com revenues for the twelve months ended December 31, 2001 and decreased by $3.0 million or 61% from the twelve months ended December 31, 2000. Cost of services for the twelve months ended December 31, 2000 was 77% of eSatisfy.com revenues. This decrease in cost of services as a percentage of revenue is a result of salary reductions related to the restructuring of this segment initiated during the fourth quarter of 2000. SELLING, GENERAL AND ADMINISTRATIVE Our SG&A expenses were $51.5 million for the twelve months ended December 31, 2001, a decrease of $18.7 million or 27% from the twelve months ended December 31, 2000. While a portion of the dollar decline is attributed to the drop in sales volumes, resulting in lower commission expense, the majority of the reduction reflects the effects of the Company's cost reduction plan. Despite the cost reduction efforts, SG&A as a percentage of revenue increased given the decline in revenue in 2001. As a percentage of total revenues, SG&A expenses were 24% and 23% for the twelve months ended December 31, 2001 and 2000, respectively. IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS During the second quarter of 1999 the Company announced a strategic partnership with two technology providers to deliver integrated eBusiness call center solutions to leading-edge, Internet-enabled call center services utilizing a Web-based front office software solution and an Internet interaction management solution. The anticipated demand for this functionality was initially projected at very high levels, and the Company purchased licenses and built an infrastructure to accommodate those projections. While the Company did successfully implement several installations, it did not reach the volumes originally projected nor was it able to attain a sufficient level of revenues to sustain the program. Consequently, the software licenses used in the eCRM software platform have been deactivated and the related maintenance has been discontinued. As required by SFAS No. 121, the Company computed the projected undiscounted future cash flows associated with the continuing software investment and compared it to the carrying value as of December 31, 2000. This analysis indicated that a permanent impairment had occurred and the investment was written down by $9.1 million at the end of 2000 to the estimated fair market value. The Company re-evaluated this partnership during 2001 and noted a further impairment and accordingly wrote off the remaining balance off of $0.8 million during the fourth quarter of 2001 (See Note 6 to the Consolidated Financial Statements). In 2000, as a result of declining revenues and increased losses, the Company performed a comprehensive review of the carrying value of goodwill and other intangibles. The analysis indicated that the carrying value of goodwill was 12 permanently impaired resulting in a total impairment charge of $155.5 million. A similar analysis was prepared during 2001 as a result of further declining revenues and increased losses resulting in an additional impairment charge of $11.5 million primarily related to customer relationships (See Note 6 to the Consolidated Financial Statements). In 2001, the Company also wrote down the carrying value of fixed assets by $14.5 million to fair market value as a result of the restructuring of business operations and the closing of call centers (See Note 8 to the Consolidated Financial Statements). RESTRUCTURING CHARGE During the fourth quarter of 2000, as part of its continuing analysis of the Company's operational strategies, the Board of Directors of the Company approved a restructuring plan designed to streamline operations, enhance results of operations and improve cash flow, by closing underutilized customer contact centers and reducing overhead costs. As a result, the Company recorded a pre-tax charge of $10.3 million in 2000 for costs associated with exiting certain facilities, terminating employees and recognizing related asset impairments. During 2001, the Company's new management team expanded the restructuring plan on three occasions to include the closure or consolidation of additional facilities and identification of additional workforce reductions. As a result, the Company recorded an additional pre-tax charge of $7.5 million during that period (See Note 5 to the Consolidated Financial Statements.) GOODWILL AMORTIZATION Goodwill amortization was $1.2 million, representing 1% of total revenues for the twelve months ended December 31, 2001, and decreased by $7.2 million from the twelve months ended December 31, 2000. This decrease can be attributed to the write-off of goodwill during 2000. INTEREST EXPENSE, NET We incurred net interest expense of $21.8 million for the twelve months ended December 31, 2001, which represents an increase of $4.5 million or 26% from the twelve months ended December 31, 2000. This increase is due primarily to the increase in principal on the Company's debt, the accretion of the waiver fees totaling $0.9 million and the accelerated amortization of deferred debt issuance costs during the fourth quarter totaling $0.7 million. MINORITY INTEREST Minority interest represents the portion of eSatisfy.com not owned by the Company (27.6%). For the twelve months ended December 31, 2001, minority interest was zero as compared to the December 31, 2000 credit of $7.8 million. The Company recorded 72.4% of e-Satisy.com's losses until the minority interest accumulated balance in the net assets of eSatisfy.com reached zero, at which time we reflected 100% of the subsidiary losses in the consolidated statement of operations. INCOME TAXES There was no income tax provision for the years ended December 31, 2001 and 2000. As of December 31, 2001 and 2000, we had a net operating loss carryforward of approximately $210.2 million and $128.1 million, respectively. Due to the uncertainty surrounding the potential realization of the deferred tax assets, the Company has provided a full valuation allowance at December 31, 2001 and 2000. EXTRAORDINARY ITEM On April 16, 2001, the Company signed an amended and restated credit agreement (the "Credit Agreement") with its bank group whereby all amounts outstanding under the former agreement's term notes (Notes A, B and C), $35 million of working capital revolver, and accrued incremental interest and waiver fees were converted into one term loan, totaling $120.6 million. The term loan accrued interest at a base rate plus an applicable margin, as defined as 1.54% at December 31, 2001, and was scheduled to mature on July 1, 2002. The April 2001 Credit Agreement required that the Company pay certain fees periodically through maturity or termination of the agreement. The unused portion of the working capital revolver was also subject to an annual commitment fee of 25 basis points payable quarterly. An agent's fee of 25 basis points of the aggregate amount of the facilities was incurred upon 13 signing the Credit Agreement, and was incurred through the termination date of the agreement. The Company was also charged a restructuring fee of 15% of the aggregate amount of the facilities on April 16, 2001, payable at maturity or termination of the agreement. Because the Credit Agreement resulted in substantially different terms and cash flows than the previous agreement, the amendment was accounted for and reported in the same manner as a debt extinguishment. A $20.3 million extraordinary loss on the early extinguishment of debt was recorded in April 2001, reflecting the write-off of deferred issuance costs related to the previous agreement and the recognition of restructuring and other fees charged by the bank group related to the Credit Agreement, as described above. In addition, approximately $1.5 million in third party fees were paid relating to the Credit Agreement, which were deferred and fully amortized at December 31, 2001. The Credit Agreement required compliance with stipulated covenants based on the Company's business plan for 2001. Due to downward revisions to that plan for the second half of 2001, the Company amended the Credit Agreement effective on July 31, 2001. The amended Credit Agreement permitted the Company to defer 100% of the total interest otherwise due during the third quarter of 2001 and 50% of the interest otherwise due during the fourth quarter of 2001. The amended Credit Agreement also waived future compliance with certain non-financial provisions of the agreement, modified certain financial covenants, and required the Company to deliver to the bank group a new cost reduction plan to be implemented by September 30, 2001, which was delivered. In addition, the amended Credit Agreement removed the provision that required an amount equal to the deferred interest to be paid and applied against the working capital revolver and that required that this portion of the revolver be used only to pay down specified categories of trade payables. The Company incurred a waiver fee of 25 basis points of the aggregate amount of the facilities upon signing the amended Credit Agreement, payable at maturity or termination of the amended Credit Agreement. This fee was charged to interest expense during the three-month period ended September 30, 2001. The Company failed to maintain compliance with the terms of the amended Credit Agreement by not meeting the EBITDA financial covenant through December 31, 2001. The Company also did not make the interest payment due to the lenders through December 31, 2001. As a result, the Company was in default at December 31, 2001 and the amounts then outstanding became due and payable upon demand. The amended Credit Agreement was restructured on April 29, 2002. (See Note 1 to the Consolidated Financial Statements) 14 Comparison of the Results of Operations for 2000 and 1999

RESULTS OF OPERATIONS (dollars in millions) YEAR ENDED AS A YEAR ENDED AS A DECEMBER 31 PERCENTAGE OF DECEMBER 31, PERCENTAGE OF 2000 REVENUES 1999 REVENUES ---- -------- ---- -------- Revenues: Teleservices $ 297.2 98% $256.8 96% eSatisfy.com 6.4 2 10.0 4 ------- --- ------ --- Total revenues 303.6 100 266.8 100 Cost of services: Teleservices 232.3 78 191.7 75 eSatisfy.com 4.9 77 3.9 39 ------- --- ------ --- Total cost of services 237.2 78 195.6 73 Selling, general and administrative 70.2 23 53.9 20 Impairment - long-lived assets 171.1 56 Restructuring charge 10.3 4 Amortization of goodwill 8.4 3 4.4 2 ------- ~~2000~~--- ~~1999~~------ ~~1998~~--- ~~1997~~Total ~~1996~~operating expenses 497.2 164 253.9 95 ---- ---- ---- ---- -- --- ~~BALANCE~~Operating ~~SHEET~~income ~~DATA:~~(loss) ~~Cash~~(193.6) ~~and~~(64) ~~cash~~12.9 ~~equivalents~~5 $Interest 5expense,~~258~~ -net $(17.3) ~~794~~(6) $(7.0) ~~774~~(3) $------- ~~28,171~~--- ~~Working~~------ ~~capital,~~--- ~~including~~Income ~~net~~(loss) ~~assets~~before oftaxes ~~discontinued~~(210.9) ~~operations~~(70) 5~~,373~~.9 ~~13,912~~2 ~~16,702~~Income ~~20,655~~tax ~~49,373~~benefit ~~Total~~-- ~~assets~~-- ~~129,373~~-- ~~318,407 103,689 144,721 296,539 Long~~-~~term~~- ~~debt,~~Minority ~~net~~interest of7.8 ~~current~~3 ~~maturities~~------- ~~132,413~~--- ~~113,846~~------ ~~2,876~~--- ~~3,800~~Income ~~4,199~~(loss) ~~Stockholders'~~from ~~equity~~continuing $(~~deficit~~203.1) (~~64,273~~67)% ~~139,433~~$ ~~76,568~~5.9 ~~80,377~~2% ~~240,511~~operations ======= === ====== ===

REVENUES Our total revenues for the twelve months ended December 31, 2000 were $303.6 million, representing an increase of $36.8 million or 14% from the 1999 total of $266.8 million. This increase can be attributed to the addition of IDRC centers for the first two quarters of 2000 resulting in increased revenues of $59.5 million offset by a decrease in fulfillment of $10.2 million and eSatisfy.com of $3.6 million. During 1999, we had one client, from the telecommunications industry, which made up over 10% of our revenue. Teleservices Segment Our Teleservices segment revenues were $297.2 million for the twelve months ended December 31, 2000. These revenues accounted for 98% of our total revenues and represented an increase of $40.4 million or 16% of 1999 revenues of $256.8 million. The increase can be attributed to the addition of IDRC centers for the entire year ended December 31, 2000 resulting in increased revenue of $59.4 million offset by the decline in fulfillment revenue of $10.2 million and overall reductions in business volumes. eSatisfy.com Segment Our eSatisfy.com segment revenues were $6.4 million for the twelve months ended December 31, 2000. These revenues accounted for 2% of total revenue and decreased by $3.6 million or 36% from the twelve months ended December 31, 1999. During 2000, eSatisfy.com focused on developing its business-to-business internet strategy after the acquisition of CI in February 2000. During the same period of 1999, the focus was on the traditional TARP business before the CI acquisition. 15 COST OF SERVICES Our cost of services was $237.2 million for the twelve months ended December 31, 2000, an increase of $41.6 million or 21% from cost of services of $195.6 million for the twelve months ended December 31, 1999. As a percentage of total revenues, cost of services was 78% and 73% for each of the twelve months ended December 31, 2000 and 1999, respectively. Teleservices Segment Our Teleservices segment cost of services for the twelve months ended December 31, 2000 was 78% of teleservices revenues an increase of $40.6 million or 21% from the twelve months ended December 31, 1999. Costs of services for the twelve months ended December 31, 1999 were 75% of Teleservices revenues. The increase in cost of services as a percentage of revenue can be attributed to lower revenue per hour due to competitive pricing pressure, lower utilization of call center capacity, change in the client mix and an increase in infrastructure to support anticipated higher volumes. eSatisfy.com Segment Our eSatisfy.com segment cost of services accounted for 77% of our eSatisfy.com revenues for the twelve months ended December 31, 2000 and increased by $1.0 million or 26% from the twelve months ended December 31, 1999. Cost of services for the twelve months ended December 31, 1999 were 39% of eSatisfy.com revenues. The increase in cost of services as a percentage of revenue is a result of a charge to write-off software associated with the traditional business platform which will not be used in the future and the change in the traditional business strategy. SELLING, GENERAL AND ADMINISTRATIVE Our SG&A expenses were $70.2 million for the twelve months ended December 31, 2000, an increase of $16.3 million or 30% from the twelve months ended December 31, 1999. As a percentage of revenue, SG&A expenses were 23% and 20% for the twelve months ended December 31, 2000 and 1999, respectively. Of the $70.2 million, $11.0 million relates directly to eSatisfy.com, an increase of $6.1 million from 1999. The $6.1 million increase is due to a charge to write-off software associated with the traditional TARP business of $1.5 million and increases in salaries and infrastructure associated with the changes in eSatisfy.com business strategies. Overall software maintenance fees and depreciation and amortization increased $7.5 million for the twelve months ended December 31, 2000 over the same period in the preceding year due to the IDRC acquisition and increases in technology spending. Bad debt expense decreased by $4.0 million from $6.8 million to $2.8 million for the twelve months ended December 31, 1999 and 2000, respectively. The remaining increase in SG&A can be attributed to the IDRC merger. IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS During the second quarter of 1999, the Company announced a strategic partnership with two technology providers to deliver integrated eBusiness call center solutions to leading-edge, Internet-enabled call center services utilizing a Web-based front office software solution and an Internet interaction management solution. The anticipated demand for this functionality was initially projected at very high levels and the Company purchased licenses and built an infrastructure to accommodate those projections. While the Company did successfully implement several installations in this arena it did not reach the volumes originally projected nor was it able to attain a sufficient level of revenues to sustain the program. Consequently, the software licenses used in the eCRM software platform have been deactivated and the related maintenance has been discontinued. As required by SFAS No. 121, the Company computed the projected undiscounted future cash flows associated with the continuing software investment and compared it to the carrying value as of December 31, 2000. This analysis indicated that a permanent impairment had occurred and the investment was written down to the estimated fair market value. In 2000, as a result of declining revenues and increased losses, the Company performed a comprehensive review of the carrying value of goodwill and other intangibles. The analysis indicated that the carrying value of goodwill was permanently impaired resulting in a total impairment charge of $155.5 million. GOODWILL AMORTIZATION Our goodwill amortization was $8.4 million, representing 3% of total revenues for the twelve months ended December 31, 16 2000, and increased by $4.0 million from the twelve months ended December 31, 1999. This increase can be attributed to the IDRC merger and the CI acquisition. As discussed above, the majority of goodwill was written off at December 31, 2000 which will significantly decrease goodwill amortization in the future. INTEREST EXPENSE, NET We incurred net interest expense of $17.3 million for the twelve months ended December 31, 2000 which represents an increase of $10.3 million from the twelve months ended December 31, 1999. This increase in interest expense can be attributed to increased debt levels from the IDRC merger, amortization of debt issuance costs, an increase in the average interest rate of approximately 100 basis points, nonrecurring fees of $0.6 million payable to the lenders under our credit facility and $0.9 million for charges related to our covenant waivers received in the fourth quarter of 2000. MINORITY INTEREST Minority interest represents the portion of eSatisfy.com not owned by the Company (27.6%). For the twelve months ended December 31, 2000 minority interest was $7.8 million. There was no minority interest for the twelve months ended December 31, 1999. The Company recorded 72.4% of eSatisy.com's losses until the minority interest accumulated balance in the net assets of eSatisfy.com reached zero, at which time we reflected 100% of the affiliates losses. INCOME TAXES There was no income tax provision for the years ended December 31, 2000 and 1999. As of December 31, 2000 and 1999, we had a net operating loss carryforward of approximately $128.1 million and $94.5 million, respectively. Due to the uncertainty surrounding the potential realization of the deferred tax assets, the Company has provided a full valuation allowance at December 31, 2000 and 1999. 17 LIQUIDITY AND CAPITAL RESOURCES (dollars in millions) CASH FLOWS PROVIDED BY (USED IN):

~~RESULTS OF OPERATIONS (DOLLARS IN MILLIONS)~~ YEAR ENDED ~~AS A YEAR ENDED AS A~~ DECEMBER 31, ~~PERCENTAGE OF DECEMBER 31, PERCENTAGE OF 2000 REVENUES 1999 REVENUES~~ ----------- ------------- ----------- -~~------------~~ ~~Revenues:~~2001 ~~Acquisition~~2000 ~~Services~~1999 ~~$ 192.4 63 % $177.8 67% ChannelCare 104.8 35 79.0 29 e~~-~~Satisfy.com 6.4 2 10.0 4~~ -------- --- ------ --- ~~Total revenues 303.6 100 266.8 100 Cost of services: Acquisition Services 149.0 77 133.3 75 ChannelCare 83.3 79 58.4 74 e~~-~~Satisfy.com 4.9 77 3.9 39~~ ----~~----~~ ~~---~~Operating ~~------~~Activities ~~---~~$ ~~Total cost of services 237.2 78 195.6 73 Selling, general and administrative 70.2 23 53.9 20 Impairment - long-lived assets 171.~~(1 ~~56 Restructuring charge 10~~.3) 4$ ~~Amortization of goodwill 8~~25.45 3$ 42.4 2Investing ~~--------~~Activities ~~--- ------ --- Total operating expenses 497.2 164 253.9 95 -------- --- ------ --- Operating income~~ (~~loss~~1.5) (~~193~~21.6) (~~64) 12~~25.~~9 5 Interest expense, net (17.3) (~~6) ~~(7.0)~~Financing ~~(3)~~Activities ~~-------- --- ------ --- Income (loss) before taxes (210~~3.9) ~~(70) 5~~1.~~9 2 Income tax benefit - - - - Minority interest 7.8~~ 3 ~~-------- --- ------ --- Income (loss) from continuing operations $ (203~~22.~~1) (67)% $~~ 5~~.9 2% ======== === ====== ===~~

Year Ended December 31, 2001 The $1.3 million of cash used by operating activities consisted primarily of the net loss of $83.2 million which includes a number of significant non-cash charges, including depreciation and amortization of $15.0 million, impairment of long-lived assets of $26.1 million, extraordinary loss on early extinguishment of debt of $20.3 million, and changes in working capital accounts based on lower levels of business activity of $ 4.3 million. The $1.5 million of cash used in investing activities primarily consisted of property and equipment purchases attributed to maintaining and enhancing our technology platforms and costs related to call centers. The $3.9 million of net cash provided by financing activities primarily consisted of the increase in our debt at April 2001 and costs incurred in connection with the amendment to our credit agreement, offset by payments of capital lease obligations. Year Ended December 31, 2000 The $25.5 million of cash provided by operating activities consisted primarily of the net loss of $203.1 million and non cash items including depreciation and amortization of $27.3 million, impairment of long-lived assets of $171.1 million, a loss on disposal of fixed assets of $3.8 million and restructuring charges of $10.3 million, offset by working capital requirements, including an increase in accounts payable of $6.2 million, a decrease in accounts receivable of $15.3 million, total accrued expenses of $8.4 million and other liabilities of $2.1 million. The $21.6 million of cash used in investing activities primarily consisted of property and equipment purchases attributed to maintaining and enhancing our technology platforms and costs related to new call centers. Certain of these assets were impaired in 2000. The $1.3 million of net cash provided by financing activities primarily consisted of borrowings related to long-term debt. Year Ended December 31, 1999 The $2.4 million of cash provided by operating activities consisted of $5.9 million of net income, plus non-cash items including depreciation and amortization of $16.7 million and $6.8 million for bad debts, offset by working capital requirements, including an increase in accounts receivable of $8.4 million, prepaid expenses and other of $9.8 million, and a decrease in accounts payable of $5.5 million and other liabilities of $1.2 million. The $25.6 million of cash used in investing activities primarily consisted of property and equipment purchases attributed to maintaining and enhancing our technology platforms and costs related to new call centers. The $22.5 million of net cash provided by financing activities primarily consisted of borrowings related to long-term debt. See Financing Matters below for additional information regarding the finances of the Company. Financing Matters On April 29, 2002, the Company entered into an agreement with its bank lenders that resulted in a recapitalization of its balance sheet and a reduction of its debt. As a result of the recapitalization, the amounts due under its existing credit facilities totaling approximately $161 million at the time of the recapitalization, which consisted of outstanding debt, accrued interest and fees, were 18 converted into (a) a three-year term facility of $25 million under an amended and restated credit agreement, (b) $40 million of the Company's Series A Preferred Stock, and (c) shares of the Company's Series B Convertible Preferred stock which will convert into common stock representing 95% of the Company's common outstanding after such conversion. The three year term facility is secured by, among other things, our assets and outstanding trade receivables, bears interest at a base rate as defined in the agreement plus 400 basis points, and matures in May 2005. Under the terms of the Agreement, the Company is required to meet certain financial covenants, including a fixed charge coverage ratio and EBITDA targets. The Series A Preferred Stock has a 10% annual dividend rate, which accrues and is payable either in cash or in additional shares of Series A Preferred Stock. A portion of the Series B Convertible Preferred Stock was converted into shares of the Company's common stock immediately after the closing of the recapitalization, and the remainder will convert into shares of common stock as soon as the Company amends its Certificate of Incorporation to increase the authorized number of shares of common stock. Such amendment will require the approval of the Company's shareholders. After the recapitalization, the Company's Board of Directors is comprised of five members, including J. Peter Pierce, the Company's Chairman and Chief Executive Officer, and Christopher Williams, the Company's Chief Operating Officer, who are continuing as directors, and three designees of the bank group. In addition to entering into the amended credit agreement and completing the recapitalization with it bank lenders, on April 29, 2002 other debt balances outstanding to unsecured creditors were restructured from $15.3 million to approximately $0.7 million, with cash payments of $1.5 million. Certain commercial liabilities, primarily accounts payable, which had a carrying value of $3.7 million as of December 31, 2001, were also settled through cash payments of $0.9 million and notes payable of $0.3 million. Additional settlements were reached with certain of the Company's landlords that will result in a reduction of $3.4 million of future lease commitments through cash payments of $0.4 million and notes payable of $0.2 million. As part of the debt restructuring, the Company divested itself of its ownership interest in eSatisfy.com. In addition to completing the restructuring and recapitalization transactions described above, management has also developed and has begun to implement a plan to improve the Company's operating margins, cash flows from operations and liquidity position. Management's plan includes the following steps, among others: - Develop account management and business development initiatives in order to improve retention rates for existing customers and generate new revenue sources; - Develop incentive compensation plans to provide incentives to key employees; - Increase emphasis on winning and retaining higher-margin inbound contracts; - Reduce the number of the Company's call centers; and - Reduce expenses through employee attrition, planned headcount reductions and other non-salary cost reduction programs. The Company believes that all of the above changes, together with existing working capital and projected results for 2002, should enable it to generate sufficient cash flow to meet its operating cash needs, fund required capital expenditures and satisfy its debt service and other financing requirements. However, the Company does not have a line of credit or other short-term borrowing facility available. In addition, covenants in its amended credit agreement restrict its ability to pledge assets as collateral for other borrowings. The Company's 2002 operating plan assumes a stabilization of its revenue base and an improvement in operating profit margins from historical levels. The Company's ability to meet its obligations in the ordinary course of business is dependent upon successful implementation of its operating plan and stabilization of its operations. Uncertainties exist with respect to management's plans because events and circumstances frequently do not occur as expected, and those differences may be material. These uncertainties raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. On April 16, 2001, the Company signed an amended and restated credit agreement (the "Credit Agreement") with its bank group whereby all amounts outstanding under the former agreement's term notes (Notes A, B and C), $35.0 million of the working capital revolver, and accrued incremental interest and waiver fees were converted into one term loan, totaling $120.6 million. The term loan accrued interest at a base rate plus an applicable margin, as defined 1.54% at December 31, 2001, and was scheduled to mature on July 1, 2002. The Credit Agreement required compliance with stipulated covenants based on the Company's business plan for 2001. Due to downward revisions to that plan for the second half of 2001, the Company amended the Credit Agreement effective on July 31, 2001. The amended Credit Agreement permitted the Company to defer 100% of the total interest otherwise due 19 during the third quarter of 2001 and 50% of the interest otherwise due during the fourth quarter of 2001. The amended Credit Agreement also waived future compliance with certain non-financial provisions of the agreement, modified certain financial covenants, and required the Company to deliver to the bank group a new cost reduction plan to be implemented by September 30, 2001, which was delivered. In addition, the amended Credit Agreement removed the provision that required an amount equal to the deferred interest to be paid and applied against the working capital revolver and that required that this portion of the revolver be used only to pay down specified categories of trade payables. The Company incurred a waiver fee of 25 basis points of the aggregate amount of the facilities upon signing the amended Credit Agreement, payable at maturity or termination of the amended Credit Agreement. This fee was charged to interest expense during the three month period ended September 30, 2001. The Company failed to maintain compliance with the terms of the amended Credit Agreement by not meeting the EBITDA financial covenant beginning in September 2001. The Company also did not make the interest payments due to the lenders beginning in October 2001. As a result, the Company was in default of the amended Credit Agreement and the amounts then outstanding became due and payable upon demand. During the fourth quarter of 2001, the Company began negotiations with its bank group to restructure its existing debt, which restructuring was consummated in April 2002. Note Payable to Stockholder On April 16, 2001, the Company amended its $4,873,000 million term note payable to the former majority stockholders of an acquired business pursuant to which all unpaid interest was added to the unpaid principal balance establishing a restructured note of $5,761,000. The amended note was scheduled to mature on June 30, 2004, bore interest at 10% for the year ending December 31, 2001 and 15% through April 15, 2002, when it was restructured. The Company exchanged its interest in eSatisfy for forgiveness of this Note. eSatisfy Debt On April 9, 2001, the Company amended its $2.2 million non-interest bearing note payable to the former principals of eSatisfy. The amended notes bear interest at 10% from June 30, 2000 and require principal payments of $50,000 per month through March 2002 and $40,000 per month through August 2002, at which time the remaining balance of $1.5 million is payable in full. The Company restructured a portion of this note which reduced the note payable by $0.8 million. During May 2000, a shareholder of TeleSpectrum advanced $500,000 to eSatisfy.com in return for convertible promissory notes and 200,000 warrants to purchase eSatisfy.com Common Stock. The notes bear interest at 8% and were due August 31, 2000 if additional equity totaling $3,000,000 (a "Subsequent Financing") was not obtained by June 15, 2000. Upon the consummation of a Subsequent Financing, the notes automatically convert to 285,715 shares of Series A Common Stock. A Subsequent Financing was not obtained and on September 13, 2000 a forbearance agreement was entered into which deferred principal and interest. The warrants expire in seven years and were exercisable at $.01 per warrant. During June 2000, the same TeleSpectrum shareholder advanced an additional $500,000 to eSatisfy.com in return for convertible promissory notes and 250,000 warrants to purchase eSatisfy.com Common Stock. The notes bear interest at 8% and were due October 15, 2000 if additional equity totaling $5,000,000 (a "Subsequent Financing") was not obtained by July 31, 2000. Upon consummation of a Subsequent Financing, the notes automatically convert to 357,143 shares of Series A Common Stock. A Subsequent Financing was not obtained putting eSatisfy.com into technical default on these notes. eSatisfy.com is currently negotiating with the lender to obtain a forbearance agreement. The warrants expire in seven years and were exercisable $.01 per warrant. In November 2000, eSatisfy received $200,000 in cash from a member of senior management to enhance the Company's ability to obtain additional financing. In exchange for cash, the Company promised to pay $200,000 and 12% interest upon the consummation of a subsequent financing or upon the merger or consolidation of the Company or any similar transaction or series of related transactions. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company believes its estimates and assumptions are reasonable; however, actual results and 20 the timing of the recognition of such amounts could differ from those estimates. The Company has identified the following critical accounting policies and estimates utilized by management in the preparation of the Company's financial statements: revenue recognition, accounting for long-lived assets, allowance for doubtful accounts, and accounting for income taxes. Any deviation from these policies or estimates could have a material impact on the financial statements of the Company. Revenue recognition The Company recognizes revenues on Outbound Teleservices programs as services are performed, generally based on hours incurred. For certain of these programs, revenues are reduced for estimated customer cancellations. Inbound Teleservices revenue is recognized on a per hour basis or at the time calls are answered on a per minute basis. The Company defers certain up-front fees that are received from its customers and related costs and recognizes the up-front fees, net of costs, over the term of the applicable contract. Net Deferred Revenue was $1,486,000 and $2,990,000 at December 31, 2001 and 2000, respectively. Accounting for long-lived assets The Company had approximately $13.8 million of long-lived assets as of December 30, 2001. These assets are comprised primarily of property and equipment, capitalized software and intangible assets. In addition to the original cost of these assets, their recorded value is impacted by a number of policy elections made by the Company, including estimated useful lives, salvage values and impairment charges. In addition, any decision by the Company to reduce capacity by closing Customer Call Centers or to abandon software would result in a write-off of the net book value of these affected assets. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121), the Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In this circumstance, the impairment charge is determined based upon the amount the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes certain assumptions, including, but not limited to estimated fair market value of the assets, which are based on additional assumptions such as asset utilization, length of service the asset will be used in the Company's operations and estimated salvage values. During 2001, the Company recorded an asset impairment charge of $26.1 million related to the write-off of fixed assets, goodwill, and other intangible assets under SFAS No. 121. The Company has adopted the Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" in January 2002. See discussion below regarding the effect of this adoption. Allowance for doubtful accounts The Company records an allowance for doubtful accounts based on a monthly assessment of the probable estimated losses in trade accounts receivable. Management specifically analyzes accounts receivable and analyzes historical bad debts, customer concentrations, current economic trends, and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. The estimated losses in trade accounts receivable are based on specific allowances for identified problem receivables and an additional valuation for all other receivables based on their age and collection history. Our accounts receivable balance was $33.3 million, net of allowance for doubtful accounts of $1.6 million as of December 31, 2001. Accounting for Income Taxes As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. At December 31, 2001 the Company had $139.1 million of net deferred tax assets which included net operating loss carry-forwards of $210.2 million. We have recorded a full valuation allowance of $139.1 million against our net deferred tax assets, due to uncertainties surrounding our ability to utilize our deferred tax assets before they expire. 21 RECENTLY ISSUED ACCOUNTING STANDARDS Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended, which requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The effect of adopting SFAS No. 133 as of January 1, 2001 was not material to the Company's financial statements. In June 2001, Statement of Financial Accounting Standards No. 141, "Business Combinations," (SFAS No. 141) and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," (SFAS No. 142) were issued. These standards change the accounting principles governing business combinations, goodwill and other intangible assets by, among other things, requiring the use of the purchase method in accounting for business combinations and eliminating the requirement to amortize goodwill. Instead, SFAS No. 142 establishes a method to test for impairment of goodwill on at least an annual basis. These standards became effective for the Company beginning in the first quarter of 2002. The Company anticipates that the effect of adopting SFAS 142 will not be material. In August 2001, Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144) was issued effective for fiscal years beginning after December 15, 2001. This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30," Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion). This Statement also amends ARB No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. This Statement retains the requirements of SFAS No. 121 to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. This Statement also removes goodwill from its scope and, therefore, eliminates the requirement of SFAS No. 121 to allocate goodwill to long-lived assets to be tested for impairment. This Statement retains the basic provisions of APB Opinion 30 for the presentation of discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). The Company anticipates that the effect of adopting SFAS No. 142 will not be material. OTHER INFORMATION - RISK FACTORS You should consider the following risk factors that pertain to the Company. The realization of any of these risks could result in significant harm to our results of operations, financial condition, cash flows, business or the market price of our common stock. Keep these risk factors in mind when reading "forward-looking" statements elsewhere in this Form 10-K (see also "Cautionary Statement Concerning Forward-Looking Statements" elsewhere herein). Control of our business will be in the hands of our lender group. As a result of the April 2002 recapitalization, our bank lenders, in the aggregate, beneficially own approximately 95% of our outstanding common stock. These lenders are able to control all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. Furthermore, in connection with the recapitalization, each of the lenders entered into a stockholders agreement pursuant to which all of the lenders' shares will be voted by the bank group's administrative agent with respect to, among other things, the election of our five directors, including three designees of the bank lenders. Consequently, the administrative agent will be able to elect the directors and otherwise control our business affairs. Our financial condition has made it difficult for us to retain clients. Prior to our April 2002 recapitalization, our clients were, and many may remain, concerned about our precarious financial position. In particular, our clients were wary of our highly leveraged position and that we were in default of certain financial covenants and interest payment obligations under our credit facilities. During 2001 and the first quarter of 2002, 22 we had difficulty reassuring many clients of our continued ability to meet their teleservices needs, and, as a result, we have been unable to retain certain clients. Among the clients that have reduced their volumes with us are our first and second largest clients, based on revenue, during 2001. If we are unable to convince our existing clients that, as a result of the recapitalization, we will remain a leading teleservices provider and be able to service their teleservices needs, we may continue to lose clients. Our results of operations are sometimes dependent on one or more significant clients. Approximately 17% and 11% of our revenues for 2001 and 2000, respectively, were generated from one client in the telecommunications industry and approximately 11% of our revenues for 2001 were generated by another client in the financial services industry. As discussed above, these clients have significantly reduced their work volumes with us, which will severely affect our results of operations. We may develop future relationships with clients that represent a large concentration of our revenues, and these types of relationships are often cancelable by the client upon relatively short notice. Our business may be harmed by any unexpected termination or non-renewal of such a relationship. Our debt restricts our ability to obtain financing or pursue other business objectives. Our debt restricts our ability to obtain other financing and pursue other business objectives. Accordingly, we may find it difficult to: - obtain additional financing to provide working capital; - enter into strategic relationships; - make capital expenditures; - respond to business opportunities; - address competitive pressures or adverse industry developments; and - withstand further economic downturns. Government regulation of our industry could increase our costs and limit the growth of our business. Our industry is subject to an increasing amount of government regulation, both in the United States and Canada. Such regulation has had the effect of limiting our ability to conduct outbound operations by, among other things, prohibiting us from contacting consumers who have signed on to "do not call" lists and prohibiting the use of automated telephone dialing equipment to call certain numbers. Most of the statutes and regulations in the United States allow a private right of action for the recovery of damages or provide for enforcement by the Federal Trade Commission, state attorneys general or state agencies, permitting the recovery of significant civil or criminal penalties. The Canadian Radio-Television and Telecommunications Commission enforces rules regarding unsolicited communications using automatic dialing and announcing devices, live voice and fax. We may not be able to maintain compliance with all applicable regulations. Furthermore, new laws could more significantly limit our ability to offer services, which would adversely affect our operations. Our results of operations will be adversely affected if we do not avoid high personnel turnover. Our industry is very labor intensive and has experienced high personnel turnover. In addition, as a result of our difficult financial position we have experienced and may continue to experience high personnel attrition levels. Many of our employees receive modest hourly wages. A higher turnover rate among our employees would increase our recruiting and training costs and decrease our productivity. Our insurance product sales and technology-based inbound customer service require specifically trained employees. We may not be able to continue to hire, train and retain a sufficient labor force of qualified employees. Our results of operations will be adversely affected if we do not maintain sufficient capacity utilization. Our results of operations are substantially dependent upon our ability to use our call center capacity at efficient levels. Capacity utilization is a term that identifies how much of a call center's workstations are being used to perform services. Low capacity utilization at a call center reduces profitability. This occurs because costs are being incurred for employees and other overhead costs at a time when revenue is not being produced by these employees and workstations. We have in the past experienced periods of low capacity utilization and have sometimes accepted less profitable client engagements to 23 fill this capacity. We have also experienced, and may experience in the future, at least short-term, excess capacity when we open a new call center or terminate or complete a large client program. Our business will be harmed if we do not obtain and implement new or enhanced technology. We are significantly dependent upon technology. We may not be successful in anticipating continuing technological changes or in implementing new or enhanced technology. In addition, we may not be able to afford such new or enhanced technology. We rely heavily on telecommunications companies and our business will be adversely affected if our telecommunications costs increase or our service is interrupted. Our business is heavily dependent upon service provided by various local and long distance telephone companies. Telecommunications costs are one of our most significant expenses. Our results of operations will be materially adversely affected by any significant increases in the cost of telephone services that are not recoverable through an increase in the price of our services, or any significant interruption in telephone services. Our quarterly operating results will fluctuate and this will cause our stock price to change. We expect that our quarterly operating results will fluctuate due to many factors, a number of which are beyond our control. We believe that period-to-period comparisons of our historical results may not be meaningful. You should not rely on these historical results as an indication of our future results. Our results of operations in future periods may not meet the expectations of analysts and investors, in which case the price of our common stock would likely decrease. Factors that may also have an impact on our operating results include: - our ability to retain existing clients and attract new clients; - the timing of our clients' marketing campaigns and customer service programs; - the timing of additional selling, general and administrative expenses incurred to acquire and support such new business; - changes in our revenue mix among our various service offerings; - the introduction of new or enhanced services and products; - price competition; - our ability to upgrade and develop our information technology systems; technical difficulties, system downtime or Internet brownouts; - government regulations; - general economic conditions and economic conditions specific to the teleservices industry; and - seasonality in our business, particularly during the months of August and December. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk As of December 31, 2001, the Company had approximately $159.1 million outstanding under term and working capital advances with our senior bank group. Interest on those facilities was based on a floating interest rate, either the prime rate or LIBOR. Based on the outstanding balance under the facilities at December 31, 2001, we would be required to pay an additional $1.6 million in interest annually for every 1.0% increase in the average prime rate or LIBOR. To reduce the risk associated with a large increase in interest rates, we have placed two derivative financial instruments known as interest rate caps each with notional amounts of $29.5 million as of December 31, 2001. Under the terms of the interest rate cap agreements, we would receive quarterly cash payments when the 3-month LIBOR rate at the end of any quarter exceeded 7.5%. The payment would be determined by multiplying the difference between the actual LIBOR rate and 7.5% by the notional amounts. Due to the current low interest rate environment, the interest rate cap agreements currently have no recorded value. The interest rate cap agreements are scheduled to expire on September 30, 2002. The three-month LIBOR interest rate was approximately 1.833% at December 31, 2001 24 Foreign Currency Risk We have subsidiaries in Canada and the United Kingdom, which are subject to foreign currency fluctuations. As currency rates change, translation of income statements of these subsidiaries from local currencies to US dollars affects year-over-year comparability of our operating results. Gains and losses on translation are recorded as a separate component of stockholders' equity. Approximately $13.3 million has been loaned to our Canadian subsidiary. The loan proceeds have been converted to Canadian dollars. Under the terms of our credit agreement, large principal payments due in 2002 may require conversion of all or a portion of our Canadian dollar loan to US dollars. An unfavorable change in the Canadian dollar exchange rate at the time of the conversion could cause a foreign currency exchange loss. At this time, we do not believe that such a conversion would be required. The other foreign subsidiaries are limited in their operations and the level of investment by the parent company so that risk of foreign currency fluctuations is not expected to be material. 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. TABLE OF CONTENTS Report of Independent Public Accountants 27 Consolidated Balance Sheets as of December 31, 2001 and 2000: 28 For the Years Ended December 31, 2001, 2000 and 1999: Consolidated Statements of Operations 29 Consolidated Statements of Stockholders' Equity (Deficit) 30 Consolidated Statements of Cash Flows 31 Notes to Consolidated Financial Statements 32 FINANCIAL STATEMENT SCHEDULE: Report of Independent Public Accountants 54 Schedule II -- Valuation and Qualifying Accounts for the Years Ended December 31, 2001, 2000 and 1999 55

26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To TeleSpectrum Worldwide Inc.: We have audited the accompanying consolidated balance sheets of TeleSpectrum Worldwide Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2001. 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 TeleSpectrum Worldwide Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters, which include a restructuring of a significant portion of the Company's debt and other liabilities, are also described in Note 1. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. /s/Arthur Andersen LLP Philadelphia, Pa., April 29, 2002 27 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)

~~YEAR ENDED AS A YEAR ENDED AS A~~ DECEMBER 31, ~~PERCENTAGE OF DECEMBER 31, PERCENTAGE OF 1999 REVENUES 1998 REVENUES~~ ----------- ------------- 2001 2000 ----------- ---------~~----~~ ~~Revenues~~ASSETS CURRENT ASSETS: ~~Acquisition~~Cash ~~Services~~and $cash ~~177.8~~equivalents 67$ %6,391 $ ~~115.8~~5,258 69Accounts %receivable, ~~ChannelCare~~net ~~79.0~~of 29allowance ~~43.0~~for 26doubtful ~~e-Satisfy.com~~accounts ~~10.0~~of 4$1,609 ~~8.6~~and 5$3,457 33,333 54,745 Prepaid expenses and other 2,067 6,173 ----- ---- ----- ---- Total ~~revenues~~current ~~266.8~~assets ~~100~~41,791 ~~167.4~~66,176 ~~100~~PROPERTY, ~~Cost~~PLANT ofAND ~~services:~~EQUIPMENT, ~~Acquisition~~net ~~Services~~11,478 ~~133.3~~39,967 75GOODWILL ~~96.4~~AND 83OTHER ~~ChannelCare~~INTANGIBLES ~~58.4~~2,347 7415,003 ~~30.7~~OTHER 71ASSETS ~~e-Satisfy.com~~1,043 3.9,721 ~~39 3.3 38~~ ----- ---- ----- ---- Total ~~cost~~assets $ 56,659 $ 124,867 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current maturities of ~~services~~long-term ~~195.6~~debt 73$ ~~130.4~~3,608 78$ ~~Selling~~3,844 ~~general~~Accounts ~~and~~payable ~~administrative~~5,435 ~~53.9~~15,457 20Accrued ~~41.7~~expenses 2515,459 ~~Amortization~~14,530 ofAccrued ~~goodwill~~costs for closed call centers 6,511 7,454 Accrued compensation 4.4,244 28,903 Interest payable 736 5,023 Other current liabilities 168 1.2,086 - ----- --- ----- ---- Total ~~operating~~current ~~expenses~~liabilities ~~253.9~~36,161 9556,297 ~~173~~LONG-TERM DEBT, net of current maturities 166,588 132,413 OTHER NONCURRENT LIABILITIES 615 430 COMMITMENTS AND CONTINGENCIES (see Note 11) STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, $.301 ~~103~~par ~~-----~~value, 5,000,000 shares authorized, no shares issued or outstanding -- --~~---~~ Common stock, $.01 par value, 200,000,000 shares authorized, 40,022,656 shares issued and 32,737,815 shares outstanding at December 31, 2001, and 40,022,656 shares issued and 33,076,073 shares outstanding at December 31, 2000 400 400 Additional paid---in ~~Operating~~capital ~~income~~339,113 339,099 Common stock purchase warrants 7,840 7,840 Due from stockholders -- (~~loss~~952) ~~12.9~~Accumulated 5deficit (~~5.9~~443,686) (3360,524) ~~Interest~~Treasury ~~expense~~stock, ~~net~~7,284,841 shares at cost (~~7.0~~48,810) (348,810) Cumulative currency translation adjustment (1.2,562) (1,326) ----- ----- ----- ---- ~~Income~~Total stockholders' equity (~~loss~~deficit) ~~before taxes 5.9 2~~ (~~7.1~~146,705) (464,273) ~~Income tax benefit~~ - - ~~0.2~~ - ------ ----- ----- ~~---~~Total ~~Income~~liabilities ~~(loss)~~and ~~from~~stockholders' ~~continuing~~equity ~~operations~~(deficit) $ ~~5.9~~56,659 ~~2 %~~ $ ~~(6.9)~~124,867 ~~(4)%~~ ===== ===== ======= ====

The accompanying notes are an integral part of these consolidated financial statements. 28 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)

YEAR ENDED DECEMBER 31, ---------------------------------------- 2001 2000 1999 ~~1998~~--------- --------- --------- REVENUES $ 218,235 $ 303,568 $ 266,810 --------- --------- --------- OPERATING EXPENSES: Cost of services 172,956 237,171 195,573 Selling, general and administrative 51,550 70,220 53,898 Impairment - long-lived assets 26,078 171,151 -- Restructuring charge 7,474 10,254 -- Goodwill amortization 1,167 8,449 4,431 --------- --------- --------- Total operating expenses 259,225 497,245 253,902 --------- --------- --------- Operating ~~Activities~~income (loss) (40,990) (193,677) 12,908 INTEREST INCOME 219 480 944 INTEREST EXPENSE (22,105) (17,759) (7,970) --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES, MINORITY (62,876) (210,956) 5,882 INTEREST AND EXTRAORDINARY ITEM: INCOME TAX BENEFIT -- -- -- MINORITY INTEREST -- 7,836 -- --------- --------- --------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (62,876) (203,120) 5,882 EXTRAORDINARY ITEM - LOSS ON EARLY EXTINGUISHMENT OF DEBT (20,286) -- -- --------- --------- --------- NET INCOME (LOSS) $ ~~25.~~(83,162) $(203,120) $ 5,882 ========= ========= ========= BASIC EARNINGS (LOSS) PER SHARE: Income (loss) before extraordinary item $ 2(1.491) $ (16.542) ~~Investing~~$ ~~Activities~~0.21 Extraordinary item (21.662) -- -- --------- --------- --------- NET INCOME (25LOSS) PER BASIC SHARE $ (2.53) $ (6.42) 28$ 0.121 ~~Financing~~========= ~~Activities~~========= ========= DILUTED EARNINGS (LOSS) PER SHARE: Income (loss) before extraordinary item $ (1.391) 22$ (6.542) $ 0.18 Extraordinary item (26.62) -- -- --------- --------- --------- NET INCOME (LOSS) PER DILUTED SHARE $ (2.53) $ (6.42) $ 0.18 ========= ========= =========

The accompanying notes are an integral part of these consolidated financial statements. 29 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Dollars in thousands, except per share amounts)

~~Exhibit~~COMMON ~~Number~~ADDITIONAL ~~Description~~STOCK DUE COMMON STOCK PAID-IN PURCHASE FROM DEFERRED ----------------------------- SHARES AMOUNT CAPITAL WARRANTS STOCKHOLDERS COMPENSATION -------------- ------------- ------------- ------------- --------------------------- Balance, December 31, 1998 25,771,449 $ 258 $ 240,176 $ -- $ -- $(363) Exercise of common stock options 345,010 3~~.01~~ ~~Restated~~1,580 ~~Certificate~~-- -- -- CRW merger 5,173,186 52 48,567 -- -- -- IDRC merger 8,269,101 83 46,911 7,840 (952) -- Partial release of ~~Incorporation~~escrowed shares 1,614 -- -- -- Amortization of ~~TeleSpectrum~~deferred ~~Worldwide~~compensation ~~Inc.~~-- is-- ~~incorporated~~-- by-- ~~reference~~-- to200 ~~exhibit~~Comprehensive ~~3.01~~income of-- ~~our~~-- ~~Registration~~-- ~~Statement~~Net onincome ~~Form~~-- S-1- -- -- -- -- Cumulative currency translation -- -- -- -- -- -- adjustment Total comprehensive income -- -- -- -- -- -- ------------ ------ ------------ -------- ------------ ---------- Balance, December 31, 1999 39,558,746 396 338,848 7,840 (~~File~~952) ~~No.~~(163) Exercise of common stock options 463,910 ~~333~~4 251 -~~04349~~- -- -- Amortization of deferred compensation -- -- 163 Comprehensive income -- -- -- -- -- -- Net loss -- -- -- -- -- -- Cumulative currency translation -- -- -- -- -- -- adjustment -- Total comprehensive income -- -- -- -- -- -- ------------ ------- ------------ -------- ------------ --------- Balance, December 31, 2000 40,022,656 400 339,099 7,840 (952). ~~3.02~~-- ~~Bylaws~~Release of ~~TeleSpectrum~~shares ~~Worldwide~~from ~~Inc.~~escrow ~~are~~-- ~~incorporated~~-- by14 ~~reference~~-- to-- ~~exhibit~~-- ~~3.02~~Write-off of ~~our~~shareholder ~~Registration~~notes ~~Statement~~-- on-- ~~Form~~-- S-1- ~~(File~~952 ~~No.~~-- Comprehensive income -- -- -- -- -- -- Net loss -- -- -- -- -- -- Cumulative currency translation adjustment Total comprehensive income -- -- -- -- -- -- ------------ ------- ------------ -------- ------------ ---------- Balance, ~~333~~December 31, 2001 $ 40,022,656 $ 400 $ 339,113 $ 7,840 -~~004349).~~- -- ============ ======= ============ ======== ============ ==========

**CUMULATIVE ~~10.01~~RETAINED ~~TeleSpectrum~~CURRENCY ~~Worldwide~~TOTAL ~~Inc.~~EARNINGS ~~Amended~~TREASURY ~~and~~TRANSLATION ~~Restated~~STOCKHOLDER'S ~~1996~~(DEFICIT) ~~Equity~~ADJUSTMENT ~~Compensation~~ADJUSTMENT ~~Plan~~EQUITY(DEFICIT) is--------- ~~incorporated~~---------- by---------- ~~reference to exhibit 10.04 of our Annual Report on Form 10~~-K-------------- ~~for~~Balance, ~~the fiscal year ended~~ December 31, ~~1999.~~1998 ~~10.02~~$ ~~Agreement and Plan of Merger dated as of January 14~~(163,286) ~~1999~~$ by-- ~~and~~(217) ~~among~~$ ~~TeleSpectrum Worldwide Inc.~~76,568 ~~International~~Exercise ~~Data~~of ~~Response~~common ~~Corporation,~~stock ~~McCown~~options De-- ~~Leeuw~~-- &-- ~~Co. III~~1,583 ~~L.P.,~~CRW ~~McCown~~merger De-- ~~Leeuw & Co. Offshore~~ (~~Europe~~48,810) ~~III,~~-- ~~L.P., McCown De Leeuw & Co. III,~~ (~~Asia~~191), ~~and~~IDRC ~~The~~merger ~~Gamma~~-- ~~Fund~~-- ~~LLC~~-- is53,882 ~~incorporated~~Partial byrelease ~~reference to Exhibit 2.1~~ of ~~our~~escrowed ~~current~~shares ~~Report~~-- on-- ~~Form 8~~-K- ~~filed on January 26~~1,614 ~~1999.~~Amortization ~~10.03~~of ~~Amendment~~deferred ~~No.~~compensation 1-- to-- ~~Agreement~~-- ~~and~~200 ~~Plan~~Comprehensive ofincome ~~Merger~~Net ~~dated~~income ~~as of February 26~~5,882 ~~1999~~-- by-- ~~and~~-- ~~among~~Cumulative ~~TeleSpectrum~~currency ~~Worldwide~~translation ~~Inc.,~~-- ~~International~~-- ~~Data~~(105) ~~Response~~-- ~~Corporation,~~adjustment ~~McCown~~-- De-- ~~Leeuw~~-- ~~& Co. III~~5,777 ~~L.P.,~~Total ~~McCown~~comprehensive Deincome ~~Leeuw~~------------ &------------ ~~Co.~~------------ ~~Offshore~~------------ ~~(Europe) III~~Balance, ~~L.P.~~December 31, ~~McCown~~1999 De(157,404) ~~Leeuw & Co. III~~(48,810) (~~Asia~~322) 139,433 ~~and~~Exercise ~~The Gamma Fund LLC is incorporated by reference to Exhibit 10.10~~ of ~~our~~common ~~Registration~~stock ~~Statement~~options on-- ~~Form S~~-4- ~~(File No. 333~~-~~80251).~~- ~~10.04~~255 ~~Amendment~~Amortization ~~No. 2 to Agreement and Plan~~ of ~~Merger~~deferred ~~dated~~compensation as-- of-- ~~May~~-- ~~13,~~163 ~~1999~~Comprehensive byincome ~~and~~-- ~~among~~-- ~~TeleSpectrum~~-- ~~Worldwide~~-- ~~Inc.,~~Net ~~International~~loss ~~Data Response Corporation~~(203,120) ~~McCown~~-- De-- ~~Leeuw~~-- &Cumulative ~~Co.~~currency ~~III,~~translation ~~L.P.,~~-- ~~McCown~~-- ~~De Leeuw & Co. III,~~ (~~Asia)~~1,004) ~~and~~-- ~~The~~adjustment ~~Gamma~~-- ~~Fund LLC is incorporated by reference to Exhibit 10.15 of our Registration Statement on Form S~~-4- (~~File No. 333-80251~~204,124). ~~10.05~~Total ~~Agreement~~comprehensive ~~and~~income ~~Plan~~------------ of------------ ~~Merger~~------------ ~~and~~------------ ~~Reorganization~~Balance, ~~dated~~December as31, of2000 ~~September 3~~(360,524) ~~1998 by and among CRW Financial~~(48,810) ~~Inc.~~(1,326) ~~TeleSpectrum Worldwide Inc.~~(64,273) ~~and~~Release ~~CRW~~of ~~Acquisition~~shares ~~Corp.~~from isescrow ~~incorporated~~-- by-- ~~reference~~-- to14 ~~Exhibit~~Write-off ~~10.13~~ of ~~our~~shareholder ~~Registration~~notes ~~Statement~~-- ~~on Form S~~-4- ~~(File No. 333~~-~~80251).~~- ~~10.06~~952 ~~Amended~~Comprehensive ~~and~~income ~~Restated~~-- ~~Credit~~-- ~~Agreement~~-- ~~dated~~-- asNet ofloss ~~April 16~~(83,162) ~~2001,~~-- ~~between~~-- ~~Telespectrum~~-- ~~Worldwide~~Cumulative ~~Inc.,~~currency ~~Lenders~~translation ~~named~~adjustment ~~therein,~~Total ~~and~~comprehensive ~~BNP~~income ~~Paribas~~-- as-- agent.*(236) **-- ~~10.07~~-- ~~Employment~~-- ~~Agreement~~(83,398) ~~dated~~------------ as------------ of------------ ~~January~~------------ 1Balance, ~~2000, between TeleSpectrum Worldwide Inc. and Francis J. Pennella is incorporated by reference to exhibit 11.14 of our Annual Report for the fiscal year ended~~ December 31, ~~1999 on Form 10-K. ** 10.08 Employment Agreement dated as of January 1,~~ 2001, ~~between~~$ ~~TeleSpectrum Worldwide Inc. and J. Peter Pierce.* ** 10.09 Employment Agreement dated as of January 2~~(443,686) ~~2001,~~$ ~~between TeleSpectrum Worldwide Inc. and Christopher Williams.* ** 10.10 Employment Agreement dated as of September 29~~(48,810) ~~2000,~~$ ~~between TeleSpectrum Worldwide Inc. and Kurt Dinkelacker.* ** 10.11 Employment Agreement dated as of January 2~~(1,562) ~~2001~~$(146,705) ~~between~~============ ~~TeleSpectrum~~============ ~~Worldwide~~============ Inc. and Joseph Nezi.* 21.0 Subsidiaries of the Registrant.* 23.01 Consent of Arthur Andersen LLP.*============

The accompanying notes are an integral part of these consolidated financial statements. 30 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS DECEMBER 31, 2001

~~NAME~~YEAR ~~CAPACITY~~ENDED ~~DATE~~DECEMBER 31, 2001 2000 1999 ---- -------- ---- ~~/S/ J. PETER PIERCE Chairman of the Board and April 16, 2001~~ -------------- ---------~~------~~ ~~Chief~~OPERATING ~~Executive~~ACTIVITIES: ~~Officer~~Net J.income ~~PETER~~(loss) ~~PIERCE~~$ (~~Principal~~83,162) ~~Executive~~$(203,120) ~~Officer~~$ 5,882 Adjustments to reconcile net income (loss) ~~/S/~~to ~~KURT~~net E.cash ~~DINKELACKER~~provided ~~Chief~~by ~~Financial~~(used ~~Officer~~in) ~~April~~operating 16Activities: Depreciation and amortization 13,870 ~~2001~~18,836 12,285 Goodwill amortization 1,167 8,449 4,431 Provision for bad debts 1,254 2,833 6,800 Impairment - long-lived assets 26,078 171,151 -- Write-off of Shareholder Loans 952 Restructure charge and other 7,474 10,254 -- Loss on disposal of fixed assets (172) 3,826 -- Extraordinary loss on debt extinguishment 20,286 -- -- Non-cash compensation -- 163 320 Other items, net -- --~~----------~~ 500 Changes in the following, net of acquisition: Accounts receivable 20,158 15,301 (~~Principal~~8,421) ~~Financial~~Prepaid expenses and ~~KURT~~other E.5,782 ~~DINKELACKER~~(370) ~~Accounting~~(9,798) ~~Officer~~Accounts payable (10,020) ~~/S/~~6,152 ~~FENTON~~(5,466) R.Accrued expenses 392 (~~PETE~~14,256) ~~TALBOTT~~(5,132) ~~Director~~Accrued ~~April~~costs 16for closed call centers (6,406) ~~2001~~7,338 (947) Accrued compensation (4,659) (1,478) 610 Interest payable (4,287) 2,493 2,530 Other liabilities 9,960 (2,091) (1,235) --------- --------- ---------~~---~~ ~~FENTON~~Net R.cash (~~PETE~~used in)provided ~~TALBOTT~~by ~~/S/~~operating ~~CHRISTOPHER~~(1,333) ~~WILLIAMS~~25,481 ~~Director April 16~~2,359 ~~2001~~activities --------- --------- ---------~~---~~ ~~CHRISTOPHER~~INVESTING ~~WILLIAMS~~ACTIVITIES: ~~/S/~~Purchases ~~JOSEPH~~of V.property ~~DEL~~and ~~RASO~~equipment ~~Director~~(2,617) ~~April~~(21,637) 16(26,414) ~~2001~~Business acquisition and mergers -- -- 965 Net cash acquired in acquisition of Customer Insights -- 71 -- Proceeds from disposal of assets 1,120 -- --~~------------------~~ ~~JOSEPH~~Payments V.of ~~DEL~~deferred ~~RASO~~transaction ~~/S/~~costs ~~ROBERT~~(174) B.Net ~~HELLMAN,~~cash ~~JR.~~(used ~~Director~~in) ~~April~~investing 16activities (1,497) ~~2001~~(21,566) (25,623) --------- --------- --------- FINANCING ACTIVITIES: Proceeds from exercise of stock options -- 255 1,463 Cash overdraft -- ~~ROBERT~~(4,912) B.3,254 ~~HELLMAN~~Borrowings under long-term debt 7,873 ~~JR.~~21,203 ~~/S/~~130,796 ~~BRITTON~~Payments H.of ~~MURDOCH~~debt (1,887) (15,078) (112,118) Payments of capital lease obligations (506) (125) (734) Debt issuance costs (1,517) -- -- Payment for treasury stock -- -- (191) --------- --------- --------- ~~Director~~Net ~~April~~cash ~~16,~~provided ~~2001~~by ~~BRITTON~~financing H.activities ~~MURDOCH~~3,963 ~~/S/~~1,343 ~~J. BRIAN O'NEILL Director April 16~~22,470 ~~2001~~ --------- --------- ---------~~---~~ J.NET ~~BRIAN~~INCREASE ~~O'NEILL~~(DECREASE) ~~/S/~~IN ~~RICHARD~~CASH W.AND ~~VIRTUE~~CASH ~~Director~~EQUIVALENTS ~~April~~1,133 165,258 ~~2001~~(794) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,258 -- 794 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,391 $ 5,258 $ -- ~~RICHARD~~========= W.========= ~~VIRTUE~~=========

The accompanying notes are an integral part of these consolidated financial statements. 31 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 1. BASIS OF PRESENTATION The Consolidated Financial Statements of TeleSpectrum Worldwide Inc. and subsidiaries ("TeleSpectrum" or the "Company") have been prepared on the basis of accounting principles applicable to a going concern, which contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. During the fourth quarter of 2001, we became in default of the terms of our Amended and Restated Credit Agreement dated April 16, 2001. At such time, we entered into negotiations with our bank group to restructure our existing debt. On April 29, 2002, the Company entered into an agreement with its bank lenders that resulted in a recapitalization of its balance sheet and a reduction of its debt. As a result of the recapitalization, the amounts due under its existing credit facilities totaling approximately $161 million at the time of recapitalization, which consisted of outstanding debt, accrued interest and fees, were converted into (a) a three-year term facility of $25 million under an amended and restated credit agreement, (b) $40 million of the Company's Series A Preferred Stock, and (c) shares of the Company's Series B Convertible Preferred stock which will convert into common stock representing 95% of the Company's common outstanding after such conversion. The three year term facility is secured by, among other things, our assets and outstanding trade receivables, bears interest at a base rate as defined in the agreement plus 400 basis points, and matures in May 2005. Under the terms of the Agreement, the Company is required to meet certain financial covenants, including a fixed charge coverage ratio and EBITDA targets. The Series A Preferred Stock has a 10% annual dividend rate, which accrues and is payable either in cash or in additional shares of Series A Preferred Stock. A portion of the Series B Convertible Preferred Stock was converted into shares of the Company's common stock immediately after the closing of the recapitalization, and the remainder will convert into shares of common stock as soon as the Company amends its Certificate of Incorporation to increase the authorized number of shares of common stock. Such amendment will require the approval of the Company's shareholders. After the recapitalization, the Company's Board of Directors is comprised of five members, including J. Peter Pierce, the Company's Chairman and Chief Executive Officer, and Christopher Williams, the Company's Chief Operating Officer, who are continuing as directors, and three designees of the bank group. In addition to entering into the amended credit agreement and completing the recapitalization with it bank lenders, on April 29, 2002 other debt balances outstanding to unsecured creditors were restructured from $15.3 million to approximately $0.7 million, with cash payments of $1.5 million. Certain commercial liabilities, primarily accounts payable, which had a carrying value of $3.7 million as of December 31, 2001, were also settled through cash payments of $0.9 million and notes payable of $0.3 million. Additional settlements were reached with certain of the Company's landlords that will result in a reduction of $3.4 million of future lease commitments through cash payments of $0.4 million and notes payable of $0.2 million. As part of the debt restructuring, the Company divested itself of its ownership interest in eSatisfy.com. 32 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 The following table represents a proforma estimate of our December 31, 2001 balance sheet if the recapitalization had occurred at that time: CONSOLIDATED BALANCE SHEETS RECAPITALIZATION ANALYSIS DECEMBER 31, 2001

~~Report~~(unaudited) Effect of ~~Independent~~Recapitalization ~~Public~~------------------------------------ ~~Accountants~~Actual FEstimated Proforma 12/31/01 Effect 12/31/01 --------------- ---------------- ----------------- ASSETS: Cash $ 6,391 $ (2,093) ~~Consolidated~~$ ~~Balance~~4,298 ~~Sheets~~Other ascurrent ofassets ~~December~~35,400 31(1,028) ~~2000~~34,372 ~~and~~--------------- ~~1999~~---------------- F----------------- Total current assets 41,791 (3,121) ~~For~~38,670 ~~the~~Total ~~Years~~non ~~Ended~~current ~~December~~assets 3114,868 ~~2000~~(560) 14,308 ~~1999~~--------------- ~~and~~---------------- ~~1998~~----------------- Total assets $ 56,659 $ (3,681) $ 52,978 =============== ================ ================= LIABILITIES: ~~Consolidated~~Current ~~Statements~~liabilities of$ ~~Operations~~36,161 ~~F-4~~$ ~~Consolidated~~(13,066) ~~Statements~~$ of23,095 ~~Stockholders'~~Senior ~~Equity~~debt 159,064 (~~Deficit~~134,064) ~~F-5~~25,000 ~~Consolidated~~Total ~~Statements~~non ofcurrent ~~Cash~~liabilities ~~Flows~~8,139 F(5,806) 2,333 -6-------------- ~~Notes~~---------------- to----------------- ~~Consolidated~~Total ~~Financial~~non ~~Statements~~current ~~F-7~~liabilities ~~FINANCIAL~~167,203 ~~STATEMENT~~(139,870) ~~SCHEDULE:~~27,333 ~~Report~~Total ofliabilities ~~Independent~~203,364 ~~Public~~(152,936) ~~Accountants~~50,428 S-1-------------- ~~Schedule~~---------------- II ----------------- ~~Valuation~~Stockholder's ~~and~~equity/(deficit) ~~Qualifying~~(146,705) ~~Accounts~~149,255 ~~for~~2,550 ~~the~~--------------- ~~Years~~---------------- ~~Ended~~----------------- ~~December~~Total 31liabilities and stockholders' equity/(deficit) $ 56,659 ~~2000~~$ (3,681) ~~1999~~$ ~~and~~52,978 ~~1998~~=============== ~~S-2~~================ =================

At December 31, 2001, the Company had a stockholders' deficit of $146.7 million, and incurred a net loss of approximately $83.2 million during 2001. Prior to amending its credit agreement on April 16, 2001 (see Note 10), the Company was unable to meet required debt service payments with its lenders, requiring a number of amendments to its loan agreements, financial covenant waivers and deferral of scheduled principal and interest payments. The amended agreement, which was scheduled to mature on July 1, 2002, allowed partial interest deferrals and required compliance with stipulated covenants, including revenue, EBITDA (earnings before interest, income taxes, depreciation, amortization and charges for nonrecurring items) and interest coverage targets based on the Company's business plan for 2001. Due to downward revisions to that plan for the second half of 2001, the Company amended the credit agreement effective July 31, 2001 to defer a greater percentage of the interest payable, waive future compliance with certain non-financial provisions of the agreement, and modify certain financial covenants. This amendment stipulated that if the Company failed to maintain compliance with any such covenants, or otherwise experienced an event of default, all amounts outstanding would become due and payable upon demand. The Company failed to maintain compliance with the terms of the amended credit agreement by not meeting the EBITDA financial covenant beginning in September 2001. In addition, the Company failed to make interest payments on the debt beginning in October 2001. As a result, the Company was in default and the amounts 33 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 outstanding became due and payable upon demand. Accordingly, the Company recorded a charge of $0.9 million to accrete to full value the waiver fees currently owed to the bank group. At December 31, 2001 these fees approximated $19.9 million and were reflected in other current liabilities. In addition, the Company also recorded a charge of $0.7 million to write off the debt issuance costs related to the debt. During the fourth quarter of 2001, the Company began negotiations with its bank group to restructure its existing debt. Management believes that the restructuring of its bank debt, and other liabilities that occurred on April 29, 2002, together with existing working capital and projected results for 2002, should enable the Company to generate sufficient cash flow to meet its operating cash needs, fund required capital expenditures and satisfy its debt service and other financing requirements. However, the Company does not have a line of credit or other short-term borrowing facility available. In addition, covenants in its amended credit agreement restrict the Company's ability to pledge assets as collateral for other borrowings. The Company's 2002 operating plan assumes a stabilization of the Company's revenue base and an improvement in operating profit margins from historical levels. The Company's ability to meet its obligations in the ordinary course of business is dependent upon successful implementation of its operating plan and stabilization of its operations. Uncertainties exist with respect to management's plans, because events and circumstances frequently do not occur as expected, and those differences may be material. These uncertainties raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. 2. NATURE OF BUSINESS: The Company was incorporated in Delaware on April 26, 1996 and provides teleservices and customer satisfaction services to its customers through its business segments. The Company classifies its operations into two segments: Teleservices and eSatisfy, a 72.4% owned affiliate. These two operating segments are managed separately because each operating segment represents a strategic business unit that offers different services. The teleservices segment provides both business-to-consumer and business-to-business telemarketing services, which are primarily direct sales initiated by the Company on behalf of its clients, as well as customer service expertise to its clients. The Company's customer service expertise includes the more traditional inbound services of customer care support, typically through toll-free telephone numbers, for activities such as responses to clients' customer service inquiries, catalogue sales and electronic order processing and consulting services to a wide range of clients. The eSatisfy segment performs baseline and tracking customer satisfaction surveys for both Internet and traditional companies. 3. SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation The accompanying financial statements include the accounts of TeleSpectrum Worldwide Inc., its wholly-owned subsidiaries and majority owned affiliate. All material intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. 34 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 Revenue Recognition The Company recognizes revenues on Outbound Teleservices programs as services are performed, generally based on hours incurred. For certain of these programs, revenues are reduced for estimated customer cancellations. Inbound Teleservices revenue is recognized on a per hour basis or at the time calls are answered on a per minute basis. The Company defers revenue that has not been earned in accordance with Staff Accounting Bulletin, No. 101. Deferred Revenue was $1,486,000 and $2,990,000 at December 31, 2001 and 2000, respectively. The Company has customers for which services have been performed and no billing has been created ("Unbilled Receivables") due to timing difference between the rendering of services and billing to customers. At December 31, 2001 and 2000, Unbilled Receivables totaled $1,103,000 and $9,980,000, respectively, and are included in accounts receivable in the consolidated balance sheets. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2001, cash equivalents consisted primarily of investments in money market accounts. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Property and equipment capitalized under capital leases are recorded at the present value of the minimum lease payments due over the term of the lease. Depreciation and amortization are provided using the straight-line method over the estimated useful lives or the shorter of estimated useful life or lease term for leased property. In 2001, the Company wrote-down the carrying value of certain fixed assets by $14.5 million of fixed assets as a result of the restructuring of business operations and the closing of call centers. The amount is classified as an impairment of long-lived assets on the consolidated statement of operations. Expenditures for maintenance, repairs and betterments that do not prolong the useful life of an asset have been charged to operations as incurred. Additions and betterments that substantially extend the useful life of the asset are capitalized. Upon sale or other disposition of assets, the cost and related accumulated depreciation and amortization are removed from the respective accounts, and the resulting gain or loss, if any, is included in income. Capitalized Software Development Costs The Company capitalizes both acquired and internally developed or modified software used as an integral part of the operations of the Company, in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The Company capitalizes certain internal and external costs directly associated with developing or modifying the internal use software, which begins with the application development stage and ends when the project is substantially complete and ready for its intended use. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets and liabilities are determined based on differences between the financial reporting and income tax basis of assets and liabilities measured using enacted income tax rates and laws that are expected to be in effect when the differences reverse. The Company recognizes valuation allowances for a deferred tax asset if the realizability of some portion or all of the deferred tax asset is uncertain. 35 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 Currency Translation The accounts of the international subsidiaries are translated in accordance with SFAS No. 52, "Foreign Currency Translation," which requires that assets and liabilities of international operations be translated using the exchange rate in effect at the balance sheet date. The results of operations are translated at average exchange rates during the year. The effects of exchange rate fluctuations in translating assets and liabilities of international operations into U.S. dollars are accumulated and reflected as a cumulative currency translation adjustment in the consolidated statements of stockholders' equity. Foreign currency transaction gains or losses are included in results of operations. There were no significant foreign currency transaction gains or losses for the periods presented. Fair Value of Financial Instruments Cash, accounts receivable, accounts payable and accrued liabilities are reflected in the accompanying financial statements at the fair value due to the short-term nature of those instruments. The carrying amount of the long-term debt and capitalized lease obligations approximates fair value at the balance sheet dates. It was not practicable to estimate the fair value of the Credit Facilities and other long-term debt due to the activities discussed in Note 1 relative to the restructuring of these instruments. Goodwill Impairment The Company measures goodwill impairment under SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121). Whenever events or circumstances occur that indicate an impairment of goodwill, the Company estimates the future discounted cash flow of the business segment to which goodwill relates. When such estimate of the future discounted cash flows, net of the carrying value of the net tangible and identified intangible assets, is less than the carrying amount of goodwill, the difference is charged to operations. For purposes of determining future discounted cash flows of the business segments to which goodwill relates, the Company, based upon historical results, current projections and internal earnings targets, determines the projected operating cash flows, net of income taxes, of the individual business segment. These projected future cash flows are then discounted at a rate corresponding to the Company's estimated cost of capital. The Company recognized an impairment charge during the fourth quarter of 2001 and 2000 (see Note 6). Impairment of Long-Lived Assets The Company accounts for impairments of long-lived assets in accordance with SFAS No. 121. SFAS No. 121 requires that long-lived assets to be held and used by the Company be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If changes in circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. If the undiscounted value of the future cash flows is less than the carrying amount of the asset, an impairment will be recognized. The impairment is measured as the amount by which the carrying amount of the asset exceeds fair market value. The fair market value of an asset is based on the amount at which the asset could be bought or sold in a current transaction between willing parties. The Company recognized an impairment charge during the fourth quarter of 2001 and 2000 (see Note 8). Derivative Instruments and hedging Activities Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended, which requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The Company has interest-rate cap agreements with a notional amount of $29.5 million and an expiration date of September 30, 2002 to hedge against potential increases in interest rates on the Company's outstanding borrowings. Because these derivatives do not meet the hedge accounting provisions of SFAS No. 133 the Company recognizes 36 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 the fair value of the interest rate cap agreements on the balance sheet and records changes in fair value of the derivative instruments currently in earnings within interest expense. Reclassifications Certain prior period amounts have been reclassified to conform to the current year presentation. Recently Issued Accounting Standards Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended, which requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The effect of adopting SFAS No. 133 as of January 1, 2001 was not material to the Company's financial statements. In June 2001, Statement of Financial Accounting Standards No. 141, "Business Combinations," (SFAS No. 141) and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," (SFAS No. 142) were issued. These standards change the accounting principles governing business combinations, goodwill and other intangible assets by, among other things, requiring the use of the purchase method in accounting for business combinations and eliminating the requirement to amortize goodwill. Instead, SFAS No. 142 establishes a method to test for impairment of goodwill on at least an annual basis. These standards will become effective for the Company beginning in the first quarter of 2002. During the year ended December 31, 2001 and 2000, the Company recorded goodwill amortization expense of $1.2 million and 8.5 million, respectively. The Company anticipates that the effect of adopting SFAS No. 142 will not be material. In August 2001, Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144) was issued effective for fiscal years beginning after December 15, 2001. This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes SFAS No. 121, and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business (as previously defined in that Opinion). This Statement also amends ARB No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. This Statement retains the requirements of SFAS No. 121 to (a) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (b) measure an impairment loss as the difference between the carrying amount and fair value of the asset. This Statement also removes goodwill from its scope and, therefore, eliminates the requirement of SFAS No. 121 to allocate goodwill to long-lived assets to be tested for impairment. This Statement retains the basic provisions of Opinion 30 for the presentation of discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). The Company anticipates that the effect of adopting SFAS No. 142 will not be material. 4. EARNINGS PER SHARE ("EPS"): The Company reports EPS in accordance with SFAS No. 128, "Earnings per Share." SFAS No. 128 requires a dual presentation of "basic" and "diluted" EPS on the face of the statements of operations. Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted EPS includes the effect, if any, from the potential exercise or conversion of securities, such as stock options, which would result in the issuance of shares of common stock. 37 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 The table below sets forth the reconciliation of the income (loss) available to common stockholders and the weighted average number of shares outstanding used to compute basic and diluted earnings (loss) per share (in thousands):

~~December~~2001 ~~31, -------------------------------------- ASSETS~~ 2000 1999 ~~------~~(Loss) ~~----~~Income ~~----~~before ~~CURRENT~~extraordinary ~~ASSETS:~~items ~~Cash~~available ~~and~~to ~~cash~~common ~~equivalents~~stockholders $before ~~5,258~~adjustments $used -in ~~Accounts~~computing ~~receivable,~~basic ~~net~~earning ofper ~~allowance~~share ~~for~~$ ~~doubtful~~(62,876) ~~accounts of~~ $~~3,457~~ ~~and~~-- $~~5,117~~ ~~54,745~~-- ~~72,879~~Extraordinary ~~Prepaid~~Item ~~expenses and other 6~~(20,~~173~~286) ~~5,809~~ --~~-----~~ --~~-----~~ ~~Total~~(Loss) ~~current~~Income ~~assets~~after ~~66,176~~extraordinary ~~78,688~~items ~~PROPERTY,~~available ~~PLANT~~to ~~AND~~common ~~EQUIPMENT,~~stockholders ~~net~~before ~~44,473~~adjustments ~~59,455~~used ~~GOODWILL~~in ~~AND~~computing ~~OTHER~~basic ~~INTANGIBLES,~~earnings ~~net~~per ofshare ~~accumulated~~$ ~~amortization~~(83,162) of $1(203,~~623~~120) ~~and~~ $~~7,134~~ 155,~~003~~882 ~~174,703~~Additional ~~OTHER~~goodwill ~~ASSETS~~amortization ~~3,721~~from ~~5,561~~contingent shares -- -- (210) --- ------- ~~Total assets $ 129,373 $ 318,407 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current maturities of long~~-~~term~~ ~~debt $ 3,844 $ 16,411 Cash overdraft~~ - 4,912 Accounts payable 15,457 9,305 Accrued expenses 11,540 11,376 Accrued costs for closed call centers 11,960 4,622 Accrued compensation 8,903 10,381 Interest payable 5,023 2,530 Other current liabilities 4,076 5,239 --------- ------- ~~Total current liabilities 60,803 64,776 LONG~~-~~TERM~~--- ~~DEBT,~~Net ~~net~~(Loss) ofIncome ~~current~~available ~~maturities~~to ~~132,413~~common ~~113,846~~stockholders ~~OTHER~~used ~~NONCURRENT~~in ~~LIABILITIES~~computing ~~430~~diluted ~~352~~earnings ~~COMMITMENTS~~per ~~AND~~share ~~CONTINGENCIES~~$ (~~see Note 9~~83,162) ~~STOCKHOLDERS' EQUITY~~ $(~~DEFICIT~~203,120): ~~Preferred stock,~~ $~~.01~~ ~~par value,~~ 5,~~000,000~~672 ~~shares~~=========== ~~authorized,~~========== no=========== ~~shares~~Shares ~~issued~~used orin ~~outstanding~~computing -basic -earnings ~~Common~~per ~~stock,~~share ~~$.01 par value~~32,931 ~~200,000,000 shares authorized, 40,022,656 shares issued and 33,076,073 shares outstanding at December~~ 31,636 ~~2000~~28,587 ~~and~~Dilutive ~~39,558,746~~effect ~~shares~~of ~~issued~~options and ~~32,612,163~~warrants ~~shares outstanding at December 31, 1999 400 396 Additional paid~~-in- ~~capital 339,099 338,848 Common stock purchase warrants 7,840 7,840 Due from stockholders (952) (952) Deferred compensation~~ -- ~~(163) Accumulated deficit (360~~3,~~524)~~176 ~~(157,404) Treasury stock, 6,946,583 shares at cost (48,810) (48,810) Cumulative currency translation adjustment (1,326) (322)~~ ------- ---- --- ~~Total stockholders' equity (deficit) (64,273) 139,433~~ ------- ----------- ~~Total~~Shares ~~liabilities~~used ~~and~~in ~~stockholders'~~computing ~~equity~~diluted ~~(deficit)~~earnings $per ~~129~~share 32,~~373~~931 $31,636 ~~318~~31,~~407~~763 =========== ========== ===========

In connection with the Company's merger with IDRC on June 30, 1999, certain shares of TeleSpectrum common stock issuable to the holders of IDRC common stock and options were placed into escrow. These shares represent "contingent consideration" and accordingly, would only be considered in the computation of diluted earnings per share at December 31, 1999 and 2000. These shares were released from escrow in July of 2001 and are included in basic and diluted earnings per share at December 31, 2001. 5. RESTRUCTURING CHARGE: During the fourth quarter of 2000, as part of its continuing analysis of the Company's operational strategies, the Board of Directors of the Company approved a restructuring plan designed to streamline operations, enhance results of operations and improve cash flow by closing underutilized customer contact centers and reducing overhead costs. As a result, the Company recorded an additional pre-tax charge of $10.3 million in 2000 for costs associated with exiting certain facilities, terminating employees and recognizing related asset impairments. During 2001, the Company's new management team expanded the restructuring on three occasions to include the closure or consolidation of additional facilities and identification of additional workforce reductions. As a result, the Company recorded a pre-tax charge of $7.5 million during that period. The following summarizes the costs and liabilities associated with the Company's restructuring plan through December 31, 2001 (in thousands): 38 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001

~~YEAR~~Balance ~~ENDED~~as ~~DECEMBER~~of ~~31,~~Balance ~~------------------------------------------------------~~as ~~2000~~of ~~1999~~December ~~1998~~31, ~~----~~Additional ~~----~~December ~~---- REVENUES $303~~31,~~568~~ ~~$266,810~~1999 $Charge ~~167,428~~Payments 2000 ---------- --~~-----~~ -------- ~~OPERATING EXPENSES: Cost of services 237,171 195,573 130,406 Selling, general and administrative 70,220 53,898 41,785 Impairment~~ - ~~long~~-~~lived assets 171,151~~ - - ~~Restructuring charge 10,254~~ - - ~~Goodwill amortization 8,449 4,431 1,178~~ ---------- ------- ---~~-----~~ ~~Total~~Obligations ~~operating~~assumed ~~expenses~~on ~~497,245~~closed ~~253,902~~leased ~~173~~facilities,~~369~~ ~~----------~~net ~~-------~~$ ~~--------~~2,703 ~~Operating~~$ ~~income~~5,735 ~~(loss)~~$ ~~(193~~2,~~677)~~779 ~~12,908~~$ (5,~~941)~~659 ~~INTEREST~~Severance ~~INCOME~~and ~~480~~employee ~~944~~related 71costs ~~INTEREST EXPENSE (17~~1,~~759)~~919 (71,~~970)~~231 (1,~~317)~~480 ~~---------- ------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST: (210~~1,~~956)~~670 ~~5,882~~Other ~~(7,187) INCOME TAX BENEFIT~~ - - ~~247~~125 ~~MINORITY~~125 ~~INTEREST 7,836~~ - - -----~~-----~~ ------- -------- ~~INCOME (LOSS) FROM CONTINUING OPERATIONS (203,120) 5,882 (6,940) INCOME FROM DISCONTINUED OPERATIONS~~ - - ~~479~~ -----~~-----~~ ~~-------~~Total ~~--------~~Restructuring ~~NET~~Accrual ~~INCOME (LOSS)~~ $ ~~(203~~4,~~120)~~622 $ 57,~~882 $~~ 091(~~6,461~~1) ~~========== ======= ======== BASIC EARNINGS (LOSS) PER SHARE: Continuing operations~~ $ ~~(6.42)~~4,259 $ ~~0.21~~7,454 ~~$ (0.27) Discontinued operations - - 0.02 ---------- ------- -------- NET INCOME (LOSS) PER BASIC SHARE $ (6.42) $ 0.21 $ (0.25)~~ =======~~===~~ ======= ======== DILUTED EARNINGS (LOSS) PER SHARE: Continuing operations $ (6.42) $ 0.18 $ (0.27) Discontinued operations - - 0.02 ---------- ------- -------- NET INCOME (LOSS) PER DILUTED SHARE $ (6.42) $ 0.18 $ (0.25) =======~~=== ======= ========~~

~~Common~~Balance ~~Common~~as ~~Stock~~of ~~Additional Stock Due --------------------------- Paid-In Purchase From Shares Amount Capital Warrants Stockholders ---------- -------- ------------ -------- ------------~~ Balance, ~~January~~as ~~1, 1998 25,213,074 $ 252 $ 237,186 - - Exercise~~ of ~~common~~December ~~stock options 330~~31,~~411~~ 4Additional ~~1,496~~December ~~- - Issuance of common stock below fair market value 227~~31,~~964~~ 22000 ~~824~~Charge -Payments -2001 ~~Issuance of options to purchase common stock below fair market value~~ - - ~~670~~ - - ~~Amortization of deferred compensation~~ - - - - - ~~Comprehensive income (loss): Net loss~~ - - - - - ~~Cumulative currency translation adjustment~~ - - - - - ~~Total comprehensive loss~~ -----~~------~~ ----- -------- ----- ----- ~~Balance, December 31, 1998 25,771,449 258 240,176~~ - - ~~Exercise~~Obligations ofassumed ~~common~~on ~~stock~~closed ~~options~~leased ~~345~~facilities,~~010~~ 3net ~~1,580~~$ ~~- - CRW merger~~ 5,~~173,186~~659 52$ 482,~~567~~106 -$ ~~- IDRC merger 8~~2,~~269,101~~251 83$ 465,~~911~~514 ~~7,840~~Severance ~~(952)~~and ~~Partial~~employee ~~release~~related ofcosts ~~escrowed shares - -~~ 1,~~614~~670 - - Amortization of deferred compensation - - - - - Comprehensive income Net income - - - - - Cumulative currency translation adjustment - - - - - Total comprehensive income ----------- ----- -------- ----- ----- Balance2,626 ~~December 31~~3,817 ~~1999~~479 ~~39,558,746~~Other ~~396~~125 731 338~~,848~~ ~~7,840~~518 ~~(952) Exercise of common stock options 463,910 4 251~~ - - ~~Amortization of deferred compensation~~ - - - - - ~~Comprehensive income~~ - - - - - ~~Net loss~~ - - - - - ~~Cumulative currency translation adjustment~~ - - - - - ~~Total comprehensive income~~ - - - - - ---------- ----- --------- ~~-------~~Total ~~------~~Restructuring ~~Balance,~~Accrual ~~December~~$ 317,454 ~~2000~~$ 405,~~022,656~~463(1) $ ~~400 $ 339~~6,~~099~~406 $ 76,~~840~~511 ~~$ (952)~~ ========== == === ========= ============= ============

(1) Excludes a $2.01 and $3.16 million charge relating to the write-off of fixed assets idled as a result of call center and overhead office closures, including owned equipment, furniture, computer hardware and software and leasehold improvements for 2001 and 2000, respectively. No cash payments will be made in connection with this charge. Accrued liabilities for closed facilities of $5.5 million as of December 31, 2001 relate to leased customer contact center locations that have been or will be closed in connection with the Company's restructuring plan. The amount is computed as the remaining contractual obligations in each closed center, net of estimated income from subletting. Employee separation costs relate to both administrative personnel at the closed customer contact centers and corporate personnel, affecting all functional areas. Approximately 517 employees have been separated as part of the Company's restructuring plan through December 31, 2001. The accrual of $0.5 million as of December 31, 2001 relates to ongoing severance payments in accordance with the severance obligations for these employees. The Company continued its restructuring during 2002 by announcing the closure of four additional facilities. 39 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 6. IMPAIRMENTS: Impairment of Long-Lived Assets As discussed more fully in Note 1, the Company has experienced recurring losses, declining revenues and declining cash flows. Accordingly, the Company has undertaken a comprehensive review of the carrying value of its goodwill, other intangibles and other long-lived assets in order to determine if a permanent impairment has occurred. The following tables summarize the results of that review for 2000 and 2001 (in millions):

~~Cumulative~~DECEMBER ~~Retained~~31, ~~Currency~~2000 ~~Total~~NET ~~Deferred~~BOOK ~~Earnings~~VALUE ~~Treasury~~BEFORE ~~Translation~~IMPAIRMENT ~~Stockholders'~~NET ~~Compensation~~BOOK ~~(Deficit)~~CHARGE ~~Stock~~IMPAIRMENT ~~Adjustment~~VALUE ~~Equity~~Description ~~------------~~Goodwill ~~--------- ----- ----------- ------------ Balance, January~~ $157.1, ~~1998 -~~ $ (~~156,825~~155.5) - $ ~~(236) $ 80,377 Exercise of common stock options - - - -~~ 1~~,500~~.6 ~~Issuance~~Customer ofrelationships ~~common~~12.7 ~~stock below fair market value~~ - - -12.7 -Assembled ~~826~~workforce ~~Issuance~~0.8 ~~of options to purchase common stock below fair market value (670)~~ - - -0.8 -TESS ~~Amortization~~software ~~of deferred compensation 307 - - - 307 Comprehensive income (loss): Net loss - (~~6~~,461)~~.5 ~~- - - Cumulative currency translation adjustment - - - 19 - Total comprehensive loss~~ (6~~,442~~.5) --~~--------~~ ~~-----------~~ECRM ~~----------~~software ~~--------~~9.9 ~~---------- Balance, December 31, 1998~~ (~~363) (163,286) - (217) 76,568 Exercise of common stock options - - - -~~ 9.1~~,583 CRW merger - - (48,810~~) -0.8 ~~(191) IDRC merger~~ - - - - ~~53,882 Partial release of escrowed shares~~ - - - - ~~1,614 Amortization of deferred compensation 200~~ - - - ~~200 Comprehensive income Net income~~ - ~~5,882~~ - - - ~~Cumulative currency translation adjustment~~ - - - ~~(105)~~ - ~~Total~~$187.0 ~~comprehensive income 5,777 ---------- ----------- ---------- -------- ---------- Balance, December 31, 1999~~ $(~~163~~171.1) ~~(157,404)~~$ ~~(48,810)~~15.9 ~~(322)~~====== ~~139,433~~======= ~~Exercise~~====== ofSegment ~~common~~Impact ~~stock~~Teleservices ~~options - - - - 255 Amortization of deferred compensation~~ $163.4 ~~- - - 163 Comprehensive income - - - - - Net loss -~~ (~~203,120) - - - Cumulative currency translation adjustment - - - (~~149.1~~,004~~) -$ ~~Total~~14.3 ~~comprehensive~~ESatisfy.com ~~income~~23.6 ~~- - - -~~ (~~204,124~~22.0) ~~----------~~1.6 ------~~-----~~ -------~~---~~ -------- ~~---------- Balance, December 31, 2000~~ $187.0 - $ (~~360,524) $ (48,810) $ (~~171.1~~,326~~) $ ~~(64,273)~~15.9 ======~~====~~ =======~~====~~ ======~~==== ======== ==========~~

~~Year~~DECEMBER ~~Ended December~~ 31, ~~---------------------------------------------~~2001 ~~2000~~NET ~~1999~~BOOK ~~1998~~VALUE ~~-------------~~BEFORE ~~-------------~~IMPAIRMENT ~~--------------~~NET ~~OPERATING~~BOOK ~~ACTIVITIES:~~CHARGE ~~Net~~IMPAIRMENT ~~income~~VALUE ~~(loss)~~Description $Goodwill ~~(203,120)~~ $ 1.5~~,882~~ $ (~~6,461~~1.5) ~~Adjustments~~$ to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 18,836 12,285 8,532 Goodwill amortization 8,449 4,431 1,178 Provision for bad debts 2,833 6,800 2,325 Impairment - - ~~long-lived~~Customer ~~assets~~relationships ~~171,151~~11.7 -- -- Restructuring charge 10,254 -- -- Loss on disposal of fixed assets 3,826 -- -- Non-cash compensation 163 320 633 Other items, net -- 500 468 Changes in the following, net of acquisitions: Accounts receivable 15,301 (~~8,421) 1,088 Prepaid expenses and other (370) (~~9~~,798~~.4) ~~(739)~~2.3 ~~Accounts~~Assembled ~~payable~~workforce 0.6~~,152~~ (~~5,466~~0.6) ~~1,832 Accrued expenses (14,256) (5,132) (4,211) Accrued costs for closed call centers 7,338 (947) (1,130) Accrued compensation (1,478) 610 (3,833) Interest payable 2,493 2,530~~ -- ~~Other liabilities (2,091) (1,235) (1,185)~~ ------- ------- ------- ~~Net~~$13.8 ~~cash provided by~~ $(~~used in~~11.5) ~~operating~~$ ~~activities 25,481~~ 2~~,359~~.3 ~~(1,503)~~====== ~~-------~~======= ~~-------~~====== ~~-------~~Segment ~~INVESTING~~Impact ~~ACTIVITIES: Purchases of property and equipment (21,637) (26,414) (9,099) Business acquisition and mergers~~ -- ~~965~~TeleServices --$12.3 ~~Payments of notes payable to sellers and acquisition liabilities -- --~~ $(~~1,930~~10.0) ~~Net~~$ ~~cash~~2.3 ~~acquired~~ESatisfy.com ~~in acquisition of Customer Insights 71 -- -- Proceeds from sale of assets -- --~~ 1~~,908~~.5 ~~Proceeds from sale of discontinued operations -- -- 37,750 Purchase of investment -- --~~ (500) Payments of deferred transaction costs -- (174) -- ------- ------- ------- Net cash (used in) provided by investing activities (21,566) (25,623) 28,129 ------- ------- ------- FINANCING ACTIVITIES: Proceeds from exercise of stock options 255 1~~,463 1,500 Proceeds from sale of common stock -- -- 500 Net payments on secured credit facility -- -- (29,000~~.5) ~~Cash overdraft (4,912) 3,254 1,658 Borrowings under long~~-~~term debt 21,203 130,796~~ -- ~~Payments of debt (15,078) (112,118) (349) Payments of capital lease obligations (125) (734) (915) Payment for treasury stock~~ -- ~~(191)~~ -- --~~-----~~ ------- ------- ~~Net~~$13.8 ~~cash provided by~~ $(~~used in) financing activities 1,343 22,470 (26,606) ------- ------- ------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS~~ 11.5~~,258 (794~~) ~~20 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR -- 794 774 ------- ------- ------ CASH AND CASH EQUIVALENTS, END OF YEAR~~ $ ~~5,258~~2.3 ~~$ -- $ 794~~ ======~~=====~~ =======~~=====~~ ======~~=====~~

40 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 Impairment of Goodwill and Other Intangible Assets In 2000, as a result of declining revenues and increased losses, the Company performed a comprehensive review of the carrying value of goodwill and other intangibles. The analysis indicated that the carrying value of goodwill was permanently impaired resulting in a total impairment charge of $155.5 million. A similar analysis was prepared at December 31, 2001 based on a further decline in revenue and increased losses resulting in a permanent impairment charge of $11.5 million. This charge and the fixed asset charge discussed in Note 8 are reflected in the Impairment-Long Lived Assets on the Consolidated Statements of Operations in 2001. In 1999, the Company estimated the useful life of customer lists to be 15 years. In connection with the impairment charge in 2001 the Company has revised the estimated remaining useful life to be 3 years. Software Impairment During 1999, the Company began two significant technology initiatives. The first initiative, referred to by the acronym "TESS," was intended to bring reporting consistency, automation efficiencies, labor tracking, and workflow scheduling to our Acquisition Services segment. The project was unsuccessful, all efforts to complete it were halted during the fourth quarter of 2000, and the project has been abandoned. During the second quarter of 1999, the Company announced a strategic partnership with two technology providers to deliver integrated eBusiness call center solutions to leading-edge, Internet-enabled call center services utilizing a Web-based front office software solution and an Internet interaction management solution (noted in the above table as eCRM software). The anticipated demand for this functionality was initially projected at very high levels and the Company purchased licenses and built an infrastructure to accommodate those projections. While the Company did successfully implement several installations it did not reach the volumes originally projected nor was it able to attain a sufficient level of revenues to sustain the program. Consequently, the software licenses used in the eCRM software platform have been deactivated and the related maintenance has been discontinued. As required by SFAS No. 121, the Company computed the projected undiscounted future cash flows associated with the continuing software investment and compared it to the carrying value as of December 31, 2000. This analysis indicated that a permanent impairment had occurred and the investment was written down to the estimated fair market value. The Company re-evaluated this partnership during 2001 and noted a further impairment and accordingly wrote the remaining balance off at December 31, 2001. 7. SUPPLEMENTAL CASH FLOW INFORMATION: For the three years ended December 31, 2001, the Company paid cash interest and income taxes as follows (in thousands):

~~2000~~YEAR ~~1999~~ENDED ~~1998~~DECEMBER ~~----~~31, ---- ---- ~~(Loss) Income available to common stockholders before adjustments used in computing basic earnings per share $(203,120) $ 5,882 $(6,461) Additional goodwill amortization from contingent shares~~ -- ~~(210)~~ -- --------- ------- ------- ~~(Loss)~~2001 ~~Income~~2000 ~~available~~1999 to common stockholders used in computing diluted earnings per share $(203,120) $ 5,672 $(6,461) ========= ======= ======= Shares used in computing basic (loss) earnings per share 31,636 28,587 25,528 Dilutive effect of options and warrants -- ~~3,176~~ -- ------- -- --------- -------- ~~Shares~~Interest ~~used~~paid in$ ~~computing~~5,144 ~~diluted~~$13,620 ~~(loss)~~$ ~~earnings~~4,569 ~~per~~Taxes ~~share~~paid ~~31,636~~$ ~~31,763~~-- ~~25,528~~$ ~~=========~~-- ~~=======~~$ ~~=======~~--

41 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 8. PROPERTY, PLANT AND EQUIPMENT: A summary of property, plant and equipment at December 31, 2001 and 2000 follows (in thousands):

~~Year~~DECEMBER ~~Ended December~~ 31, ---------------------- ~~1999~~USEFUL ~~1998~~LIVES ~~----~~2001 ~~----~~2000 ~~(in~~Telemarketing ~~thousands,~~and ~~except~~computer ~~per~~equipment ~~share~~3 ~~amounts)~~- ~~Net~~7 ~~revenues~~years $~~342~~ 3,~~579~~423 $~~327~~ 47,~~506~~579 ~~Loss~~Furniture ~~from~~and ~~continuing~~fixtures ~~operations~~5 ~~(20~~- 7 years 1,~~997)~~340 ~~(30~~13,~~250)~~717 ~~Basic~~Software ~~and~~3 ~~diluted~~years ~~net~~1,469 ~~loss~~9,448 ~~per~~Building ~~common~~40 ~~share~~years $3,042 2,888 Leasehold improvements Various 3,694 10,269 Land 546 546 --------- --------- 13,514 84,447 Less accumulated depreciation and amortization (~~0.68~~2,036) $ (~~0.99~~44,480) ---------- --------- $ 11,478 $ 39,967 ========== =========

The Company follows SFAS No. 121 and accordingly, an impairment review of long-lived assets should be performed whenever circumstances indicate an assets carrying value may not be recoverable. In 2001, the Company wrote down the carrying value of fixed assets by $14.5 million as a result of restructuring its business operations and the closing of call centers. This amount is classified as an impairment of long-lived assets in the consolidated statement of operations. This 2001 impairment charge impacted our Teleservices segment by $8.8 million, with the balance affecting the Company's general corporate operations. In accordance with SFAS No. 121, the reduced carrying amount will be accounted for as the new cost and the new cost will be depreciated over the assets' remaining useful life. 9. INCOME TAXES: The components of income (loss) from continuing operations before income taxes are as follows (in thousands):

~~Net~~Year ~~Book~~Ended ~~Remaining~~December ~~Value Before Net Book Impairment Value at Charge Impairment 12/~~31~~/00~~, ------ ---------- -------- ~~Description Goodwill $157.1 $(155.5) $ 1.6 Customer relationships 12.7 12.7 Assembled workforce 0.8 0.8 TESS software 6.5 (6.5)~~ -- ~~eCRM software 9.9 (9.1) 0.8~~ ------ ----~~---~~ ~~-----~~2001 ~~$187.0~~2000 1999 Domestic $ (~~171.1~~64,707) $~~15.9 ====== ======= ===== Segment Impact Customer Acquisition $109.0~~ (~~98.8~~205,515) $~~10.2~~ ~~CustomerCare~~6,453 ~~54.4~~Foreign ~~(50.3) 4.~~1,831 ~~e-Satisfy.com~~2,395 ~~23.6~~ (~~22.0~~571) ~~1.6~~ --------- --------- --------- $~~187.0~~ (62,876) $(~~171.1~~203,120) $~~15.9~~ 5,882 ========= ========= =========

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

Year Ended December 31, ~~1998~~ ---------------------------- ~~Revenues~~2001 ~~$4,189~~2000 ~~Operating~~1999 ~~expenses~~-------- ~~3,463~~-------- -------- ~~Income~~Statutory ~~before~~federal income tax rate (benefit) (34.0)% (34.0)% 34.0% State income taxes, ~~726~~net ~~Income~~of federal tax ~~provision~~benefit ~~247~~-- -- 4.7 Effect of foreign subsidiaries subject to higher tax rates -- -- ~~Income~~-- ~~from~~Change ~~discontinued~~in ~~operations~~Valuation $Allowance ~~479~~33.3 12.8 -- Utilization of net operating loss carryforward -- -- (23.4) Nondeductible expenses 0.7 21.2 (15.3) ---- ---- ---- -% -% -% ==== ==== ====

Deferred taxes are determined based upon the estimated future tax effects of differences between the financial statement and income tax basis of assets and liabilities given the provisions of the enacted tax laws. The tax effect of 42 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 temporary differences that give rise to deferred taxes at December 31, 2001 and 2000 is as follows (in thousands):

Year Ended December 31, 2001 2000 ---------- --------- Deferred tax assets: Net operating loss carryforward $ 83,254 $ 52,192 Goodwill impairment 38,125 39,295 Property, Plant and Equipment 7,161 -- Accruals and reserves not currently deductible 7,921 2,866 Other 2,754 4,040 --------- --------- ~~2000~~139,215 ~~1999~~98,393 ~~1998~~--------- --------- Deferred tax liabilities: Book/tax difference of property, plant and equipment -- (986) Other (151) (134) --------- --------- ~~Interest~~(151) ~~paid $13~~(1,~~620~~120) $4--------- --------- 139,~~569~~064 $197,~~018~~273 ~~Taxes~~Less ~~paid~~valuation $allowance (139,064) (97,273) --------- --------- Net deferred tax asset $ -- $ -- ========= =========

The Company had net operating loss carryforwards of approximately $210.2 million and $128.1 million as of December 31, 2001 and 2000, respectively, which begin to expire in 2012. Due to the uncertainty surrounding the potential realization of the deferred tax assets, the Company has provided a full valuation allowance at December 31, 2001 and 2000. Upon a change of control, the use of these net operating loss carryforwards may be limited. 43 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 10. LONG-TERM DEBT: On April 29, 2002, the Company restructured a significant portion of its outstanding debt. See Note 1 for a detail of the restructured balances. Long-term debt at December 31, 2001 and 2000 consisted of the following (in thousands):

~~Year~~December ~~Ended~~31, 2001 2000 Credit Facility Borrowings, due July 1, 2002 when all remaining principal and interest is due and payable. At December 31, ~~1999~~2001, the weighted average interest rate was 9.36% $ 159,064 -- Term A loan with bank at December 31, 2000, the weighted average interest rate was 10.23% -- 13,029 Term B loan with bank at December 31, 2000, the weighted average interest rate was 10.69% -- 19,595 Term C loan with bank at December 31, 2000, the weighted average interest rate was 11.19% -- 49,452 Working capital revolver with bank at December 31, 2000, the weighted average interest rate was 10.14% -- 42,596 Note payable to an agency of the Canadian government, principal payable in monthly, Installments of $35,000, beginning in October 1999, no interest, through December 2001, collateralized by certain equipment --~~-----~~ ~~Non-cash~~410 ~~assets~~Note ~~(liabilities):~~payable ~~Current~~to ~~assets~~a County Economic Development Council, payable in monthly installments of $4,600, 33including interest at 4.375%,~~719~~ ~~Property~~through January 2001, when all remaining Principal and interest is due and payable, collateralized by certain equipment 4 4 Note payable to stockholders, principal and interest payable in June 2000; bearing interest at 10%. This debt was restructured after December 31,~~295~~ ~~Other~~2001. ~~assets~~See below 5,761 4,873 Note payable to former principals of TARP, non-interest bearing, discounted to $2,~~006~~900, ~~Goodwill~~principal and ~~other~~imputed ~~intangibles~~interest ~~156~~of $1,~~211~~466 ~~Current~~in ~~liabilities~~July ~~(36~~2001. This debt was restructured after December 31,~~943)~~ ~~Debt~~2001. ~~(109~~See below 1,~~805)~~819 ~~--------~~2,171 ~~Net~~Note ~~non-cash~~payable ~~assets~~in ~~acquired~~monthly 55principal and interest payments of $8,~~483~~500 ~~Plus:~~through ~~Common~~March ~~stock~~2008, ~~issued~~bearing ~~(54~~interest at 8.50%,~~275)~~ ~~Options~~secured ~~and~~by ~~warrants~~equipment ~~issued~~494 548 Notes payable to ~~IDRC~~stockholders ~~shareholders~~principal ~~(12~~and interest due August 31,~~147)~~ ~~Value~~2000, ofbearing ~~shares~~interest at 8% and ~~options~~12%. ~~held~~See inbelow ~~escrow~~1,200 91,~~164~~200 ~~Cost~~Capital oflease ~~registering~~obligations ~~common~~(see ~~stock~~Note ~~810~~11) 1,854 2,379 --------- ~~Cash~~--------- ~~acquired~~170,196 ~~from~~136,257 ~~business~~Less ~~acquisitions~~current $maturities (~~965~~3,608) (3,844) --------- --------- $ 166,588 $ 132,413 ========= =========

On April 16, 2001, the Company signed an amended and restated credit agreement (the "Credit Agreement") with its bank group whereby all amounts outstanding under the former agreement's term notes (Notes A, B and C), $35.0 million of the working capital revolver, and accrued incremental interest and waiver fees were converted into one term loan, totaling $120.6 million. The term loan bears interest at a base rate plus an applicable margin, as defined as 1.54% at December 31, 2001, and was scheduled to mature July 1, 2002. The remaining $10.0 million commitment under the former agreement's working capital revolver carried forward to December 31, 2001. At December 31, 2001, there was no availability under the revolver. Borrowings under the Credit Agreement were collateralized by substantially all of the assets of the Company. The Credit Agreement contained covenants that require the maintenance of an interest coverage ratio, impose minimum revenue and EBITDA targets, restrict future indebtedness, limit capital expenditures and prohibit cash dividends. The Credit Agreement allowed the Company to convert 50% of the $2.7 million in accrued interest at April 16, 2001 into a deferred interest note, which bears the same interest rate and maturity date as the term loan. Interest payments under the Credit Agreement were due monthly; however, at the discretion of the Company, 25% of the monthly interest payments through December 31, 2001 were permitted to be deferred and converted into deferred interest 44 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 notes. To the extent interest was deferred, a like amount was to be paid and applied against the working capital revolver, and this portion of the revolver could only be used to pay down specified categories of trade payables. Under certain circumstances, the Company was required to make mandatory principal payments. In general, mandatory prepayments were required upon certain triggering events, such as the sale of assets, issuance of debt or equity securities, or the receipt of insurance proceeds or similar events. In addition, when the Company generated excess cash flow, as defined, such amounts, exceeding certain thresholds, would be required to be used to repay amounts outstanding under the Credit Agreement. The Credit Agreement required that the Company pay certain fees periodically through maturity or termination of the agreement. The unused portion of the working capital revolver was subject to an annual commitment fee of 25 basis points payable quarterly. An agent's fee of 25 basis points of the aggregate amount of the facilities was incurred upon signing the Credit Agreement, was scheduled to be incurred annually thereafter, and was scheduled to be payable at maturity or termination of the agreement. The Company was also charged a restructuring fee of 15% of the aggregate amount of the facilities on April 16, 2001, payable at maturity or termination of the agreement. The Credit Agreement resulted in substantially different terms and cash flows than the previous agreement. As a result, the amendment was accounted for and reported in the same manner as a debt extinguishment. A $20.3 million extraordinary loss on the early extinguishment of debt was recorded in April 2001, reflecting the write-off of deferred issuance costs related to the previous agreement and the recognition of restructuring and other fees charged by the bank group related to the Credit Agreement, as described above. In addition, approximately $1.5 million in third party fees were paid relating to the Credit Agreement, which have been deferred and are being amortized using the effective interest method through maturity. The costs were written-off completely in 2001 as the Company was in default of this agreement. The Credit Agreement required compliance with stipulated covenants based on the Company's business plan for 2001. Due to downward revisions to that plan for the second half of 2001, the Company amended the Credit Agreement effective on July 31, 2001. The amended Credit Agreement permitted the Company to defer 100% of the total interest otherwise due during the third quarter of 2001 and 50% of the interest otherwise due during the fourth quarter of 2001. Any amounts so deferred will be converted to deferred interest notes. The amended Credit Agreement also waived future compliance with certain non-financial provisions of the agreement, modifies certain financial covenants, and required the Company to deliver to the bank group a new cost reduction plan to be implemented by September 30, 2001, which was delivered. In addition, the amended Credit Agreement removed the provision that required an amount equal to the deferred interest to be paid and applied against the working capital revolver and that required that this portion of the revolver be used only to pay down specified categories of trade payables. The Company incurred a waiver fee of 25 basis points of the aggregate amount of the facilities upon signing the amended Credit Agreement, payable at maturity or termination of the amended Credit Agreement. This fee was charged to interest expense during the three month period ended September 30, 2001. The Company failed to maintain compliance with the terms of the amended Credit Agreement by not meeting the EBITDA financial covenant through December 31, 2001. The Company also did not make the interest payment due to the lenders through December 31, 2001. As a result, the Company became in default and the amounts outstanding became due and payable upon demand. The amended Credit Agreement was restructured on April 29, 2002. (See Note 1) To reduce the risk associated with a large increase in interest rate for the credit agreement, we have placed two derivative financial instruments known as interest rate caps each with notional amounts of $29.5 million as of December 31, 2001. Under the terms of the interest rate cap agreements, we would receive quarterly cash payments when the 3-month LIBOR rate at the end of any quarter exceeded 7.5%. The payment would be determined by multiplying the difference between the actual LIBOR rate and 7.5% by the notional amounts. Due to the current low 45 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 interest rate environment, the interest rate cap agreements currently have no recorded value and their fair value is immaterial. The interest rate cap agreements are scheduled to expire on September 30, 2002. Note Payable to Stockholder On April 16, 2001, the Company amended its $4,873,000 term note payable to the former majority stockholders of an acquired business and all unpaid interest was added to the unpaid principal balance establishing a restructured note of $5,761,000. The amended note matures June 30, 2004, bears interest at 10% for the year ending December 31, 2001, 15% for the two years ending December 31, 2003 and 20% for the six months ending June 30, 2004. The agreement requires prepayment in the event more than 90% of the Company's common stock is acquired or substantially all of the assets are sold. Under certain circumstances, as defined in the agreement, if prior to December 31, 2002, the Company issues debt or equity securities of $10.0 million or more, the holders have the right to purchase a pro-rata share, as defined, of the securities issued with up to one half of the total amount due such holders under similar terms. The Company restructured this note by exchanging its interest in eSatisfy for forgiveness of the Note. eSatisfy Debt On April 9, 2001, the Company amended its $2.2 million non-interest bearing note payable to the former principals of eSatisfy. The amended notes bear interest at 10% from June 30, 2000 and require principal payments of $50,000 per month through March 2002 and $40,000 per month through August 2002, at which time the remaining balance of $1.5 million is payable in full. The Company restructured a portion of this note at April 15, 2002 which reduced the note payable by $0.8 million. During May 2000, a shareholder of TeleSpectrum advanced $500,000 to eSatisfy.com in return for convertible promissory notes and 200,000 warrants to purchase eSatisfy.com Common Stock. The notes bear interest at 8% and were due August 31, 2000 if additional equity totaling $3,000,000 (a "Subsequent Financing") was not obtained by June 15, 2000. Upon the consummation of a Subsequent Financing, the notes automatically convert to 285,715 shares of Series A Common Stock. A Subsequent Financing was not obtained and on September 13, 2000 a forbearance agreement was entered into which deferred principal and interest. The warrants expire in seven years and were exercisable at $.01 per warrant. During June 2000, the same TeleSpectrum shareholder advanced an additional $500,000 to eSatisfy.com in return for convertible promissory notes and 250,000 warrants to purchase eSatisfy.com Common Stock. The notes bear interest at 8% and were due October 15, 2000 if additional equity totaling $5,000,000 (a "Subsequent Financing") was not obtained by July 31, 2000. Upon consummation of a Subsequent Financing, the notes automatically convert to 357,143 shares of Series A Common Stock. A Subsequent Financing was not obtained putting eSatisfy.com into technical default on these notes. eSatisfy.com is currently negotiating with the lender to obtain a forbearance agreement. The warrants expire in seven years and were exercisable $.01 per warrant. In November 2000, eSatisfy received $200,000 in cash from a member of senior management to enhance the Company's ability to obtain additional financing. In exchange for cash, the Company promised to pay $200,000 and 12% interest upon the consummation of a subsequent financing or upon the merger or consolidation of the Company or any similar transaction or series of related transactions. 46 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 11. COMMITMENTS AND CONTINGENCIES: The Company leases facilities and equipment under capital and non-cancelable operating leases through November 2007. Interest rates on the capital leases range from 4% to 13%. Rent expense under operating leases for the years ended December 31, 2001, 2000 and 1999 was $6,783,000, $8,631,000 and $6,652,000, respectively. The Company expects to receive approximately $502,000, $272,000 and $66,000 for rent on sublet closed facilities for the years ending December 31, 2002, 2003 and 2004, respectively. Future minimum lease payments as of December 31, 2001 are as follows (in thousands):

~~December~~CAPITAL ~~31,~~OPERATING ~~-----------------~~LEASES ~~Useful~~LEASES ~~Lives~~2002 ~~2000 1999 ------------ ---- ---- Telemarketing and computer equipment 3 - 7 years~~ $ ~~50,134~~611 $ 457,~~752~~009 ~~Furniture~~2003 ~~and~~509 ~~fixtures~~ 5,607 -2004 7371 ~~years 14~~4,~~454~~729 ~~14,330~~2005 ~~Software~~371 3 ~~years 9~~,~~955~~415 ~~14,600~~2006 ~~Building~~186 ~~40 years 3~~1,~~043~~999 ~~3,043~~Thereafter ~~Leasehold improvements 3~~ -- ~~7 years 10~~2,821 ~~10,051 Land 546 546~~ -------- -------- 88Total minimum lease payments 2,~~953~~048 88$25,~~322~~580 ======= Less ~~accumulated~~amount ~~depreciation~~representing ~~and~~interest ~~amortization~~ (~~44,480~~194) ~~(28,867)~~ -------- Present value of future minimum lease payments 1,854 Less current maturities (525) -------- $ 441,~~473~~329 ~~$ 59,455~~ ======~~== ========~~

$5.5 million of the operating lease commitments are accrued in the Company's restructuring reserve (See Note 5). The Company is involved in various other legal matters that have arisen in the normal course of business. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be determined, the Company does not expect that the resolution of any legal matters currently outstanding will have a material adverse effect on their consolidated results of operations, financial position or cash flow. 47 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 12. OPTIONS AND WARRANTS: On May 17, 1996, the Company adopted its 1996 Equity Compensation Plan (the "Plan"). The Plan was subsequently amended on May 28, 1997 and May 12, 1999 to increase the number of shares available for grant. A committee of the Board of Directors administers and awards grants under the Plan at its sole discretion. The Plan reserves up to 10,000,000 shares of common stock for issuance in connection with the exercise and/or grant of incentive stock options and nonqualified stock options, restricted stock, stock appreciation rights and performance units to key employees, officers, directors, independent contractors and consultants, which generally vest over three years. The following table summarizes option activity under the Plan:

~~Year~~WEIGHTED ~~Ended~~EXERCISE AVERAGE PRICE EXERCISE PRICE SHARES PER SHARE PER SHARE Balance outstanding, December 31, 1999 7,851,878 1.37-14.46 4.74 Granted at fair market value 4,183,000 0.41- 4.56 2.57 Exercised (463,910) 1.45- 6.25 3.12 Cancelled (3,434,701) 1.45-11.50 4.26 ----------- -------- ~~2000 1999 1998~~ ---- ---- -------- ~~Domestic~~Balance ~~$(205~~outstanding,~~515)~~ ~~$6,453~~December ~~$(5~~31,~~435)~~ ~~Foreign~~2000 28,~~395~~136,267 ~~(571)~~$0.41-14.46 (1$ 3.92 =========== ============ ============ Granted at fair market value 4,752),500 0.40-0.71 0.59 Exercised -- -- -- Cancelled -- -- -- ----------- ------------ ~~$(203~~------------ Balance outstanding,~~120)~~ $5December 31,~~882~~ ~~$(7~~2001 12,~~187)~~888,767 $.40-14.46 $ 3.72 =========== ============ ============

Summary information about the Company's stock options outstanding at December 31, 2001 is as follows:

~~Year~~BALANCE ~~Ended~~WEIGHTED ~~December~~WEIGHTED OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT WEIGHTED RANGE OF DECEMBER 31, EXERCISE CONTRACTUAL DECEMBER 31, AVERAGE EXERCISE PRICE 2001 PRICE LIFE IN YEARS 2001 EXERCISE PRICE -------------- --------- ------- ----- ~~2000 1999 1998~~ -------- ------------- -------------- ~~Statutory~~$.41 ~~federal~~- ~~income~~.41 ~~tax~~57,000 ~~rate~~$ ~~(benefit)~~0.40 ~~(34~~9.1 2,333 0)%.41 34$.0%47 ~~(34~~- .56 1,997,500 0)%.47 ~~State~~9.1 ~~income~~-- ~~taxes~~-- $.60 - .94 3,307,500 ~~net~~0.68 of9.2 ~~federal~~200,833 ~~tax~~0.78 ~~benefit~~$1.37 - 41.37 319,050 1.37 7.5 -319,050 ~~Impact~~1.37 of$1.45 ~~foreign~~- ~~subsidiaries~~1.69 ~~subject~~1,924,212 to1.52 ~~higher~~8.4 ~~tax~~1,132,128 ~~rates~~1.52 -$2.74 - -2.74 ~~Operating~~319,050 ~~loss~~2.74 ~~and~~7.5 ~~other~~319,050 ~~items~~2.74 ~~not~~$3.31 ~~currently~~- ~~deductible~~4.81 2,793,023 ~~not~~4.21 ~~tax~~7.4 ~~benefited~~1,765,971 4.12 $5.825 - 287.75 1,915,343 6.48 5.3 ~~Utilization~~1,912,624 of6.46 ~~net~~$8.68 ~~operating~~- ~~loss~~11.50 ~~carryforward~~130,895 9.59 5.1 130,895 9.59 $14.10 - ~~(23~~14.4)10 69,128 14.10 7.5 69,128 14.10 $14.46 - ~~Nondeductible~~14.46 ~~expenses~~56,066 2114.246 ~~(15~~4.3)5 256,066 14.146 -------------- ---------- ------ -%----- -%--------- (------ $.41 - 14.46 12,888,767 $ 3.92 7.3 5,908,078 $ 4)%.51 ============== ---------- ====== ------ ========== ======

During September 2000, the Company granted its former Chairman of the Board options to purchase 500,000 shares of common stock issued at fair market value of $1.50 per share, outside of the Plan. The options were scheduled to vest over three years. These options were terminated in connection with the Company's recapitalization. During April 2000, the Company granted to its former CEO options to purchase 1,500,000 shares of common stock 48 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, 2001 issued at a fair market value of $4.38 per share, 1,000,000 of which were granted outside of the Plan but pursuant to the terms of the Plan. The options became 100% vested upon the former CEO's departure from the Company during January 2001. The options were scheduled to expire in April 2010. These options were terminated in connection with the Company's recapitalization. During June 2001, the Company granted options to purchase 80,000 shares of common stock issued at fair market value of $0.56 per share to members of the Board of Directors. The options expire June 2011. These options were terminated in connection with the Company's recapitalization. The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, ("APB 25") which does not require a charge to the statement of operations for the estimated fair value of stock options issued with an exercise price equal to the fair value of the common stock on the date of grant. Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-based Compensation" requires that companies, which do not elect to account for stock-based compensation as prescribed by this statement, disclose the pro forma effects on earnings and earnings per share as if SFAS No. 123 had been adopted. Additionally, certain other disclosures with respect to stock compensation and the related assumptions are used to determine the pro forma effects of SFAS No. 123. Pro forma information regarding net income and earnings per share required by SFAS No. 123 has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The determination of the fair value of the options noted above was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the years ended December 31, 2001, 2000, and 1999: risk free interest rate of 4.8%, 6.2%, and 6.0%, respectively, dividend yield of 0% for all years, volatility factor of the expected market price of the Company's common stock of 208%, 180% and 75%, respectively and an expected life of the options of six years. The weighted average fair value of employee stock options granted during the periods presented is as follows:

~~Year~~WEIGHTED ~~Ended~~AVERAGE ~~December~~FAIR ~~31,~~VALUE ~~-----------------------~~YEAR ~~2000~~ENDED ~~1999~~DECEMBER ~~---- ---- Deferred tax assets: Net operating loss carryforward $ 52~~31,~~192~~ $2001 ~~42,536~~2000 ~~Goodwill~~1999 ~~impairment 39,295 37,846 Accruals and reserves not currently deductible 2,866 4,280 Other 4,040 3,334~~ -------- ---~~-----~~ ~~98,393 87,996~~ -------- ---~~-----~~ ~~Deferred tax liabilities: Book/tax difference of property, plant and equipment (986) (2,006) Other......................................................... (134) (1,575)~~ -------- ~~--------~~Granted ~~(1,120)~~at ~~(3,581)~~fair ~~--------~~market ~~--------~~value ~~97,273~~$ ~~84,415 Less valuation allowance~~.~~.....................................~~59 ~~(97,273)~~$ ~~(84,415) -------- -------- Net deferred tax asset~~2.~~.........................................~~57 $ ~~- $ - ======== ========~~4.98

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

~~December~~WEIGHTED AVERAGE FAIR VALUE YEAR ENDED DECEMBER 31, 2001 2000 1999 ------------ -------- ~~2000 1999~~ ---- -------- ~~Term~~Pro Aforma ~~loan~~net ~~with~~(loss) ~~bank,~~income ~~principal payable in quarterly installments of~~ $~~2,500,000~~ ~~commencing March 2001; bearing interest at prime plus 1.750% or Eurodollar plus 3.250% payable quarterly~~(88,177) through December 2001, when all remaining principal and interest is due and payable. At December 31, 2000, the weighted average interest rate was 10.23%. This debt was restructured after year end. See below. $ 13(207,~~029~~238) $ ~~18,000 Term B loan with bank, principal payable in quarterly installments of $62,500 commencing March 2001 increasing to $~~4,~~750,000~~208 inPro ~~March~~forma ~~2002~~basic ~~and~~(loss) ~~increasing~~earnings toper ~~$5,000,000~~share in December 2002; bearing interest at prime plus 2.250% or Eurodollar plus 3.750% payable quarterly, through December 2002, when all remaining principal and interest is due and payable. At December 31, 2000, the weighted average interest rate was 10.69%. This debt was restructured after year end. See below. 19,595 19,750 Term C loan with bank, principal payable in quarterly installments of $~~100,000~~ commencing March 2001 increasing to $200,000 in March 2002, increasing to $250,000 in September 2002, increasing to $11,000,000 in March 2003, and increasing to $15,000,000 in December 2003; bearing interest at prime plus (2.~~750%~~67) or Eurodollar plus 4.250% payable quarterly, through December 2003, when all remaining principal and interest is due and payable. At December 31, 2000, the weighted average interest rate was 11.19%. This debt was restructured after year end. See below. 49,452 49,700 Working capital revolver with bank, interest at prime plus 1.750% or Eurodollar plus 3.250% payable quarterly, due December 2001 when all remaining principal and interest is due and payable. At December 31, 2000, the weighted average interest rate was 10.14%. This debt was restructured after year end. See below. 42,596 31,096 Note payable to an agency of the Canadian government, principal payable in monthly, installments of $~~35,000,~~ beginning in October 1999, no interest, through December 2001, collateralized by certain equipment 410 823 Note payable to a County Economic Development Council, payable in monthly installments of $4,600, including interest at 4(6.~~375%,~~55) through January 2001, when all remaining principal and interest is due and payable, collateralized by certain equipment 4 59 Note payable to stockholders, principal and interest payable in June 2000; bearing interest at 10%. This debt was restructured after year end. See below. 4,873 4,873 Note payable to former principals of TARP, noninterest-bearing, discounted to $~~2,900,000,~~ ~~principal and imputed interest of $1,466,000 in July 2001~~0.15 ~~This~~Pro ~~debt~~forma ~~was~~diluted ~~restructured~~(loss) ~~after~~earnings ~~year~~per ~~end.~~share ~~See below. 2,171 2,852 Note payable in monthly principal and interest payments of~~ $~~8,500~~ through March 2008, bearing interest at 8.50%, secured by equipment 548 601 Notes payable to stockholders principal and interest due August 31, 2000, bearing interest at 8% and 12%. See below. 1,200 Other notes payable 22 21 Capital lease obligations (~~see Note 9~~2.67) ~~2,357~~$ ~~2,482 -------- -------- 136,257 130,257 Less current maturities~~ (~~3,844~~6.55) ~~(16,411) -------- --------~~ $~~132,413~~ ~~$113,846 ======== ========~~0.13

On June 30, 1999, the Company granted warrants to purchase 2,500,000 shares of the Company's common stock at $6.50 per share in connection with the IDRC merger. These warrants were valued at their estimated fair value of $7,840,000 at issuance and recorded as additional paid in capital. The warrants are exercisable for ten years. No warrants were exercised as of December 31, 2001. On June 30, 1999, the Company granted warrants to purchase 678,410 shares of the Company's common stock at $1.50 per share in connection with the CRW merger. These warrants were valued at their estimated fair value of $4,638,000 and were included in the cost of treasury stock acquired in the CRW merger. The warrants are exercisable for ten years. No warrants were exercised as of December 31, 2000. 49 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 13. EMPLOYEE RETIREMENT SAVINGS PLAN: On January 1, 1997, the Company adopted a defined contribution 401(k) Savings Plan (the "Savings Plan"). Employees who have met certain eligibility requirements, as defined, may contribute up to 15% of their pre-tax gross wages, subject to certain restrictions. The Savings Plan provides for Company matching contributions of 25% of the first 6% of employee contributions to the Savings Plan, which vest 25% per year over a four-year period. The expense for the years ended December 31, 2001, 2000, and 1999 under the Savings Plan was $184,000, $184,000 and $189,000, respectively. 14. RELATED-PARTY TRANSACTIONS: During 2001, we paid Hayden Real Estate, Inc. $153,370 in connection with real estate services rendered to us by such firm. J. Anthony Hayden, a member of our Board of Directors, is President and Chief Executive Officer of Hayden Real Estate. During 2001, we paid Strattech Partners, LLC $61,536 in connection with financial and treasury consulting services rendered to us by such firm and $150,000 in connection with services rendered relating to the amendment to our credit agreement in April 2001. Britton Murdoch, a member of our Board of Directors, is Managing Director of Strattech Partners. 15. CONCENTRATIONS OF CREDIT RISK: Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of accounts receivable. Concentrations of credit risk with respect to accounts receivable exist at December 31, 2001 due to a limited number of customers which account for a large percentage of the Company's revenue base and their concentration in their primary industry groups. The Company does not require collateral or other securities to support customer receivables. The Company performs periodic reviews of its clients' financial condition to reduce collection risk. The Company does not believe a significant credit risk exists at December 31, 2001. The following table summarizes those customers with revenue or accounts receivable in excess of 10% of total revenue for the years ended December 31, 2001, 2000 and 1999, or total receivables as of December 31, 2001 and 2000, respectively:

~~Capital~~REVENUES ~~Operating~~ACCOUNTS ~~Leases~~RECEIVABLE ~~Leases~~ -------- ------------------- ~~2001~~YEAR $ENDED ~~787~~AS $OF ~~8,056~~DECEMBER ~~2002 642 6~~31,~~055~~ ~~2003~~DECEMBER ~~509 5~~31,~~028~~ ~~2004~~--------------------- ~~371~~------------- ~~4,423~~2001 ~~2005~~2000 ~~371~~1999 ~~3,452~~2001 ~~Thereafter~~2000 ~~188~~---- ~~5,377~~ ---- ---- ---- ---- ~~Total~~Customer ~~minimum~~1 ~~lease~~-% ~~payments~~-% ~~2,868~~11% ~~$32,391~~-% ~~Less~~-% ~~amount~~Customer ~~representing~~2 ~~interest~~17% ~~(511)~~11% ~~=======~~ -~~-----~~% ~~Present~~26% ~~value~~14% ofCustomer ~~future~~3 ~~minimum~~-% ~~lease~~-% ~~payments~~-% ~~2,357~~-% ~~Less~~13% ~~current~~Customer ~~maturities~~4 ~~(664)~~11% -% -% -~~---~~% ~~$1,693 ======~~11%

50 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 The following table summarizes those industries with revenue in excess of 10% of total revenue for the years ended December 31, 2001, 2000 and 1999:

~~Weighted~~REVENUES ~~Exercise Average Price Exercise Price Shares Per Share Per Share~~ ------ --~~-------~~ ~~---------~~YEAR ~~Balance~~ENDED ~~outstanding,~~DECEMBER ~~December~~ 31, ~~1997 3,187,833 $4.25~~- ~~6.25 $5.55 Granted at fair market value 723,500 3.31~~- ~~9.81 4.53 Granted above fair market value 75,000 6.25 6.25 Granted below fair market value 2,000,000 3.29 3.29 Exercised (330,411) 3.29~~- ~~6.25 4.54 Cancelled (432,816) 3.31~~- ~~8.94 4.89~~ ---------- ----------- ~~-----~~2001 ~~Balance~~2000 ~~outstanding,~~1999 ~~December 31, 1998 5,223,106 3.29~~- ~~9.81 4.67 Granted at fair market value 1,333,250 4.13~~-~~11.50 7.07 Granted in the IDRC merger (see Note 4) 930,903 1.45~~-~~14.46 2.54 Granted in the CRW merger (see Note 4) 820,669 1.37~~-~~14.10~~ ~~3.75 Exercised (345,010) 1.45~~- ~~6.25 4.26 Cancelled (111,040) 3.31~~- ~~7.75 5.35~~ --~~--------~~ ----~~-------~~ ~~-----~~Telecommunications ~~Balance~~40% ~~outstanding,~~38% ~~December~~32% ~~31,~~Financial ~~1999~~Services ~~7,851,878~~25% ~~1.37-14.46~~27% ~~4.74~~28% ~~Granted~~Insurance ~~at fair market value 4,183,000 0.41- 4.56 2.57 Exercised (463,910) 1.45- 6.25 3.~~12% ~~Cancelled~~9% ~~(3,434,701) 1.45-11.50 4.26 ---------- ----------- ----- Balance outstanding, December 31, 2000 8,136,267 $0.41-14.46 $3.92 ========== =========== =====~~10%

16. SEGMENTS: The Company redefined its segments during the second quarter 2001, and restated all prior periods to conform with the current presentation. During 2001, the Company classified its operations into two segments: Teleservices and eSatisfy. These two operating segments were managed separately because each operating segment represented a strategic business unit that offered different services. The business segments are described in further detail below. Segment assets include amounts specifically with the Teleservices and eSatisfy segments. Corporate assets consist primarily of property and equipment and the goodwill and intangibles related to business combinations. The Teleservices segment provides business-to-consumer and business-to-business telemarketing services, which are primarily direct sales initiated by the Company on behalf of its clients, as well as customer service expertise to clients. The Company's customer service expertise includes the more traditional inbound services of customer care support, typically through toll-free numbers, for activities such as responses to clients' customer service inquires, catalogue sales and electronic order processing and consulting services to a wide range of clients. The eSatisfy segment performs baseline and tracking customer satisfaction surveys for both Internet and traditional companies. 51 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 Corporate operations include the selling, general and administrative functions of the Company. Business segment information is as follows (in thousands):

~~Balance~~YEAR ~~Weighted~~ENDED ~~Weighted~~DECEMBER ~~Outstanding at Average Average Exercisable at Weighted Range of December~~ 31, ~~Exercise Contractual December 31, Average Exercise Price 2000 Price Life in years 2000 Exercise Price~~ -------------- ---- ----- 2001 2000 1999 ---------~~----~~ ---- ----- --------- ~~$.41~~REVENUES: -Teleservices ~~.41~~$ 7213,~~000~~439 $ ~~0.41~~297,222 ~~9.8 -- --~~ $~~.66~~ -256,839 eSatisfy.94com ~~602~~4,~~500~~796 ~~0.80~~6,346 9.7,971 --------- --------- ~~$1.37~~ --------- ~~1.37~~Total ~~319~~$ 218,~~050~~235 ~~1.37~~$ ~~8.5 319~~303,~~050~~568 ~~1.37~~ $~~1.45~~ ~~- 1.69 1~~266,~~924,212~~810 ~~1.52~~========= ~~9.4~~========= ~~545,462~~========= ~~1.52~~OPERATING ~~$2.74~~INCOME -(LOSS): ~~2.74~~Teleservices ~~319~~$ 37,~~050~~486 ~~2.74~~$ ~~8.5 319~~(99,~~050~~951) ~~2.74~~ $~~3.31~~ -61,563 4eSatisfy.81com ~~2,793,023~~(620) 4.(21,789) ~~8.4~~5,244 Corporate (77,856)(1) (71,~~050~~937) (53,~~833~~899) ~~4.06~~--------- ~~$5.25~~--------- --------- ~~7.75~~Total 1$ (40,~~915~~990) $(193,~~343~~677)(2) ~~6.48~~$ ~~6.3 1~~12,~~697,005~~908 ~~6.33~~========= ~~$8.68~~========= -========= ~~11.50~~TOTAL ~~130,895~~ASSETS: ~~9.59~~Teleservices ~~6.1~~$ ~~122~~45,~~561~~545 ~~9.57~~ $~~14.10~~ -108,321 ~~14.10~~$ 69135,~~128~~685 14eSatisfy.10com 8.1,914 5,216 6923,~~128~~632 ~~14.10~~Corporate ~~$14.46~~9,200 ~~- 14.46 56~~11,~~066~~330 ~~14.46 5.5 56~~159,~~066~~090 ~~14.46~~ --------- --------- --------- Total $ 56,659 $ 124,867 $ 318,407 ========= ========= ========= DEPRECIATION AND AMORTIZATION: Teleservices $ 8,793 $ 20,304 $ 8,541 eSatisfy.com 362 1,770 944 Corporate 5,882 5,211 7,231 ------ --- --------- ------ ~~$.41~~ --- ~~14.46~~Total 8$ 15,~~136,267~~037 $ ~~3.92 8.2 4~~27,~~179,155~~285 $ ~~4.81~~16,716 ========= ========= ========= CAPITAL EXPENDITURES: Teleservices $ 1,763 $ 16,990 $ 23,364 eSatisfy.com 40 2,007 1,198 Corporate 814 2,640 1,852 --------- --------- --------- Total $ 2,617 $ 21,637 $ 26,414 ====== === ========= =========

(1) Includes $20.3 million extraordinary item for loss on extinguishment of debt and $26.1 million of impairment charges. (2) Includes charges for impairment of long-lived assets ($171.1 million) and restructuring charges ($10.3 million) offset by minority interest. 52 TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 17. QUARTERLY FINANCIAL DATA (UNAUDITED): The Company believes that all adjustments necessary for a fair presentation, for interim periods, have been made.

~~Weighted~~YEAR ~~Average~~ENDED ~~Fair~~DECEMBER ~~Value Year Ended December~~ 31, 2001 ---------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ~~2000~~------- ~~1999~~------- ~~1998~~------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues $ 62,815 $ 57,523 $ 52,349 $ 45,548 Gross profit 14,985 14,077 9,944 6,273 Operating loss (3,613) 245 (4,533) (33,089) ---------- ---------- ---------- ~~Granted~~---------- atNet ~~fair~~loss ~~market~~$ ~~value~~(10,086) $ (24,675)(1) $ (9,156) $ (39,245)(2~~.57~~) ========== ========== ========== ========== Basic earnings (loss) per share: Income (loss) before extraordinary items $4 (0.9832) $3 (0.14) ~~Granted~~$ ~~above~~(0.28) ~~fair~~$ ~~market~~(1.20) ~~value~~Extraordinary $item -- $(0.64) -- -- Net Income (loss) $ (0.32) $ (0.78) $ (0.28) $ (1.9520) ~~Granted~~========== ~~below~~========== ~~fair~~========== ~~market~~========== ~~value~~Diluted Earning (loss) per share: Income (loss) before Extraordinary Item $ (0.32) $ (0.14) $ (0.28) $ (1.20) Extraordinary item -- $(0.64) -- -- ---------- ---------- ---------- ---------- Net Income (Loss) $2 (0.6032) $ (0.78) $ (0.28) $ (1.20) ========== ========== ========== ==========

~~Weighted~~YEAR ~~Average~~ENDED ~~Fair~~DECEMBER ~~Value Year Ended December~~ 31, 2000 ---------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ~~2000~~------- ~~1999~~------- ~~1998~~------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues $ 78,680 $ 79,259 $ 73,119 $ 72,511 Gross profit 17,140 19,210 15,579 14,468 Operating loss (732) (739) (5,515) (186,688)(3) ---------- ---------- ---------- ~~Pro~~---------- ~~forma~~Net ~~net~~loss $ (~~loss~~3,909) ~~income~~ $ (~~207~~3,~~238~~935) $4 (8,~~208~~692) $ (11186,~~455~~584) ~~Pro~~========== ~~forma~~========== ~~basic~~========== ========== Basic earnings (loss) ~~earnings~~ per common share $ (60.5512) $ (0.1512) $ (0.4527) ~~Pro~~$(5.87) ~~forma~~Diluted ~~diluted~~earnings (loss) ~~earnings~~ per common share $ (60.5512) $ (0.1312) $ (0.4527) $(5.87)

(1) Includes $20.3 million extraordinary item for loss on extinguishment of debt. (2) Includes an impairment charge of $26.1 million. (3) Includes charges for impairment of long-lived assets ($171.1 million) and restructuring charges ($10.3 million) offset by minority interest. 53 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To TeleSpectrum Worldwide Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of TeleSpectrum Worldwide Inc. and subsidiaries included in this Form 10-K and have issued our report thereon dated April 29, 2002. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Our report on the financial statements includes an explanatory paragraph with respect to the ability of the Company to continue as a going concern as discussed in Note 1 to the Consolidated Financial Statements. The accompanying financial statement schedule is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Philadelphia, Pa., April 29, 2002 54 Schedule II TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 (in thousands)

~~Revenues~~BALANCE ~~Accounts~~AT ~~Receivable~~CHARGED ~~---------------------------------~~TO ~~-------------------~~CHARGED ~~Year~~TO ~~Ended~~BALANCE AsAT ofDESCRIPTION ~~December~~DECEMBER 31, ~~December~~COST AND OTHER DECEMBER 31, ----------- 2000 EXPENSES ACCOUNTS DEDUCTIONS 2001 ---- -------- ---------- ---------- ----~~---~~ ~~2000~~Allowance ~~1999~~for ~~1998~~doubtful ~~2000~~Accounts ~~1999~~$ ~~----~~3,457 ~~----~~$ ~~----~~1,253 ~~----~~$ ---- ~~Customer~~$(3,101)/1/ $ 1,609 -%Closed ~~11%~~call ~~10%~~center -%minimum -%lease ~~Customer~~commitment reserve $ 5,659 $ 2,106 ~~11%~~$ -% -% ~~14%~~$(2,251)/2/ ~~17%~~$ ~~Customer~~5,514 3Severance -%reserve -%$ -%1,670 ~~13%~~$ -%2,626 ~~Customer~~$ 4 -% -% -%$(3,817)/2/ ~~11%~~$ -%479

~~Revenues~~BALANCE AT CHARGED TO CHARGED TO BALANCE AT DESCRIPTION DECEMBER 31, COST AND OTHER DECEMBER 31, -----------~~------------------------~~ ~~Year~~1999 ~~Ended~~EXPENSES ~~December~~ACCOUNTS ~~31,~~DEDUCTIONS 2000 ---- -------- -------- ---------- ----- ~~2000~~Allowance ~~1999~~for ~~1998~~doubtful ~~----~~Accounts ~~----~~$ 5,117 $ 2,833 $ ---- ~~Telecommunications~~$(4,493)/1/ ~~38%~~$ ~~32%~~3,457 ~~27%~~Closed ~~Financial~~call ~~Services~~center ~~27%~~minimum ~~28%~~lease ~~23%~~commitment ~~Insurance~~reserve 9%$ ~~10%~~2,703 ~~10%~~$ 5,735 $ 400 $(3,179)/2/ $ 5,659 Severance reserve $ 1,919 $ 1,231 $ 1,459 $(2,939)/2/ $ 1,670

~~Year~~BALANCE ~~Ended~~AT ~~December~~CHARGED ~~31,~~TO ~~----------------------------------------~~CHARGED ~~2000~~TO ~~1999~~BALANCE ~~1998~~AT ~~----~~DESCRIPTION ~~----~~DECEMBER ~~---- REVENUES: Acquisition Services $ 192~~31,~~408~~ ~~$177,835~~COST ~~$115,776~~AND ~~ChannelCare~~OTHER ~~104,814~~DECEMBER 7931,~~004~~ ~~43,009 e~~-~~Satisfy.com 6,346 9,971 8,643~~ --------- -~~-------~~ ~~--------~~1998 ~~Total~~EXPENSES $ACCOUNTS ~~303,568~~DEDUCTIONS ~~$266,810~~1999 ~~$167,428 ========= ======== ======== OPERATING INCOME (LOSS): Acquisition Services $ (64,337) $ 42,179 $ 7,251 ChannelCare (35,614) 19,384 5,985 e~~-~~Satisfy.com (21,789) 5,244 (1,303) Corporate (71,937) (53,899) (17,874)~~ ---~~------~~ -------- -------- ~~Total $(193,677) $ 12,908 $ (5,941) ========= ======== ======== TOTAL ASSETS: Acquisition Services $ 71,875 $ 81,298 $ 45,995 ChannelCare 40,952 54,387 47,499 e~~-~~Satisfy.com 5,216 23,632~~ -~~(1) Corporate 11,330 159,090 10,195~~ --------- ----~~----~~ ~~--------~~Allowance ~~Total~~for $doubtful ~~129,373~~Accounts $~~318,407~~ ~~$103~~2,~~689~~851 ~~========= ======== ======== DEPRECIATION AND AMORTIZATION: Acquisition Services~~ $ 136,~~077~~800 $ 516,~~361~~398 $ 4(20,~~995 ChannelCare 7,227 3,180 2,794 e-Satisfy.com~~ 932)/1~~,770~~/ ~~944~~$ ~~840 Corporate~~ 5,~~211~~117 ~~7,231~~Closed ~~1,081~~call ~~---------~~center ~~--------~~minimum ~~--------~~lease ~~Total~~commitment $reserve ~~27,285~~ $ ~~16,716~~809 $ ~~9,710~~-- ~~========= ======== ======== CAPITAL EXPENDITURES: Acquisition Services~~ $ 83,~~673~~014 ~~$ 12~~(1,~~197~~120)/2/ $ 2,~~401~~703 ~~ChannelCare~~Closed ~~8,317~~call ~~11,167~~center ~~2,040~~severance ~~e-Satisfy.com~~Reserve ~~2,007~~$ ~~1,198 1,053 Corporate 2,640 1,852 3,605~~ --~~-------~~ ~~-------- -------- Total~~ $ ~~21,637~~401 $ 262,~~414~~400 (882)/2/ $ 91,~~099 ========= ======== ========~~919

/1/ Write-off of amounts previously reserved. /2/ Cash payments related to minimum lease commitments and employee severance for closed call centers. 55 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None 56 TELESPECTRUM WORLDWIDE INC. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Set forth below is certain information regarding our directors and executive officers:

~~Year~~NAME ~~Ended~~AGE ~~December~~POSITION ~~31, 2000~~ ---- --- --------~~---------------------------------------~~ ~~First~~J. ~~Second~~Peter ~~Third~~Pierce.......................... ~~Fourth~~56 ~~Quarter~~Chairman ~~Quarter~~of ~~Quarter~~the ~~Quarter~~Board ~~-------~~and ~~-------~~Chief ~~-------~~Executive ~~-------~~Officer ~~(in~~Kurt ~~thousands,~~E. ~~except~~Dinkelacker...................... ~~per~~48 ~~share~~Chief ~~amounts)~~Financial ~~Revenues~~Officer ~~$78,680~~Christopher ~~$79,259~~J. ~~$73,119~~Williams.................. $43 ~~72,511~~Director ~~Gross~~and ~~profit~~Chief ~~17,140~~Operating ~~19,210~~Officer ~~15,579~~Joseph ~~14,468~~A. ~~Operating~~Nezi........................... ~~loss~~55 ~~(732)~~Executive ~~(739)~~Vice (5President,~~515)~~ ~~(186,688)(1)~~Business ~~Net~~Development ~~loss~~Joseph ~~$(3,909)~~V. ~~$(3,935)~~Del $Raso....................... 49 Director (~~8,692)(~~2) ~~$(186,584)~~J. ~~Basic~~Anthony ~~loss~~Hayden........................ ~~per~~58 ~~common~~Director ~~share~~(2) $Britton (0H.~~12)~~ $Murdoch....................... (044 Director J.~~12)~~ $Brian (0O'Neill.~~27)~~........................ $42 Director (~~5.87~~1) ~~Diluted~~Fenton ~~loss~~R. ~~per~~Talbott........................ ~~common~~60 ~~share~~Director $Richard (0W.~~12)~~ ~~$ (0~~Virtue.~~12)~~....................... $57 Director (~~0.27~~1) $ (~~5.87~~2)

-------------- (1) Member of the Compensation Committee of the Board of Directors. (2) Member of the Audit Committee of the Board of Directors. J. Peter Pierce has been our Chairman of the Board and Chief Executive Officer since January 2001. From February 2000 until June 2000, Mr. Pierce was the President of Iron Mountain Incorporated, a publicly held records storage and management company. From 1995 until 2000, Mr. Pierce was the President and Chief Executive Officer of Pierce Leahy Corp., which merged with Iron Mountain in February 2000. Mr. Pierce is currently a member of the Board of Directors of Iron Mountain. Mr. Pierce is also the founder and principal partner in Pioneer Capital L.P., a venture capital company he founded in 2000. Kurt E. Dinkelacker has been our Chief Financial Officer since October 2000. Prior to joining us, from October 1995 through May 1999, Mr. Dinkelacker was an Executive Vice President and Chief Financial Officer of IKON Office Solutions, Inc., a publicly traded office equipment distributor and service provider. Christopher J. Williams has been our Chief Operating Officer since January 2001 and a director since February 2001. Prior to joining us, Mr. Williams was Executive Vice President, Central Area of Iron Mountain from February 2000 until August 2000 and Senior Vice President, Operations--West of Pierce Leahy from 1995 until February 2000, when Pierce Leahy merged with Iron Mountain. Joseph A. Nezi has been our Executive Vice President, Business Development since January 2001. Prior to joining us, Mr. Nezi was Senior Vice President, Sales and Marketing of Iron Mountain from February 2000 until June 2000 and of Pierce Leahy from 1991 until February 2000, when Pierce Leahy merged with Iron Mountain. Joseph V. Del Raso has been a director since February 1997. Mr. Del Raso is currently a partner at the law firm of Pepper Hamilton LLP, a position he has held since January 1998. Prior thereto, Mr. Del Raso was a partner at the law firm of Stradley Ronon Stevens & Young from 1992 through January 1998. J. Anthony Hayden has been a director since August 2001. Since 1996, Mr. Hayden has been the President and Chief Executive Officer of Hayden Real Estate, Inc. Prior to founding Hayden Real Estate, Inc., from 1975 until 1996, Mr. Hayden served in various capacities with Cushman and Wakefield Commercial Real Estate Company, including Executive Vice President of the Mid-Atlantic/Mid-West Region. Mr. Hayden also serves on the Board of Directors of Liberty Property Trust and Founders' Bank, a subsidiary of Susquehanna Bancshares, Inc. 57 Britton H. Murdoch has been a director since July 2000. Mr. Murdoch is currently the Managing Director of Strattech Partners, LLC, a business consulting and venture capital firm. At various times during the past three years, Mr. Murdoch served as acting Chief Financial Officer of V-Span, Inc. and Fiberlink, Inc. Prior to founding Strattech Partners, from 1997 until 1998 Mr. Murdoch served as Chief Financial Officer of Internet Capital Group, Inc. From 1990 until 1997 Mr. Murdoch served as Chief Financial Officer, Vice President of Finance and Treasurer of Airgas, Inc. Mr. Murdoch also serves on the Board of Directors of Founders' Bank, a subsidiary of Susquehanna Bancshares, Inc., and FASTNET Corporation. J. Brian O'Neill has been a director since 1996. Mr. O'Neill was the Chairman of the Board and our Chief Executive Officer from the time of our formation in April 1996 until March 1998. Mr. O'Neill was also the Chairman of the Board of Directors and Chief Executive Officer of CRW Financial, Inc. from May 1995 until its merger with TeleSpectrum in June 1999. Mr. O'Neill is currently involved in operating a privately-held real estate company. Fenton R. (Pete) Talbott has been a director since May 2000, and from September 2000 until January 1, 2001, Mr. Talbott was Chairman of the Board. Since 1999, Mr. Talbott has been an operating affiliate with McCown DeLeeuw & Co., a company engaged in investment activities. Prior thereto, from 1995 to 1998, Mr. Talbott was Executive Vice President of Comerica Bank. In addition, Mr. Talbott has held various positions at American Express, The First Boston Corporation, Bank of America and Citicorp. Richard W. Virtue has served as a director since August 1996. Mr. Virtue is currently a Town Council Member of Snowmass Village, Colorado and a principal of Southern Investments, a warehouse developer he founded in 1977. Mr. Virtue served as Chief Executive Officer of SOMAR, Inc., a predecessor of TeleSpectrum, from 1982 until August 1996. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Pursuant to Section 16(a) of the Securities Exchange Act of 1934, our executive officers and directors are required to file reports with the SEC relating to their ownership of and transactions in our equity securities. Based on our records and other information, we believe that all Section 16(a) filing requirements were met for fiscal year 2001. 58 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth the cash compensation as well as certain other compensation paid or accrued during fiscal years 2001 and 2000 to our chief executive officer during fiscal year 2001 and each other executive officer who earned more than $100,000 during fiscal year 2001 (collectively, the "Named Executives") for services rendered in such years. In January 2001, we hired a new management team, and, except for Kurt E. Dinkelacker, none of such management team was previously employed by us.

~~Year~~LONG-TERM ~~Ended~~ANNUAL ~~December~~COMPENSATION ~~31,~~COMPENSATION ~~1999~~ ------------------- ------------ AWARDS ------ OTHER ANNUAL SECURITIES COMPENSATION UNDERLYING OPTIONS ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) ($) (#) COMPENSATION ($) --------------------------- ~~First~~---- ~~Second~~--------- ~~Third Fourth Quarter Quarter Quarter Quarter~~ --------- ------------ ------------------ ---------------- ~~(in~~J. ~~thousands~~Peter Pierce, ~~except~~Chief ~~per~~Executive ~~share~~2001 ~~amounts~~--(1) ~~Revenues~~-- ~~$47,925~~-- ~~$46~~1,~~615 $86~~000,~~471~~000 ~~$85,799~~-- ~~Gross~~Officer ~~profit~~Christopher ~~14,699~~J. 13Williams,~~751~~ ~~22,460~~Chief 202001 200,~~327~~000 ~~Operating~~-- ~~income~~-- ~~(loss) 4~~400,~~914~~000 204(~~196~~2) ~~4,538~~Operating ~~3,652~~Officer ~~Net~~Kurt ~~income (loss) $ 4~~Dinkelacker,~~742~~ $Chief ~~(940)(3)~~Financial $2001 1200,~~746~~000 $-- ~~334~~-- ~~Basic~~-- ~~earnings~~ 204(~~loss~~2) ~~per~~Officer ~~common~~2000 ~~share $ 0.18 $~~46,153(~~0.04~~3) $-- ~~0.06~~-- $300,000 0Joseph A.01 ~~Diluted~~Nezi, ~~earnings~~Executive ~~(loss)~~Vice ~~per~~2001 ~~common~~200,000 ~~share~~-- $-- ~~0.17~~300,000 $204(~~0.04~~2) $President-Business ~~0.05 $ 0.01~~Development

------------- (1) Mr. Pierce received no salary during 2001. (2) Consists of net premiums for a group term life insurance policy. (3) Mr. Dinkelacker was hired as our Chief Financial Officer in October 2000. 59 STOCK OPTION GRANTS The following table contains information concerning grants of stock options to the Named Executives during fiscal year 2001: OPTION GRANTS IN FISCAL 2001

~~Balance~~Individual atGrants ~~Charged~~----------------- toPotential ~~Charged~~Realizable toNumber ~~Balance~~of Value at ~~December~~Assumed ~~31,~~Annual ~~Cost~~Securities ~~and~~% ~~Other~~of ~~December~~Total ~~31,~~Rates ~~Description~~of ~~1999~~Stock ~~Expenses~~Underlying ~~Accounts~~Options ~~Deductions~~Granted ~~2000~~Exercise Price Appreciation Options to Employees in Price Expiration for Option Term(1) ----------- ---- --- Name Granted(#) 2001 ($/Sh) Date 5% 10% ----- ---------- ---- ------ ---- ~~Allowance~~-- ~~for~~--- ~~doubtful~~J. ~~accounts~~Peter ~~$5,117~~Pierce ~~$ 2~~1,~~833~~000,000(2) $39.1% --.60 ~~$(4,493)/~~1/2/11 $380,000 3960,~~457~~000 ~~Closed~~Christopher ~~call~~J. ~~center~~Williams ~~minimum~~400,000(2) ~~lease~~15.7% ~~commitment~~.60 ~~reserve $~~1/2/11 152,~~703~~000 ~~$10~~384,~~366~~000 $Kurt ~~400~~Dinkelacker ~~$(3,179)/2/~~-- ~~$10,290~~-- ~~Severance~~-- ~~reserve~~-- ~~$1,919~~-- $-- ~~1,231~~Joseph ~~$1,459~~A. $Nezi 300,000(2~~,939~~) 11.7% .60 1/2/11 $114,000 1288,~~670~~000

------------- (1) Illustrates the value that might be received upon exercise of options immediately prior to the assumed expiration of their term at the specified compounded rates of appreciation based on the market price for the common stock when the options were granted. Assumed rates of appreciation are not necessarily indicative of future stock performance. As of December 31, 2001, the price of common stock was $.01 per share. All options reflected above are being cancelled in connection with the recapitalization. 60 STOCK OPTION EXERCISES AND HOLDINGS The following table sets forth the value of options held by each of the Named Executives at December 31, 2001. None of the Named Executives exercised any options during fiscal year 2001. AGGREGATED OPTION EXERCISES IN 2001 AND OPTION VALUES AT DECEMBER 31, 2001

~~Balance~~NUMBER atOF ~~Charged~~SECURITIES toVALUE ~~Charged~~OF toUNEXERCISED ~~Balance~~UNDERLYING atUNEXERCISED ~~December~~IN-THE-MONEY ~~31,~~OPTIONS ~~Cost~~OPTIONS ~~and~~AT ~~Other~~DECEMBER ~~December~~ 31, ~~Description~~AT ~~1998~~DECEMBER ~~Expenses~~31, ~~Accounts~~2001 ~~Deductions~~2001 ~~1999~~(#) ($)(1) ---------------------- -------------------- SHARES VALUE ACQUIRED ON REALIZED NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ------------ --- ----------- ------------- ----------- ~~Allowance~~------------- ~~for~~J. ~~doubtful~~Peter ~~accounts~~Pierce ~~$2,851~~-- ~~$6,800~~-- ~~$16,398~~-- ~~$(20,932)/~~1~~/ $5~~,~~117~~000,000 ~~Closed~~-- ~~call~~-- ~~center~~Christopher ~~minimum~~J. ~~lease~~Williams ~~commitment~~-- ~~reserve~~-- $-- ~~809~~400,000 $-- -- $Kurt ~~3,014~~Dinkelacker $-- (1-- 66,~~120)/2/~~667 $2233,~~703~~333 ~~Severance~~-- ~~reserve $~~ -- $Joseph ~~401~~A. $Nezi ~~2,400~~-- $-- ~~(882)/2/~~-- $1300,~~919~~000 -- --

(1) None of the unexercised options held by the Named Executives were in-the-money based on the price of a share of our common stock as reported on the OTC Bulletin Board on December 31, 2001 ($.01). All options reflected above are being cancelled in connection with the recapitalization. COMPENSATION OF DIRECTORS Directors who are not currently receiving compensation as officers, employees or consultants are entitled to receive a quarterly retainer fee of $2,000, as well as $500 and reimbursement of expenses for each meeting of the Board of Directors and each committee meeting that they attend in person. Our non-employee directors are currently entitled to receive non-qualified stock options under our 1996 Equity Compensation Plan. Each non-employee director is granted a non-qualified stock option exercisable for 10,000 shares of common stock on the date that such person is first elected to the Board. An additional grant of an option exercisable for 2,500 shares of common stock is granted on each date that a director is re-elected to the Board. All options granted to non-employee directors under this policy vest in three equal annual installments beginning on the first anniversary of the date of grant. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT In January 2001, we entered into an employment agreement with J. Peter Pierce to serve as our Chief Executive Officer until January 2, 2003. Such agreement was amended on April 29, 2002 in connection with the recapitalization described above. The agreement, as amended, provides that Mr. Pierce shall not be entitled to receive a salary for his services. However, the agreement does entitle Mr. Pierce to an annual bonus based on the financial performance of TeleSpectrum. Under the agreement, upon the closing of the recapitalization, Mr. Pierce agreed to the cancellation of all options that had been granted to him by TeleSpectrum. In addition, upon the closing of the recapitalization, Mr. Pierce received 3,894,997 shares of our common stock, representing .5% of our common stock on a fully diluted basis. The agreement further provides that Mr. Pierce is entitled to participate in our Sale Makeup Payment Plan, pursuant to which he could be eligible to receive certain cash payments upon a "change of control" (as defined therein) of TeleSpectrum. Under the agreement, in the event that TeleSpectrum or Mr. Pierce terminates the employment agreement during the one-year period following the occurrence of a "change of control," TeleSpectrum will pay Mr. Pierce an amount equal to the targeted bonus for the year in which the termination occurs. The agreement also prohibits Mr. Pierce from competing with us for one year after the end of his employment with us. 61 In January 2001, we entered into an employment agreement with each of Christopher Williams and Joseph Nezi to serve as our Chief Operating Officer and Executive Vice President, Business Development, respectively, until January 2, 2003. Such agreements were amended on April 29, 2002 in connection with the recapitalization described above. Under the agreements, Messrs. Williams and Nezi receive annual salaries of $200,000, and each is entitled to receive an annual bonus based on the financial performance of TeleSpectrum. Under the agreements, upon the closing of the recapitalization, Messrs. Williams and Nezi agreed to the cancellation of all options that had been granted to them by TeleSpectrum. The agreements also provide that Messrs. Williams and Nezi are entitled to participate in our Sale Makeup Payment Plan. Under the agreement, in the event that TeleSpectrum terminates Messrs. Williams' or Nezi's respective employment agreements during the one-year period following the occurrence of a change of control, TeleSpectrum will pay such terminated employee an amount equal to the targeted bonus for the year in which the termination occurs. The agreements also prohibit Messrs. Williams and Nezi from competing with us for one year after the end of their employment with us. In September 2000, we entered into an employment agreement with Kurt Dinkelacker to serve as our Chief Financial Officer for a period of two years expiring in September 2002, which term is automatically renewable at the end of the term for successive one-year periods unless TeleSpectrum gives notice of nonrenewal. Such agreement was amended on April 29, 2002 in connection with the recapitalization described above. Under the agreement, Mr. Dinkelacker receives an annual salary of $200,000 and a payment of $70,000 upon the closing of the recapitalization, and is entitled to receive an annual bonus based on the financial performance of TeleSpectrum. Under the agreement, upon the closing of the recapitalization, Mr. Dinkelacker agreed to the cancellation of all options that had been granted to him by TeleSpectrum. The agreement also provides that Mr. Dinkelacker is entitled to participate in our Sale Makeup Payment Plan. Under the agreement, in the event Mr. Dinkelacker is terminated during the employment term or determined not to have his employment term continue for a successive one-year period, TeleSpectrum will continue to pay Mr. Dinkelacker a salary of $250,000 and provide certain healthcare benefits. In addition, if in the event of a change of control Mr. Dinkelacker's position is eliminated or significantly diminished, he will be entitled to the continued payment of salary described above. The agreement also prohibits Mr. Dinkelacker from competing with us for one year after the end of his employment with us. 62 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth certain information with respect to the beneficial ownership, as of March 31, 2002, of each person known to us to be the beneficial owner of more than 5% of our common stock. Each of the stockholders named below has sole voting and investment power with respect to such shares, unless otherwise indicated.

~~Balance~~COMMON atSTOCK ~~Charged~~------------ toNAME ~~Charged~~AND toADDRESS ~~Balance~~OF atBENEFICIAL ~~January~~OWNER 1,NUMBER ~~Cost~~OF ~~and~~SHARES ~~Other~~PERCENT ~~December 31, Description 1998 Expenses Accounts Deductions 1998~~ ----------- ----- -------- -------- -------~~---~~ ~~----~~McCown ~~Allowance~~De ~~for~~Leeuw ~~doubtful~~& ~~accounts~~Co. ~~$ 969 $2~~III,~~325~~ $L.P. ~~- $ (443)/1/ $2~~6,~~851 Closed call center minimum lease commitment reserve $1~~186,~~939 $ 360 $ - $~~844(1~~,490~~)/ 18.2/% $J. ~~809~~Brian ~~Closed~~O'Neill ~~call center severance reserve $ 263 $ 994 $ - $(1~~4,~~257)/~~111,070(2/) ~~$ --~~11.9

(1) Includes (i) 1,179,994 shares of our common stock obtainable upon the exercise of warrants owned by McCown De Leeuw & Co. III, L.P., an investment partnership whose general partner is MDC Management Company III, L.P. ("MDC III"), (ii) 83,630 shares of our common stock obtainable upon the exercise of warrants held by McCown De Leeuw & Co. Offshore (Europe) III, L.P., an investment partnership whose general partner is MDC Management Company IIIE, L.P. ("MDC IIIE"), (iii) 20,253 shares of our common stock obtainable upon the exercise of warrants held by McCown De Leeuw & Co. III (Asia), L.P., an investment partnership whose general partner is MDC Management Company IIIA, L.P. ("MDC IIIA"), and (iv) 22,869 shares of Common Stock obtainable upon the exercise of warrants owned by The Gamma Fund LLC, a California limited liability company. Members of The Gamma Fund LLC include George E. McCown, David De Leeuw, David E. King, Robert B. Hellman, Jr. and Steven Zuckerman, who are also the only managing directors of MDC III, MDC IIIE and MDC IIIA. Voting and dispositive decisions regarding the common stock owned by MDC III, MDC IIIE and MDC IIIA are made by Mr. McCown and Mr. De Leeuw, as managing directors of each of such partnerships, who together have more than the required two-thirds-in-interest vote of the managing general partners necessary to effect such decisions on behalf of any such entity. Voting and dispositive decisions regarding the common stock owned by The Gamma Fund are made by a vote or consent of a majority in number of the members of The Gamma Fund. No managing director is able to individually direct the voting or disposition of common stock beneficially owned by MDC III, MDC IIIE and MDC IIIA. Messrs. McCown, De Leeuw, King, Hellman and Zuckerman have no direct ownership of any shares of common stock and disclaim beneficial ownership of any shares of our common stock except to the extent their proportionate partnership interest or membership interests, as the case may be. The address of all MDC entities and The Gamma Fund is c/o McCown De Leeuw & Co., 3000 Sand Hill Road, Building 3, Suite 290, Menlo Park, California 94025. (2) Includes options to purchase 1,002,500 shares of our common stock and warrants to purchase 822,860 shares of our common stock. Mr. O'Neill's address is 700 South Henderson Road, Suite 202, King of Prussia, Pennsylvania 19406. 63 SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth certain information with respect to the beneficial ownership, as of March 31, 2002, of (i) each director, (ii) each Named Executive and (iii) all of our directors and executive officers as a group. Each of the stockholders named below has sole voting and investment power with respect to such shares.

* Less than 1 percent. (1) With respect to each stockholder, includes any shares issuable upon exercise of any options or warrants held by such stockholder that are or will become exercisable within sixty days of March 31, 2002. (2) Consists of options to purchase 333,334 shares of our common stock. (3) Includes options to purchase 133,334 shares of our common stock. (4) Consists of options to purchase 66,667 shares of our common stock. (5) Includes options to purchase 100,000 shares of our common stock. (6) Includes options to purchase 15,000 shares of our common stock. (7) Includes options to purchase 100,000 shares of our common stock. (8) Includes options to purchase 1,002,500 shares of our common stock and warrants to purchase 822,860 shares of our common stock. (9) Includes options to purchase 437,500 shares of our common stock. (10) Includes options to purchase 8,334 shares of our common stock and warrants to purchase 254,000 shares of our common stock. (11) Includes options to purchase 2,196,669 shares of our common stock and warrants to purchase 1,076,860 shares of our common stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During 2001, we paid Hayden Real Estate, Inc. $153,370 in connection with real estate services rendered to us by such firm. J. Anthony Hayden, a member of our Board of Directors, is President and Chief Executive Officer of Hayden Real Estate. During 2001, we paid Strattech Partners, LLC $61,536 in connection with financial and treasury consulting services rendered to us by such firm and $150,000 in connection with services rendered relating to the amendment to our credit agreement in April 2001. Britton Murdoch, a member of our Board of Directors, is Managing Director of Strattech Partners. 64 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORT ON FORM 8-K (a) Documents filed as part of this report: 1. Financial Statements. The financial statements listed in the accompanying Table of Contents to Financial Statements and Financial Statement Schedules at page F-1 are filed as part of this Form 10-K. 2. Financial Statement Schedule. The financial statement schedule listed in the accompanying Table of Contents to Financial Statements and Financial Statement Schedule at page F-1 is filed as part of this Form 10-K. All other schedules have been omitted because they are not applicable, or not required, or the information is disclosed in the Financial Statements or notes thereto. 3. Exhibits. (See (c) below) (b) Report on Form 8-K There were no reports on Form 8-K filed by us during the fourth quarter of the fiscal year ended December 31, 2001. (c) Exhibits. The following is a list of exhibits filed as part of this annual report on Form 10-K. Where so indicated exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses.

65 10.02 Amended and Restated Credit Agreement dated as of April 29, 2002 among Telespectrum Worldwide Inc., the Lenders named therein and BNP Paribas as agent. # 10.03 Preferred Stock Issuance and Restructuring Agreement dated as of April 29, 2002 among Telespectrum Worldwide Inc., the Lenders named therein and BNP Paribas. # 10.04 Stockholders Agreement dated as of April 29, 2002 among Telespectrum Worldwide Inc., the stockholders signatory thereto, the Management Agent and the Administrative Agent. # **10.05 Sales Makeup Payment Plan dated as of April 29, 2002. # **10.06 Employment Agreement dated as of April 29, 2002 between TeleSpectrum Worldwide Inc. and J. Peter Pierce. # **10.07 Employment Agreement dated as of April 29, 2002 between TeleSpectrum Worldwide Inc. and Christopher Williams. # **10.08 Employment Agreement dated as of April 29, 2002 between TeleSpectrum Worldwide Inc. and Kurt Dinkelacker. # **10.09 Employment Agreement dated as of April 29, 2002 between TeleSpectrum Worldwide Inc. and Joseph Nezi. # 21. Subsidiaries of the Registrant.* 23. Consent of Arthur Andersen LLP.* 99.1 Letter regarding independent public accountants*

---------- * Filed herewith. ** Constitutes a management contract or a compensatory plan or arrangement. # To be filed as part of a subsequent SEC filing. 66 TELESPECTRUM WORLDWIDE INC. 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. TeleSpectrum Worldwide Inc. Date: April 29, 2002 By: /S/ KURT E. DINKELACKER ---------------------------- KURT E. DINKELACKER 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.

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