AEGIS COMMUNICATIONS GROUP INC - 10-K Annual Report

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

AEGIS COMMUNICATIONS GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

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. ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No ý

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last day of the registrant's most recently completed second fiscal quarter was approximately $3.2 million.

As of April 1, 2004, 85,480,587 shares of the registrant's Common Stock were outstanding, of which 475,600 were held in Treasury.

Portions of the registrant's 2004 Proxy Statement and Notice of Annual Meeting of Stockholders are incorporated by reference into Part III of this report.

Aegis Communications Group, Inc. is a leading provider of multi-channel customer relationship management, including database management, analytical services and market intelligence to progressive companies. Our customer relationship management, or CRM service offerings include: web-enabled and telephone-based customer service, help desk, and customer acquisition and retention; multilingual communications programs; client service center facilities management; order provisioning, which is the transferring of data into our clients' billing systems and customer records; up-selling and cross-selling of products and services; and database management. Our web-enabled customer care capabilities include online customer-initiated call back, automated e-mail response, live web text chat, pushed content web sessions (in which we send, or "push", web pages to the customer from anywhere on the Internet), click-stream analysis, web self-service, fax/e-mail on demand and online management reporting. Our database service offerings include profiling and data overlay, segmentation, modeling, survey results analysis, financial analysis and customer lifecycle analysis.

Aegis Communications Group, Inc. is a Delaware corporation originally organized in that state in 1985. Our trading symbol is "AGIS". Aegis Communications Group, Inc. was formerly known as ATC Communications Group, Inc., or ATC. On July 9, 1998 ATC completed the acquisition of IQI, Inc., a New York corporation, or IQI. Effective upon the merger, we formally changed the company name to Aegis Communications Group, Inc. Our headquarters are located at 7880 Bent Branch Drive, Suite 150, Irving, Texas 75063. Our telephone number is (972) 830-1800 and our web-site address is www.aegiscomgroup.com. Unless the context requires otherwise, references to Aegis Communications Group, Inc. in this report include our consolidated subsidiaries.

Our objective is to become the premier high-quality, full service provider of outsourced CRM solutions to progressive companies seeking a high level of customer interaction. We believe that web-enabled services, inbound CRM services and non-voice support programs possess the greatest long-term growth potential in our industry, however those providers which demonstrate competence in outbound acquisition services will continue to have growth opportunities. For the year ended December 31, 2003, approximately 74% of our revenues were generated by inbound CRM solutions and non-voice services and 26% from outbound CRM solutions. In comparison, for the year ended December 31, 2002, approximately 81% of our revenues were generated by inbound CRM solutions and non-voice services and 19% by outbound CRM solutions; and for the year ended December 31, 2001, approximately 76% of our revenues were generated by inbound CRM solutions and non-voice services and 24% by outbound CRM solutions.

We develop and implement customized multi-channel contact programs designed to strengthen our clients' relationships with their customers while reducing or eliminating their costs to serve. Our CRM solutions consist of telephone-based marketing and customer service programs (teleservices) as well as web-based capabilities, which comprise handling a variety of customer contacts through our clients' Internet web-sites, and our phone-based customer service offerings.

We design, manage and conduct telecommunications-based CRM programs scaled to the client's needs which feature live, knowledgeable customer service representatives, or CSRs, provided on an outsourced basis to corporations in a wide variety of industries.

Inbound CRM solutions require answering incoming telephone calls or web-initiated queries and responding to customer service requests. To illustrate, when one of our client's customers requests an interaction (e.g., places a call to a toll-free "800" customer service number, sends an e-mail to our

client, or initiates an online call back or text chat at a client's web-site) it is directed to one of our client service centers and answered by one of our trained CSRs. The CSR is able to handle the customer's inquiry because, in most instances, the customer's account information has been transferred, instantaneously, to the CSR's computer screen via our system's links to the client's customer database. At the end of the interaction, the customer's record is automatically updated in the client's database with any new information.

Outbound CRM solutions involve making outgoing telephone calls, usually to market a client's products or to acquire new customers for the client. We do not engage in any form of outbound calling that uses computerized voice presentations or makes unsolicited financial requests, nor are we engaged in the "900" number business.

Our operations are technology driven through our advanced data and communications systems, which permit real-time interface with our clients' host systems via the Internet or dedicated networks. We also provide a suite of web-enabled customer care capabilities that includes multi-channel capable workstations able to handle a variety of customer interactions, including those originating from the Internet. Through the web-enabled services, we can assist our clients by providing real-time, web-based data that tracks customers' interactions with a client's web-site, allows us to handle all aspects of responding to client e-mail from customers, provides a secure chat window to conduct one-on-one chat with client customers, initiates live voice conversations when a client customer clicks an icon on a client's web-site, and performs other functions.

We endeavor to establish long-term relationships with clients that utilize telecommunications and/or the Internet as important, ongoing elements in their core CRM strategies. These arrangements usually require us to develop unique software systems for the client. By offering high quality, customized, flexible and fully-integrated customer contact management services designed to improve quality, productivity and effectiveness, we can enhance and add value to our clients' existing marketing and customer service programs.

As of December 31, 2003, we operated or managed approximately 4,600 production workstations in 11 client service centers. A workstation includes a cubicle, personal computer with monitor and keyboard, a headset and an automatic call distributor console. All of our facilities are located in the continental United States.

Our current technology platform delivers custom CRM solutions based on a browser-based application environment and primarily Avaya Definity telecommunications switches interfaced with multiple servers running on UNIX or Microsoft 2000 Advanced Server platforms. The data system is based on an open architecture design supported by sophisticated relational databases. This open architecture design allows us to interface seamlessly, and in real-time, with our clients' host systems. It also provides the flexibility that enables us to deliver solutions rapidly to our clients' marketing and customer service needs. Outbound calling is enhanced through an Avaya supported dialer, our proprietary dialer technology, or an SER Services (formerly EIS) dialer. Our operations are further enhanced by the use of universal workstations that can automatically handle either inbound or outbound call activity. Such technology permits us to offer productivity enhancements associated with this "call blending" activity. During the course of 2001, we acquired technology to deliver an enhanced level of CRM solutions for an integrated solutions offering.

The quality of our people is critical to our success. Because our customer service representatives deal directly with our clients' customers and sales prospects, we place a heavy emphasis on their training and the quality control process. Our training facilities are equipped with workstations for live role-playing. We employ a large staff of trainers dedicated to teaching the details of client programs to our customer service representatives. The training curriculum includes instruction on the client's sales

or service process, study of the features and benefits of the product and service, intensive role-playing and information about both our and the client's philosophy and culture. We conduct both initial and follow-up training for all representatives that, depending on the complexity of the client program, can take up to six weeks to complete. Our training curriculum is developed by professional experts in adult learning methods and includes a "hands-on" personal computer lab experience. This attentiveness to training enables our representatives to perform an assortment of duties when handling inbound and outbound calling programs. Along with our clients, we monitor our marketing and customer service representatives to insure strict compliance with the client's quantitative and qualitative standards. In many instances, quality is evaluated and communicated on a daily basis.

Several trends continue to shape the teleservices industry. Many U.S.-based companies that have a history of outsourcing customer sales and service are moving certain portions of their business to non-U.S. locations to take advantage of labor arbitrage available in many foreign markets. Additionally, downturns in overall transaction volumes due to general economic conditions and transition of many traditional phone-based activities to the Internet have led many of these same companies to redirect transactions to existing, in-house call centers with excess capacity and away from outsourced CRM providers. We continue to believe, however, that an overall long-term focus on business fundamentals will lead companies to maintain or increase their outsourcing activities, especially when considering the favorable impact on cost structures made by moving to a variable outsourced-cost model from a fixed cost model. Client spending on technology has slowed with the economy, and outsourced providers offer a viable alternative, since the significant investment required to automate these transactions has already been made by companies in the outsourced CRM market. We believe clients will require more efficiency from their CRM partners in the form of performance-based pricing that further aligns the interests of the client and of the service provider. In addition, due to excess capacity in the industry, we believe we can continue to expect some firms to offer below market pricing of their services in an attempt to gain market share and utilize excess capacity.

We compete in a market that provides progressive companies the opportunity to take advantage of the latest advances in processes and technology across multiple communications channels to drive more effective and efficient means of customer interaction. Customer contact services are spread across a broad spectrum of competitors, including a client company's own in-house call center and numerous third-party providers like us. Our market, which is extremely competitive, ranges from very small firms offering specialized applications to larger, full-service companies with multiple, high-volume call centers, including APAC Customer Services, Inc., Convergys Corporation, ICT Group, Inc., RMH Teleservices, Inc., Sitel Corporation, Sykes Enterprises, Inc., Teleperformance USA, Inc., TeleTech Holdings, Inc. and West Corporation.

We differentiate from our competitors by providing a unique blend of strategic and tactical resources to meet the broad demands of our clients. To reinforce the value of our approach, we place an emphasis on enhancing the results of each engagement we manage on behalf of our clients, which we describe as Customer Value Management, or CVM. We seek to develop and maintain long-term profitable relationships with our clients, whereby we provide as much value to the client as they provide to us. We focus our marketing and sales efforts on progressive companies in growing markets that utilize integrated customer services to more effectively acquire and retain customers. We believe these organizations represent the greatest potential for us to deliver a differentiated service that takes advantage of our total resources, including our skilled employees and technology platform. This approach will ultimately provide the greatest opportunity for stable and recurring revenue growth. We obtain new business through our dedicated sales force, existing relationships with current clients, client referrals and by responding to requests for proposals.

Both federal and state governments regulate our business. The Federal Communications Commission ("FCC"), rules under the Federal Telephone Consumer Protection Act of 1991 prohibit telemarketing firms from initiating telephone solicitations to residential telephone subscribers before 8:00 a.m. or after 9:00 p.m., local time, and prohibit the use of automated telephone dialing equipment to call certain telephone numbers. In addition, the FCC rules require telemarketing firms to maintain a list of residential consumers who have stated that they do not want to receive telephone solicitations called Do Not Call lists ("DNC"), and to avoid making calls to such consumers.

The Federal Telemarketing and Consumer Fraud and Abuse Protection Act of 1994 broadly authorized the Federal Trade Commission ("FTC"), to issue regulations prohibiting misrepresentation in telephone sales. The FTC issued its telemarketing sales rules ("TSR"), which became effective December 31, 1995. Generally, these rules prohibit abusive telephone solicitation practices and impose disclosure and record keeping requirements on telemarketers. Both the FCC and the FTC introduced new amendments to their respective Acts during 2003, which placed further restrictions on the use of automated telephone dialing equipment relative to abandoned calls and require enhanced record keeping. These amendments also introduced a national do not call list that became effective in 2003 and require all telemarketing firms to suppress consumer records found on the national list. In January 2004, the requirement to deliver a caller id with name and number became effective. The advent of number portability between landlines and wireless telephone numbers in November 2003 created confusion with reference to the prohibition of telemarketing calls to wireless numbers. No clearinghouse is available to date to provide a suppression list of recently ported numbers, making a good faith effort the only safe harbor available to the telemarketing industry.

In addition to these rules and regulations, bills are frequently introduced in Congress to regulate the use of credit information, as well as new proposals to further refine the DNC and TSR regulations and restrict predictive dialer use. We cannot predict whether this legislation will be enacted and what effect, if any, it would have on our industry.

Most states have also enacted or are considering legislation to regulate telephone solicitations. For example, telephone sales in certain states are not final until a written contract is delivered to and signed by the buyer, and then the contract may be canceled within three business days. At least one state also prohibits telemarketers from requiring credit cards as a method of payment, and several other states require certain telemarketers to obtain licenses and post bonds. For instance, in certain

states persons selling insurance products or mortgage services are required to be licensed by various state insurance commissions and participate in regular continuing education programs. Some industries we serve are also subject to various state government regulations with regard to selling practices and consumer disclosure requirements.

We specifically train our representatives to conduct calls in an approved manner and believe we are in compliance in all material respects with all federal and state regulations. There can be no assurance, however, that we may not be subject to regulatory challenge for a violation of federal or state law by any of our clients or other third parties.

The timing and size of our clients' marketing programs, which are impacted by unique seasonal situations and subject to variations in underlying economic conditions, directly affect our revenues. Our expenses are also directly affected by these factors. We cannot predict the seasonal variations in our clients' demands for our services.

Our business depends on people. We place a high priority on hiring, training, retaining and managing good people. We attempt to locate our client service centers where the cost of labor is relatively low and there are sufficient qualified and motivated workers to meet our needs. We do this to maintain lower operating costs while maintaining a high quality workforce generating a manageable turnover rate. Employee turnover rates, while manageable, exceed those experienced in most other industries and the cost of attrition training remains a significant cost of operation. We offer internal educational and professional development opportunities for our supervisors and managers, and have processes that allow associates to self identify next level opportunities as efforts to help mitigate turnover.

We rely on specialized telecommunications and computer technology to meet our clients' needs. We will need to continue to select, invest in and develop new and enhanced technology to remain competitive. Our future success will also depend on our operational and financial ability to develop information technology solutions that keep pace with evolving industry standards and changing client demands. Our business is highly dependent on our computer and telephone equipment and software systems, the temporary or permanent loss of which could materially and adversely affect our business.

Historically a few major clients have accounted for the bulk of our revenue. In 2003, five clients each accounted for over 10% of our revenues. AT&T, our largest telecommunications client, accounted for 26%, and Qwest Communications International ("Qwest"), accounted for approximately 14% of our revenues. Trilegiant, our largest membership services client, accounted for 15%, while American Express, our largest financial services client, and Cablevision, our largest cable television client, were each responsible for approximately 11% of our revenues. For 2002, three clients each accounted for over 10% of our revenues. Qwest accounted for approximately 26% of our revenues, AT&T accounted for nearly 22%, and American Express accounted for approximately 13% of our revenues. Revenues from AT&T are derived from separate contractual arrangements with several different business units of AT&T. From time to time, AT&T reorganizes or curtails its marketing programs, negotiates price reductions in certain of its programs and significantly reduces its volume of business with its outsourced CRM solutions vendors, including us, all of which negatively affect our revenues. The decline in revenue from Qwest Communications year over year was due to a reduction in the volume of

outsourced business by the client. In the fourth quarter of 2003, our contract with Cablevision expired and was not renewed by the client. Cablevision made a decision to consolidate its customer service into available in-house capacity. Although we try to improve and grow our existing customer relationships, it is also our goal to reduce our dependence on a few major clients by broadening our customer base in order to limit the detrimental impact their unilateral decisions can have on our business. See Item 7 "Revenue Concentration."

Aegis maintains a reputation for quality service. This reputation is important because our services involve direct contact with our clients' customers and sale prospects. To that end, our representatives are monitored to ensure that they comply with the client's guidelines and deliver quality and efficient service. We regularly measure the quality of our services by benchmarking factors such as customer satisfaction and call handling metrics such as sales per hour, service levels and abandoned calls. Our information systems enable us to provide clients with real time reports regarding the status of an ongoing campaign. We also transmit summary data and captured information electronically to our clients. Access to this data enables our clients to modify or enhance an ongoing campaign to improve its effectiveness.

Our client service representatives deal directly with our clients' customers and prospects. Thus, Aegis places a heavy emphasis on training and quality control processes. We dedicate a training staff at each facility to conduct both primary and recurrent training for all client service representatives. We employ a quality control staff at each facility who measure quality on both a quantitative and qualitative basis. We believe this attentiveness to training and customer service enables our client service representatives to perform a variety of highly complex and proprietary functions for our clients.

As of December 31, 2003, we employed 3,700 persons, including over 3,200 client service representatives. We believe our relationship with our employees is generally good.

On November 5, 2003, the Company terminated its pending agreement to be acquired by AllServe Systems, PLC ("AllServe"), in accordance with the terms and conditions of the merger agreement and signed definitive documents to effect, and did effect, an investment in the Company by Deutsche Bank AG—London ("Deutsche Bank") and Essar Global Limited ("Essar"), part of the Essar Group, a diversified industrial group out of India. After consultation with its financial advisor SunTrust Robinson Humphrey, and taking into account all legal, financial, regulatory and other aspects of the unsolicited written acquisition proposal from Deutsche Bank and Essar, the Company's Board of Directors accepted the proposal. It was determined that the Deutsche Bank/Essar transaction was a superior proposal which would result in a more favorable outcome for the Company's stockholders and debt holders, from a financial point of view, than the transaction with AllServe; and that the Board's fiduciary duties required it to accept the Deutsche Bank/Essar transaction. The Deutsche Bank/Essar transaction results in the Company remaining a publicly traded company with at least 20 percent of the company's equity remaining in the hands of the Company's current stockholders if all of the warrants are exercised. Following the transaction, and if all of the warrants are exercised, a minimum of approximately four percent of the equity of the newly capitalized Company will remain in the hands of the Company's current unaffiliated common stockholders.

The transaction resulted in Deutsche Bank and Essar providing approximately equal portions of a $28.231 million investment in the Company in return for three-year secured promissory notes and warrants to purchase up to 80 percent of the Company's common stock on a fully-diluted basis, taking

into account the completed or pending, conversion or cancellation of all shares of Series D, E and F Preferred Stock that were outstanding immediately prior to the transaction. As of November 5, 2003, Deutsche Bank and Essar together have warrants to purchase approximately 34 percent of the Company's Common Stock on a fully diluted basis. Following the amendment of the Company's certificate of incorporation to increase the Company's number of authorized shares, as described below, Deutsche Bank and Essar together will receive warrants to purchase approximately an additional 46 percent of the Company's Common Stock on a fully-diluted basis, or 80 percent after taking into account the warrants acquired on November 5, 2003. The Deutsche Bank/Essar notes provided for 527.662 million warrants. The warrants have an exercise price of $0.01 per warrant and expire on November 5, 2010. The warrants were valued with the Black-Scholes formula and treated as a discount on notes payable. The discount of $4.45 million is being amortized over the life of the notes.

In connection with the transaction, on November 5, 2003, holders of a majority of the outstanding shares of the Company's voting stock approved, by written consent, (1) an amendment to the Company's certificate of incorporation to increase the number of shares of Common Stock the Company is authorized to issue from 200,000,000 to 800,000,000, and (2) an amendment to the Series F Preferred Stock Certificate of Designation to, among other things, increase the number of shares of Common Stock into which each share of Series F Preferred may be converted, from 34,527,594 to 46,910,503. These amendments will take effect after the circulation by the Company of an information statement to its stockholders, in accordance with Section 14(c) of the Securities Exchange Act of 1934, as amended, and Rule 14c-2 promulgated there under. This mailing is expected to take place on or about March 31, 2004, and the amendments will be effected immediately upon expiration of the twenty-day waiting period.

The three-year promissory notes purchased from the Company by Deutsche Bank and Essar in the transaction in the aggregated principal amount of $28.231 million have a floating interest rate equal to the three-month London Interbank Borrowing Offered Rate plus 0.50% per annum. Interest under the notes is payable quarterly in cash or the Company may, at its option cause such interest to be capitalized and added to the principal amount of the notes. The principal amount of each note is payable in two installments. The first installment of $12.344 million was due on the earlier of February 5, 2004 or the date on which the Company had availability under a new credit facility. On January 28, 2004, $8.0 million of the first required installment was paid as a result of entering into a new credit facility. (See Item 1. Business—Wells Fargo Foothill Agreement). On January 28, 2004, the promissory notes were amended. The principal amount of the amended notes in the aggregate was $20.231 million, with each note still payable in two installments. The first installment of $4.344 million was due as the cash collateralized letters of credit were replaced under the new credit facility and the funds released to the Company. The Company made additional payments totaling $2.0 million dollars in March 2004 on the first installment. The remaining balance of $2.344 million on the first installment was amended on March 30, 2004 and the maturity date extended to January 3, 2005. The second installment of $16.054 million, which includes capitalized interest of $0.166 million through March 30, 2004, is due on April 26, 2007. The notes are guaranteed by all of the Company's subsidiaries.

The Company failed to meet covenants regarding earnings before interest, taxes, depreciation and amortization that are common to the Wells Fargo Foothill ("Foothill") Loan and Security Agreement (the "Loan Agreement") and the Amended and Restated Secured Promissory Notes, dated January 28, 2004, held by Deutsche Bank and Essar in the principal amounts of $10.088 million and $10.144 million, respectively (the "Notes"). As such, it represented a default under these agreements and additionally, a cross default under the Loan Agreement. Additionally, while the Company made payments of $10.0 million of the required $12.344 million due in 2004, a portion of the amounts coming due were not paid as prescribed thus resulting in a default under the Notes and the Loan Agreement.

On March 30, 2004 the Company executed amended agreements with revised covenants and received waivers from the lenders for all defaults in the Loan Agreement and Notes. In addition, the amended Notes included an extension of the due date for the balance of initial installment payments of $2.344 million to January 3, 2005. Accordingly, these balances have been reclassified to long-term debt as of December 31, 2003 thus improving our working capital position. The principal amounts of the amended Notes were increased to include capitalized interest of $0.166 million through March 30, 2004. The aggregate amount of the amended Notes at March 30, 2004 is $18.398 million.

In accordance with the terms of its then-existing senior and subordinated loans, as well as the terms of its agreement with Deutsche Bank and Essar, the Company was required to repay or otherwise retire its obligations to various lenders from the proceeds of this transaction (and, to the extent the subordinated debt was not paid off, the holders of the subordinated debt discharged the debt and released the Company from any further liability under their promissory notes). In addition to the repayment of senior and subordinated debt, the other uses of the proceeds of the transaction included collateralizing the letters of credit that remained outstanding under the Company's former credit facility, payment of investment banking, legal and accounting fees, payment of management retention bonuses, and amounts to be reserved for the holders of the Company's Series B Preferred Stock and for the possible payment of all or a portion of a $1.1 million break-up fee that may be owed to AllServe in connection with the termination of the Company's agreement to be acquired by AllServe. If the $1.1 million break-up fee is not owed to AllServe, it will be distributed to the subordinated debt holders. If certain fees are paid to Allserve, this will reduce the amount paid to the subordinated debtholders, up to $1.1 million. The Company has reserved this fee as part of the gain on early extinguishment of debt for the year ending December 31, 2003. The Company was also responsible, under the terms of agreement, for the costs of the transaction including the expenses of Deutsche Bank and Essar, and paid these costs and expenses after the completion of the transactions. See Item 3. Legal Proceedings.

In connection with the transaction with Deutsche Bank and Essar, ten of the 11 members of the Company's board of directors resigned on November 5, 2003, and, in accordance with the procedures set forth in the Company's certificate of incorporation and bylaws, the number of directors constituting the Company's board of directors was reduced to ten. Herman M. Schwarz, the Company's Chief Executive Officer and the remaining sole director of the Company, has filled five of the vacancies on the board. Of the five new directors, one is a designee of Deutsche Bank, three are designees of Essar and one is an employee of the company. The Company will fill two vacancies in the near future with designees of Deutsche Bank and expects to fill the two remaining vacancies with independent directors in the near future.

On January 26, 2004, Aegis entered into the Loan Agreement with Foothill that will allow the Company to borrow up to $25.0 million, with a maturity date of January 26, 2007. Interest rates under the agreement are variable and are tied to the London Interbank Borrowing Offered Rate and Wells Fargo prime rate. The Loan Agreement contains restrictions and covenants limiting among other things, the amount of indebtedness incurred by the Company and its subsidiaries, certain financial targets and capital expenditures. Proceeds from the Loan Agreement will be used for working capital, capital expenditures and expansion of existing centers, or other purposes. As a result of the agreement, Foothill has been granted a continuing security interest in substantially all of our assets. See Item 1. Business—Deutsche Bank/Essar Transaction.

We file reports with the Securities and Exchange Commission, or SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The public may read

and copy any materials we file with the SEC at their Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549. Information on the operations of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. We also file reports with the SEC electronically via the Electronic Data Gathering, Analysis and Retrieval System, or EDGAR. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC via EDGAR, at http://www.sec.gov.

Additional information about Aegis Communications Group, Inc. may also be obtained from our Internet website at http://www.aegiscomgroup.com.

Our principal executive offices and operational and administrative headquarters are located in a 23,333 square foot leased building in Irving, Texas. This lease, which was originally set to expire on December 31, 2003, was extended to December 31, 2004. We also lease an additional 7,076 square feet in Atlanta, Georgia for executive and administrative offices. This lease expires on September 30, 2007. All of our facilities are occupied pursuant to various lease arrangements. We believe that the development of additional centers should enhance our long-term profitability. Accordingly, we continue to implement our site selection strategy, which focuses on locating client service centers in markets we believe offer lower wage rates, better employee retention and generally lower operating costs. To that end, in 2003 we closed one metropolitan-based inbound center in Arlington, Texas. Additionally, we did not renew a lease that expired on December 31, 2003 for one of our Irving, Texas locations. These changes followed the closing of call centers in Mesquite, Texas and Atlanta, Georgia during 2002. The changes in 2002 followed other significant moves made in prior years. In 2001, we closed six relatively small outbound dedicated centers in Dalton and Browns Valley, Minnesota, Hazleton, Pennsylvania, Newport News, Virginia, Barrie, Canada and San Francisco, California and opened a 534-seat inbound-oriented client service center in Rocky Mount, North Carolina. In March 2003, we opened a new 195-seat service center in El Segundo, California and reduced our existing Los Angeles facilities to broaden our ability to attract talented labor. As of December 31, 2003, we performed our services in the facilities listed below:

	Client Service Centers
Location	Date Opened	Lease Expiration Date	Square Footage	Number of Production Workstations
Elkins, WV	November 1998	October 31, 2008	20,125	204
Fairmont, WV	October 1997	February 28, 2009	48,000	517
Irving, TX	September 1985	December 31, 2004	52,866	624
Joplin, MO	February 1998	February 1, 2008	33,055	445
Los Angeles, CA	October 1985	October 31, 2007	19,674	320
Port St. Lucie, FL	September 1997	July 23, 2007	44,000	310
Rocky Mount, NC	June 2001	October 9, 2007	62,500	534
Sierra Vista, AZ	February 1999	March 1, 2009	45,000	615
St. Joseph, MO	April 1999	June 1, 2009	27,316	328
Terre Haute, IN	August 2000	September 30, 2010	34,680	493
El Segundo, CA	March 2003	May 31, 2008	14,174	195

			401,390	4,585

We believe we can extend the leases at these locations or relocate the facilities on terms comparable with our current lease obligations. While our current capacity is sufficient to handle our current production demands, revenue growth may warrant additional client service center facilities. We are actively evaluating non-U.S. locations as the next phase of the site migration program. We have

partnered with WNS North America, Inc., a leading business processing outsourcer with extensive operations in India, to offer a full suite of offshore CRM and business process outsourcing, or BPO, services to clients in North America. We began our alliance in 2002 by successfully collaborating on an engagement for a major telecommunications provider. The CRM services are provided by our facilities in North America while WNS provides complex BPO services in its facilities located in India.

We are party to certain legal proceedings incidental to our business. Certain claims arising in the ordinary course of business have been filed or are pending against us. Management believes that the ultimate resolution of such contingencies will not have a material adverse effect on the consolidated financial position or consolidated results of operations of Aegis.

On July 18, 2003, two of our public stockholders, John Beggi and Steven Stremke, filed complaints in the District Court of Dallas County, Texas against the Company and the individual members of its Board of Directors. The complaints alleged, among other things, that the then-proposed acquisition of the Company by AllServe was unfair to our public stockholders and that the defendants breached their fiduciary duties to our public stockholders in connection with the then-proposed acquisition. The plaintiffs are seeking a class action in each complaint and are seeking to enjoin the transaction with AllServe. At this time, it is not possible to predict accurately the outcome of these lawsuits as it is not yet clear what effect the subsequent termination of the merger agreement with AllServe and completion of the transaction with Deutsche Bank and Essar may have on this stockholder litigation. We intend to continue to contest these lawsuits vigorously.

Additionally, on November 12, 2003, AllServe and its wholly-owned subsidiary AllServe Systems, Inc. filed suit against us in the Court of Chancery of the State of Delaware. Based on the complaint, the plaintiffs are apparently seeking an injunction to prevent us from closing the transaction with Deutsche Bank and Essar, which in our view has already been closed. The complaint also seeks to specifically enforce our merger agreement with AllServe. Alternatively, the complaint seeks payment of the $1.1 million break-up fee as well as other monetary damages that, according to AllServe, exceed $50 million. We deny that AllServe is entitled to any injunctive relief, payment of the break-up fee or any other damages or payments. The $1.1 million was accrued at December 31, 2003 to a reserve for the benefit of the subordinated debtholders. Payment to the subdebt holders is contingent upon the outcome of the Allserve litigation. If certain fees are paid to Allserve, this will reduce the amount paid to the subordinated debtholders up to $1.1 million. At this time it is not possible to accurately predict the outcome of this lawsuit. We intend to contest this lawsuit vigorously.

Because these actions were approved by holders of the required majority of outstanding shares that were entitled to cast votes, no other stockholder approval of these actions is necessary. However, before these amendments can be effected, twenty days must expire after the mailing of an information statement on Form 14C to our stockholders. This mailing is expected to take place on or about March 31, 2004, and the amendments will be effected immediately upon expiration of the twenty-day period.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

On September 20, 1999, we received notification from NASDAQ that we no longer met the minimum requirements for continued listing on the NASDAQ National Market System and, therefore, the NASDAQ staff determined that our continued listing was no longer warranted. Accordingly, our common stock, $.01 par value per share, now trades on the National Association of Securities Dealers' Over-the-Counter Electronic Bulletin Board ("NASDAQ OTC BB") under the symbol "AGIS". As of April 1, 2004, there were 85,004,987 shares of our common stock outstanding held by approximately 5,600 holders of record.

The table below lists the range of high and low bid prices for our common stock as reported by the NASDAQ OTC BB for the two-year period ended December 31, 2003 and the subsequent interim period. These quotations reflect inter-dealer prices, without retail markup, markdown, or commission, and may not necessarily represent actual transactions.

Year ended December 31, 2002	High		Low
First Quarter	$	0.39		$	0.17
Second Quarter	$	0.32		$	0.16
Third Quarter	$	0.17		$	0.06
Fourth Quarter	$	0.08		$	0.03
Year ended December 31, 2003	High		Low
First Quarter	$	0.07		$	0.05
Second Quarter	$	0.13		$	0.04
Third Quarter	$	0.06		$	0.01
Fourth Quarter	$	0.34		$	0.01
Interim period from January 1, 2004	High		Low
through April 1, 2004	$	0.26		$	0.11

To date, we have not declared a cash dividend on our common stock. We intend to retain any earnings for use in the operation and expansion of our business, and therefore do not anticipate declaring cash dividends in the foreseeable future. We have accrued an annual dividend of $0.36 per share on 29,778 outstanding shares of our Series B Preferred Stock. Our Series D and E Preferred Stock accrued dividends quarterly at a rate of 15% per annum. In connection with the Deutsche Bank/Essar transaction on November 5, 2003, all of the outstanding shares of Series D and E Preferred Stock were either converted into Common Stock or cancelled, resulting in no outstanding shares of Series D and E Preferred Stock. Our Series F Preferred Stock accrued dividends daily at a rate of 9.626% per annum. In connection with the Deutsche Bank/Essar transaction on November 5, 2003, half of the then-outstanding shares of Series F Preferred Stock were converted into Common Stock, leaving 23,375 shares of Series F Preferred Stock currently outstanding. Also in connection with the Deutsche Bank/Essar transaction, the holders of the outstanding shares of Series F Preferred Stock have waived their above-described rights to dividends and a liquidation preference, as well as certain rights to adjustment of the conversion price to convert their Series F Preferred Stock into Common Stock. Under the terms of the Third Amended and Restated Credit Agreement (the "Credit Agreement"), we were prohibited from paying cash dividends on our common stock and preferred stock until all of the lender's commitments had been met and all of our obligations under the Credit Agreement had been

satisfied. See "Notes to Consolidated Financial Statements—7. Long-Term Debt and 11. Preferred Stock."

In an effort to reduce debt and improve our balance sheet, on June 30, 1999, a group led by our then largest shareholder, Thayer Equity Investors III, L.P. ("Thayer Equity", and together the "Thayer-led group"), agreed to convert $12.1 million of its subordinated debt into two new series of convertible preferred stock. The 77,300 shares of Series D Preferred Stock issued, ($0.01 par value per share, $100 per share liquidation preference) were convertible into our common stock at $2.00 per share, and the 44,018 shares of new Series E Preferred Stock issued ($0.01 par value per share, $100 per share liquidation preference) were convertible into our common stock at $2.375 per share. Both series earned cumulative dividends (payable in cash or in kind in additional shares of the respective series of preferred stock) at the annual rate of 15%, and were non-voting except on specified matters. In consideration of the conversion of the subordinated debt into preferred stock, we also issued the Thayer-led group warrants to purchase an additional 1,000,000 shares of our common stock at $0.90625 per share. As of December 31, 2002, the Series D Preferred Stock accrued paid in kind dividends of approximately 52,123 shares of Series D Preferred Stock, and the Series E Preferred Stock accrued paid in kind dividends of approximately 29,681 shares of Series E Preferred Stock. In connection with the Deutsche Bank/Essar transaction on November 5, 2003, all of the outstanding shares of Series D Preferred Stock were cancelled, resulting in no outstanding shares of Series D Preferred Stock. At the same time, all of the outstanding shares of the Series E Preferred Stock were either converted into Common Stock or cancelled, leaving no shares of Series E Preferred Stock outstanding.

In an effort to further reduce outstanding debt on our balance sheet, thereby providing us the needed flexibility to renegotiate our Credit Agreement (and cure then outstanding defaults), and provide access to working capital to fund future operations, on December 10, 1999, we completed the sale of 46,750 shares of newly issued Series F Preferred Stock to Questor Partners Fund II, L.P., Questor Side-by-Side Partners II, L.P., and Questor Side-by-Side Partners II 3(c)(1), L.P. (collectively, the "Questor Investors") for an aggregate purchase price of $46.75 million. The Series F Preferred Stock were entitled to receive dividends, in preference to all other capital stock of Aegis Communications Group, Inc., except for our Series B Preferred Stock, at the rate of 9.626% per annum, which would accrue and be cumulative from their original issue date. The dividends on the Series F Preferred Stock accrued on each share from its issuance on a daily basis, whether or not earned or declared. To the extent that dividends had not been paid on any March 31, June 30, September 30 or December 31 of any year, all such dividends were added to the investment value of such shares. The Series F Preferred Stock is convertible into shares of common stock on the basis of one share of common stock per $1.00 of investment value (as adjusted) of the Series F Preferred Stock. The Series F Preferred Stock shareholders also participate, on an as-converted basis, with the common stock in any dividends that may be declared and paid after the payment of preferential dividends. The Series F Preferred Stock shareholders vote on an as-converted basis. We used the proceeds from the sale of the Series F Preferred Stock to repay outstanding bank debt and pay transaction expenses.

As a result of the sale of the Series F Preferred Stock and subsequent increases in the investment value of the Series F Preferred Stock resulting from dividends, and through their ownership of common stock and Series E Preferred Stock, on an as-converted basis, the Questor Investors collectively own 42.3% of our common stock and common stock equivalents outstanding. The Series F Preferred Stock vote on an as-converted basis and represent approximately 64.1% of our voting equity securities at December 31, 2003. In connection with the Deutsche Bank/Essar transaction on November 5, 2003, half of the then-outstanding shares of Series F Preferred Stock were converted into Common Stock, leaving 23,375 shares of Series F Preferred Stock currently outstanding. Also in connection with the Deutsche Bank/Essar transaction, the holders of the outstanding shares of Series F Preferred Stock have waived

their above-described rights to dividends and a liquidation preference, as well as certain rights to adjustment of the conversion price to convert their Series F Preferred Stock into Common Stock.

The sales and exchanges of the Series D, E and F Preferred Stock described above were exempt under Rule 506 of Regulation D under the Securities Act of 1933, as amended. The Thayer and Questor investors are "accredited investors" as defined by Regulation D and each of the private placements exceeded $5.0 million in value.

In November 1996, IQI, Inc. established the 1996 Incentive Stock Option Plan, or the IQI Plan. The IQI Plan provides for the award of incentive stock options to directors, officers, key employees and members of Thayer's Advisory Board. A Compensation Committee, as established by IQI's Board of Directors, administered the IQI Plan. These options are intended to qualify as incentive stock options, or ISOs, under the Internal Revenue Code or non-statutory stock options, also referred to as NSOs, which are not intended to qualify. IQI reserved 3,929,774 shares of common stock for issuance under the IQI Plan. Options granted pursuant to the IQI Plan are exercisable for ten years from the date of the grant subject to vesting schedules.

Prior to the merger with IQI, ATC shareholders approved two stock option plans, known as the ATC Plans, which provided for the granting of options to purchase up to 5,000,000 shares of common stock to key employees, officers and directors of ATC and its operating subsidiary. At the date of the IQI Merger, options to purchase 4,447,000 shares of common stock granted pursuant to the ATC Plans were outstanding. Options granted pursuant to the ATC Plans are exercisable for ten years from the date of the grant subject to vesting schedules.

In September 1998, we initiated the Aegis Communications Group, Inc. 1998 Stock Option and Restricted Stock Plan, or the 1998 Aegis Communications Group Plan, which provides for the granting of options to purchase up to a maximum of 12,000,000 shares of common stock to key employees, officers and directors of us and our operating subsidiaries. Options granted pursuant to the 1998 Aegis Communications Group Plan are exercisable for ten years from the date of the grant subject to vesting schedules. We may grant additional options under the 1998 Aegis Communications Group Plan at any time prior to September 2008. As a result of the adoption of the 1998 Aegis Communications Group Plan, we will not grant any future options to purchase shares of common stock pursuant to the IQI Plan or the ATC plans.

Effective as of August 21, 2003, in connection with the anticipated AllServe transaction, all outstanding options to purchase capital stock of the Company or its subsidiaries were terminated and released by their holders, with an aggregate cost to the Company for obtaining those releases of $0.05 million. Effective as of November 5, 2003, all warrants to purchase capital stock of the Company that were outstanding prior to the transaction with Deutsche Bank and Essar were terminated and released by their holders. If the Company had elected to recognize compensation cost for the issuance of options to employees of the Company based on the fair value at the grant dates for awards consistent with the method prescribed by Statement of Financial Accounting Standards ("SFAS") No. 123 Accounting for Stock Based Compensation, $1.5 million in unearned stock compensation expense at the date of cancellation would have been recognized.

In the transaction on November 5, 2003, Deutsche Bank and Essar provided approximately equal portions of a $28.231 million investment in the Company in return for three-year secured promissory notes and warrants to purchase up to 80 percent of the Company's common stock on a fully-diluted basis, taking into account the completed or pending, conversion or cancellation of all shares of Series D, E and F Preferred Stock that were outstanding immediately prior to the transaction. As of November 5, 2003, Deutsche Bank and Essar together have warrants to purchase approximately 34 percent of the Company's Common Stock on a fully diluted basis. Following the amendment of the Company's certificate of incorporation to increase the Company's number of authorized shares, Deutsche Bank and Essar together will receive warrants to purchase an approximately additional 46 percent of the Company's Common Stock on a fully-diluted basis, or 80 percent after taking into account the warrants acquired on November 5, 2003. The warrants have an exercise price of $0.01 per warrant and expire on November 5, 2010.

The table below sets forth certain of our selected consolidated financial data for the last five years. This information should be read in conjunction with Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes to the consolidated financial statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table sets forth certain statements of operations data as a percentage of revenues for the periods indicated:

		Year ended December 31,
		2003		2002		2001
Revenues		100.0	%	100.0	%	100.0	%
Operating Costs:
	Cost of services		71.2	%	68.8	%	66.1	%
	Selling, general and administrative expenses		29.7	%	31.7	%	25.9	%
	Depreciation and amortization		8.2	%	9.6	%	6.5	%
	Acquisition goodwill amortization		0.0	%	0.0	%	1.1	%
	Restructuring charges		0.0	%	0.7	%	0.0	%

		Total operating expenses		109.1	%	110.8	%	99.6	%

		Operating income (loss)		-9.1	%	-10.8	%	0.4	%
Gain on early extinguishment of debt		-4.4	%	0.0	%	0.0	%
Interest expense, net		1.7	%	0.9	%	1.4	%
Non-cash interest expense		1.2	%	1.2	%	0.6	%

		Loss from continuing operations before income taxes		-7.6	%	-12.9	%	-1.6	%
Current taxes		0.2	%	-0.1	%	0.0	%
Deferred taxes		0.0	%	7.2	%	2.7	%

		Net loss from continuing operations		-7.8	%	-20.0	%	-4.3	%

Discontinued operations:
	Net loss from operations of discontinued segment		0.0	%	-0.1	%	0.0	%
	Estimated gain (loss) on disposal of business segment		-0.4	%	6.1	%	0.0	%

		Loss before cumulative effect of change in accounting principle		-8.2	%	-14.0	%	-4.3	%
Cumulative effect of change in accounting for goodwill impairment		0.0	%	-32.0	%	0.0	%

		Net loss		-8.2	%	-46.0	%	-4.3	%

Preferred stock dividends		5.4	%	6.2	%	3.5	%

	Net loss applicable to common shareholders		-13.6	%	-52.2	%	-7.8	%

We recognized a net loss applicable to common shareholders of $19.1 million or $0.33 per share for the year ended December 31, 2003, versus a net loss applicable to common shareholders of $70.8 million or $1.35 per share in 2002. Excluding net income from discontinued operations, a gain on sale of the related assets, a gain on the early extinguishment of debt and the cumulative effect of a change in accounting for goodwill, we incurred a net loss from continuing operations of $17.1 million or $0.30 per share for the period ended December 31, 2003, as compared to a net loss from continuing operations of $27.0 million or $0.52 per share for the period ended December 31, 2002.

Revenues. For the year ended December 31, 2003, revenues from continuing operations were $139.9 million versus $135.9 million in the prior year, an increase of $4.0 million, or 2.9%. The increase in revenues versus the year ended December 31, 2002 was primarily a result of expansion of work from

clients in the cable television and membership services industries partially offset by a decrease in volumes from clients in the telecommunications and financial services industries.

Revenue Mix. The inbound CRM and non-voice services continued to be responsible for the majority of our revenues in 2003. Together these two service areas accounted for approximately 74.1% of our revenues, as compared to 80.5% in 2002. Outbound CRM revenue for 2003 accounted for approximately 25.9% as compared to 19.5% for 2002. The increase in outbound CRM revenues for 2003 is due to additional volume for an existing client program.

Revenue Concentration. We are dependent on several large clients for a significant portion of our revenues. For the year ended December 31, 2003, five customers each were responsible for at least 10% of our revenues, and together accounted for approximately 77% of our revenues. Our revenue concentration for these five customers for the years ended December 31, 2003 and 2002 was as follows:

Cost of Services For the year ended December 31, 2003, cost of services increased $6.2 million to $99.7 million compared to 2002. As a percentage of sales, cost of services rose slightly over the same period, from 68.8% to 71.2%. These costs, which consist primarily of direct labor associated with revenue generation, vary substantially with revenue. The increase year over year is primarily due to data and sales lead costs for an enhanced pay for performance project that began in January 2003 and increased telecommunications costs associated with the increase in revenues. Additionally, as a result of expansion of work from existing clients and new campaigns added during the year, we also incurred additional labor costs associated with training employees for the increase in volumes.

Selling, General and Administrative Expenses For the year ended December 31, 2003, selling, general and administrative expenses or SG&A decreased to $41.5 million, or 29.7% of revenues from $43.1 million, or 31.7% of revenues for the year ended December 31, 2002. The decrease is primarily due to a slight increase in revenue over the same period as well as the result of the Company's emphasis on controlling overhead costs. The elimination of overhead costs due to the reduction of headcount from 2002 to 2003 were partially offset by $2.1 million in expenses related to the terminated merger agreement with Allserve and the subsequent closing of the Deutsche Bank/Essar transaction.

Depreciation and Amortization For the years ended December 31, 2003 and 2002, respectively, depreciation and amortization expenses were $11.5 million, or 8.2% of revenues and $13.0 million, or

9.6% of revenues. The reduction in depreciation expense is due to the effects of reduced capital spending coupled with more mature assets becoming fully depreciated.

Gain on Early Extinguishment of Debt We retired $15.4 million in subordinated debt with the proceeds of the November 5, 2003 Deutsche Bank/Essar transaction. We paid $8.1 million in cash and recorded a $6.2 million gain on early extinguishment of debt. The gain has been reduced by $1.1 million, which, if not owed to Allserve for the breakup fee, will be distributed to the subordinated debtholders, net of certain expenses, as part of the agreement with Deutsche Bank and Essar.

Restructuring Charges We recorded $0.9 million in restructuring charges in the second quarter of 2002, related to the closing of our Atlanta call center. Included in the restructuring charges was $0.8 million in non-cancelable lease costs, including costs associated with the future payment of an early buy out, as provided in the lease. The remainder of the charges related primarily to the removal from operations and/or disposal of certain leasehold improvements, equipment, furniture and fixtures.

Interest Expense, net Net interest expense of $2.4 million incurred in 2003 was $1.2 million more than that incurred during the year ended December 31, 2002. The increase in net interest expense for the year ending December 31, 2003 is primarily due to the $1.0 million fee charged for the payoff of the Credit Agreement in November 2003. The outstanding balance on our revolving line of credit at December 31, 2002 was $5.9 million. The revolving line of credit was repaid in the Deutsche Bank/Essar transaction.

Income Tax Provision Our statutory state and federal income tax rate for the years ended December 31, 2003 and 2002 was approximately 40%. Our effective tax rate on reported taxable income or loss differs from the statutory rate due primarily to the write-down of our deferred tax asset, and the non-deductibility, for tax purposes, of the acquisition goodwill impairment in 2002.

We have historically generated net operating losses for income tax purposes. In the past, we recognized a deferred tax asset reflecting the future benefits of the resultant net operating loss carry-forward. These future tax benefits expire through 2022. Management regularly evaluates the company's ability to realize its deferred tax asset, and determined as of June 30, 2002, that more likely than not, the deferred tax asset would not be realized in the near future. As a result, we increased the valuation allowance approximately $9.8 million (a non-cash charge) representing the amount of the deferred tax asset for which a valuation allowance previously had not been established. At June 30, 2002 the carrying amount of the deferred tax asset was reduced to zero ($16.5 million less a valuation allowance of $16.5 million). We have not provided an income tax benefit to the operating losses incurred during 2003 and 2002, as such benefit would exceed the projected realizable deferred tax asset.

Income (loss) from Discontinued Operations On April 12, 2002, we completed the sale of assets of Elrick & Lavidge, our marketing research division, to Taylor Nelson Sofres Operations, Inc., a wholly-owned subsidiary of United Kingdom based Taylor Nelson Sofres plc. Initial cash proceeds from the sale were $12.2 million, which was subject to certain post-closing purchase price adjustments. These purchase price adjustments were ultimately completed pursuant to an agreement dated October 7, 2003, which provided for TNS (1) to receive $0.1 million out of a $0.6 million purchase price escrow fund (the balance of which was paid to us), (2) to retain $0.1 million in trade accounts receivable, and (3) to receive a payment from us of $0.02 million. This resulted in a net purchase price increase of $1.1 million, $0.1 million less than our previously projected increase of $1.2 million. As a result, our reserves were increased by $0.1 million, and the gain on the disposal of this segment was reduced by $0.1 million. The reserves included an amount for a lease, assuming that a buy-out agreement would be reached. When the buy-out agreement fell through, the reserves were increased by $0.5 million in the fourth quarter of 2003 to accrue for the remaining lease costs. The assets sold consisted primarily of accounts receivable, property and equipment, and other assets. The buyer assumed no liabilities, except for executory contracts. We recognized a gain on disposal of the segment of $8.3 million in the quarter

ended June 30, 2002, which was reduced, in light of the above settlement, by $0.1 million during the quarter ended September 30, 2003. Elrick & Lavidge's revenues, reported in discontinued operations, for the year 2002 was $6.2 million. For the year ended 2002, no income tax benefit was attributed to the loss from operations of the discontinued segment and no income tax expense was attributed to the gain on the sale of the segment.

Change in Accounting Principle In connection with the adoption of SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), we completed the transitional goodwill impairment test during the quarter ended September 30, 2002. A third party engaged by us performed the valuation. As a result of the performance of the impairment test, we concluded that goodwill was fully impaired, and accordingly, recognized a goodwill impairment loss of $43.4 million. The non-cash impairment charge was reported as a cumulative effect of an accounting change retroactive to January 1, 2002, in accordance with the provisions of SFAS 142. The goodwill impaired was related to prior acquisitions for which the perceived incremental value at time of acquisition did not materialize.

Preferred Dividends Preferred dividends decreased to approximately $7.6 million for the year ended December 31, 2003 from $8.5 million in the prior year. During 2003, dividends on the Series F Preferred Shares were not paid in cash, but were added to the investment value of such shares. Dividends on the Series D and E Preferred Stock were paid in additional shares of Series D and E Preferred Stock, respectively. In connection with the November 5, 2003 Deutsche Bank/Essar transaction, all of the Series D and E Preferred Shares and half of the Series F Preferred Shares were converted to Common Stock and the holders of the remaining Series F Preferred Stock waived their rights to dividends. See "Notes to Consolidated Financial Statements-11. Preferred Stock."

We recognized a net loss applicable to common shareholders of $70.8 million or $1.35 per share for the year ended December 31, 2002 versus a net loss applicable to common shareholders of $16.9 million or $0.32 per share in 2001. Excluding net income from discontinued operations, a gain on sale of the related assets, and the cumulative effect of a change in accounting for goodwill, we incurred a net loss from continuing operations of $27.0 million for the period ended December 31, 2002, as compared to a net loss from continuing operations of $9.3 million for the period ended December 31, 2001.

Revenues. For the year ended December 31, 2002, revenues from continuing operations were $135.9 million versus $214.4 million in the prior year, a decline of $78.5 million, or 36.6%. The decline in revenues versus the year ended December 31, 2001 was centered principally in three large clients, each of which experienced reduced transactional volumes year over year. The reduction in revenues attributed to these three clients was responsible for approximately 73% of the revenue decline from 2001 to 2002. The remainder of the decline in revenue was due primarily to the effects on our clients of the slowing economy.

Revenue Mix. The inbound CRM and non-voice services continued to be responsible for the majority of our revenues in 2002. Together these two service areas accounted for approximately 80.5% of our revenues, as compared to 76.2% in 2001.

Revenue Concentration. We are dependent on several large clients for a significant portion of our revenues. For the year ended December 31, 2002 three customers each were responsible for at least 10% of our revenues, and together accounted for approximately 61% of our revenues. Our revenue concentration for these three customers for the years ended December 31, 2002 and 2001 was as follows:

Cost of Services For the year ended December 31, 2002, cost of services dropped $48.2 million to $93.5 million compared to 2001, primarily as a result of the reduction in revenue. As a percentage of sales, cost of services rose slightly over the same period, from 66.1% to 68.8%. These costs, which consist primarily of direct labor associated with revenue generation, vary substantially with revenue.

Selling, General and Administrative Expenses For the year ended December 31, 2002, selling, general and administrative expenses or SG&A were $43.1 million, or 31.7% of revenues versus $55.5 million, or 25.9% of revenues for the year ended December 31, 2001. The reduction in selling, general and administrative expenses year over year is primarily attributable to our on-going cost reduction efforts that centered on reducing labor and associated employee benefit costs, and reducing occupancy costs. The increase as a percentage of revenue is primarily the result of the significant decline in revenue over the same period.

Depreciation and Amortization For the years ended December 31, 2002 and 2001, respectively, depreciation and amortization expenses were $13.0 million, or 9.6% of revenues and $14.0 million, or 6.5% of revenues. The reduction in depreciation expense is due to the effects of reduced capital spending coupled with more mature assets becoming fully depreciated. In accordance with SFAS 142, beginning January 1, 2002, we no longer amortize goodwill resulting from acquisitions. Acquisition goodwill amortization of approximately $2.4 million, or $0.04 per common share was recognized in the year ended December 31, 2001.

early buy out, as provided in the lease. The remainder of the charges related primarily to the removal from operations and/or disposal of certain leasehold improvements, equipment, furniture and fixtures.

Interest Expense, net Net interest expense of $1.2 million incurred in 2002 was $1.8 million less than that incurred during the year ended December 31, 2001. The decline in net interest expense is primarily attributable to lower levels of outstanding balances maintained during the year on our revolving line of credit. The outstanding balance on our revolving line of credit at December 31, 2002 was $5.9 million as compared to $13.8 million at December 31, 2001.

Income Tax Provision Our statutory state and federal income tax rate for the years ended December 31, 2002 and 2001 was approximately 40%. Our effective tax rate on reported taxable income or loss differs from the statutory rate due primarily to the write-down of our deferred tax asset, and the non-deductibility, for tax purposes, of acquisition goodwill amortization in 2001.

We have historically generated net operating losses for income tax purposes. In the past, we recognized a deferred tax asset reflecting the future benefits of the resultant net operating loss carry-forward. These future tax benefits expire through 2021. Management regularly evaluates the company's ability to realize its deferred tax asset, and determined as of June 30, 2002, that more likely than not, the deferred tax asset would not be realized in the near future. As a result, we increased the valuation allowance approximately $9.8 million (a non-cash charge) representing the amount of the deferred tax asset for which a valuation allowance previously had not been established. At June 30, 2002, the carrying amount of the deferred tax asset was reduced to zero ($16.5 million less a valuation allowance of $16.5 million). We have not provided an income tax benefit to the operating loss incurred during 2002 as such benefit would exceed the projected realizable deferred tax asset.

Income (loss) from Discontinued Operations On April 12, 2002, we completed the sale of assets of Elrick & Lavidge, our marketing research division, to Taylor Nelson Sofres Operations, Inc., a wholly-owned subsidiary of United Kingdom based Taylor Nelson Sofres plc. Initial cash proceeds from the sale were $12.2 million adjusted for certain purchase price adjustments, which were not yet final, as they were under review by both parties. The purchase price adjustment is estimated at approximately $1.2 million resulting in total estimated proceeds on the disposal of $13.4 million. Of the total proceeds, $0.6 million remains in escrow and $0.4 million represents trade accounts receivable. These amounts are included in our accounts receivable balance at December 31, 2002. The assets sold consisted primarily of accounts receivable, property and equipment, and other assets. The buyer assumed no liabilities, except for executory contracts. We recognized a gain on disposal of the segment of $8.3 million in the quarter ended June 30, 2002. Elrick & Lavidge's revenues reported in discontinued operations for the years ended December 31, 2002 and 2001 were $6.2 million, and $22.9 million, respectively.

Change in Accounting Principle. In connection with the adoption of SFAS 142, we completed the transitional goodwill impairment test during the quarter ended September 30, 2002. A third party engaged by us performed the valuation. As a result of the performance of the impairment test, we concluded that goodwill was impaired, and accordingly, recognized a goodwill impairment loss of $43.4 million. The non-cash impairment charge was reported as a cumulative effect of an accounting change retroactive to January 1, 2002, in accordance with the provisions of SFAS 142. The goodwill impaired was related to prior acquisitions for which the perceived incremental value at time of acquisition did not materialize.

Preferred Dividends. Preferred dividends increased to approximately $8.5 million for the year ended December 31, 2002 from $7.6 million in the prior year. During 2002, dividends on the Series F Preferred Shares were not paid in cash, but were added to the investment value of such shares. Dividends on the Series D and E Preferred Stock are currently being paid in additional shares of

Series D and E Preferred Stock, respectively. See "Notes to Consolidated Financial Statements-11. Preferred Stock."

The following table sets forth certain information from our statements of cash flows for the periods indicated:

We have historically utilized cash flow from operations, available borrowing capacity under our revolving line of credit, subordinated indebtedness provided by certain of our shareholders, and the issuance of convertible preferred stock to meet our liquidity needs. Our revolving line of Credit Agreement, which was due to mature in June 2003, was amended on April 14, 2003, and the maturity date was extended. Subordinated debt instruments held by certain of our shareholders, which were due to mature in 2003, were also amended on April 14, 2003, and the maturity dates were extended. At December 31, 2002, we were in compliance with all loan covenants. However, based on the twelve-month covenants for the period ended March 31, 2003, we were in default of certain covenants under the revolving line of Credit Agreement. Such covenants, however, were waived under the new amended agreement. On November 5, 2003, through the Deutsche Bank/Essar transaction, the revolving line of credit and the subordinated debt instruments were paid off (and to the extent the subordinated debt was not paid off, the holders of the subordinated debt discharged the debt and released the Company from any further liability under their promissory notes). On January 26, 2004, we entered into the Loan Agreement with Foothill that will allow the company to borrow up to $25.0 million. The maximum amount available under the Loan Agreement is determined by the lesser of i) the sum of a percentage of eligible billed accounts and a percentage of the amount of eligible unbilled accounts or ii) an amount equal to the collections on accounts receivable for the past 60 days, less the sum of certain reserves established by Foothill. The Loan Agreement contains restrictions and covenants limiting among other things, the amount of indebtedness incurred by the Company and its subsidiaries, certain financial targets and capital expenditures. As a result of the agreement, Foothill has been granted a continuing security interest in substantially all of our assets. As of April 1, 2004, the outstanding balance under the Loan Agreement was $6.4 million. Management believes that cash flow from operations and funds available from financing activities should be sufficient to meet our current liquidity requirements. See Item 1. Business—Deutsche Bank/Essar Transaction.

Cash used in operating activities was $7.0 million in 2003, as compared to cash provided of $7.2 million in the prior year. The decline in cash provided by operating activities is primarily attributable to the level of change in accounts receivable, operating losses incurred during the period and controlling accounts payable. Accounts receivable dropped from $32.7 million in 2001 to $20.9 million at the end of 2002, adding $12.8 million of cash flow to our operations in 2002. The decrease in receivables was a result of the decrease in revenue year over year as well as the net effects of improved management of our receivables balance. Conversely, accounts receivable increased $2.7 million from 2002 to 2003, mainly as a result a new membership services agreement entered into in January 2003. Due to the timing of collections for this agreement, there were approximately

$4.5 million in accounts receivable over 90 days for this client at December 31, 2003. These receivables were collected in the first quarter of 2004.

Cash used in investing activities was $5.6 million in 2003, as compared to cash provided of $7.3 million in 2002. The change is primarily attributable to the $12.4 million in cash proceeds received on the sale of the assets of the Elrick & Lavidge business segment in 2002. Total capital expenditures in 2003 were $0.9 million as compared to $5.1 million in 2002. Our capital expenditures consisted primarily of telecommunications equipment and information technology hardware and software required in the upgrade of our operations and the upgrade or replacement of workstations in our existing facilities. The remaining capital expenditures during 2003 were funded with proceeds from bank borrowings under our revolving line of credit, loan agreement and available cash. In addition, as a result of the Deutsche Bank/Essar transaction, restricted cash increased $4.6 million in 2003. The restricted cash is for the cash collateralization of the Company's letters of credit and escrow for the dividends and liquidation value of the Series B stockholders.

Cash provided by financing activities was $13.0 million in 2003, as compared to cash used of $11.9 million in 2002. The change is primarily due to the $28.231 million note investment by Deutsche Bank/Essar, offset in part by the $8.1 million payoff of the subordinated debt.

On December 31, 2003, the Company had two outstanding irrevocable letters of credit. These letters totaled approximately $4.6 million in value and expire between June 1, 2004 and August 6, 2004. The letters are being maintained as security for the Company's self-insured portion of its workers compensation insurance program and to support licensing requirements related to certain contractual obligations entered into by the Company. Letters of credit formerly reduced the amount available to be borrowed under the Company's revolving line of credit; however, the Company's line of credit has been repaid and terminated and the letters of credit were cash collateralized at the end of 2003. The Company has subsequently replaced $2.3 million of the letters under the new Loan Agreement and has cancelled $1.2 million of the letters. The Company expects to replace or eliminate the remaining letter as soon as practicable. As a result of the Deutsche Bank/Essar transaction on November 5, 2003, the Company, unable to locate the Series B Preferred shareholders, has escrowed $0.3 million, an amount equal to the accrued dividends and liquidation value of the Series B Preferred Stock.

Accounts receivable at December 31, 2003 were $23.6 million, as compared to $20.9 million at December 31, 2002. Our revenues and related accounts receivable are concentrated with clients in the telecommunications industry, an industry that has been under significant economic stress. At December 31, 2003, $10.0 million, or 41.3% of our net trade accounts receivable balance were concentrated in the telecommunications industry, as compared to $7.8 million, or 41.5% at December 31, 2002. At December 31, 2003, none of our telecommunications related accounts receivable were over 60 days past due.

The following table sets forth certain information concerning our contractual obligations and commercial commitments at December 31, 2003, and outlines our expected future payments to be made under such obligations and commitments:

The Company has agreements with certain telephone long distance carriers which currently range from 20 months to 45 months, and which provide for annual minimum usage requirements. During the second quarter of 2002, the Company completed negotiations with one of its carriers to cancel the then remaining minimum usage requirements under the agreement in exchange for entering into a new reduced usage commitment with the carrier under which the Company is committed to usage of $2.2 million over a 36-month period. During the fourth quarter of 2002, the Company reached agreement with its largest carrier to cancel the remaining minimum usage commitment under the then existing agreement in exchange for entering into a reduced usage commitment effective October 1, 2000, under which it is committed to usage of $7.4 million annually for seven years.

On December 31, 2003, the Company had two outstanding irrevocable letters of credit. These letters totaled approximately $4.3 million in value and expire between June 1, 2004 and August 6, 2004. The letters are being maintained as security for the Company's self-insured portion of its workers compensation insurance program and to support licensing requirements related to certain contractual obligations entered into by the Company. Letters of credit formerly reduced the amount available to be borrowed under the Company's revolving line of credit; however, the Company's line of credit has been repaid and terminated and the letters of credit were cash collateralized at the end of 2003. The Company has subsequently replaced $2.3 million of the letters under the new Loan Agreement and has cancelled $1.2 million of the letters. The Company expects to replace or eliminate the remaining letter as soon as practicable. As a result of the Deutsche/Bank Essar transaction on November 5, 2003, the Company, unable to locate the Series B Preferred shareholders, has escrowed $0.3 million, an amount equal to the accrued dividends and liquidation value of the Series B Preferred Stock.

In an effort to reduce outstanding debt on our balance sheet in 1999, thereby providing us the needed flexibility to renegotiate our bank revolving Credit Agreement and cure then outstanding defaults, and provide access to working capital to fund future operations, on December 10, 1999, we completed the sale of 46,750 shares of newly issued Series F Preferred Stock to the Questor Investors for an aggregate purchase price of $46.75 million. The Series F Preferred Stock was entitled to receive dividends, in preference to all other capital stock of Aegis Communications Group, Inc., except for our Series B Preferred Stock, at the rate of 9.626% per annum, which accrue and cumulate from their original issue date. The dividends on the Series F Preferred Stock accrued on each share from its issuance on a daily basis, whether or not earned or declared. To the extent that dividends had not been paid in cash on any March 31, June 30, September 30 or December 31 of any year, all such dividends were added to the investment value of such shares. The Series F Preferred Stock also participates, on an as-converted basis, with the common stock in any dividends that may be declared and paid after the

payment of preferential dividends. The Series F Preferred Stock is convertible into shares of common stock on the basis of one share of common stock per $1.00 of investment value (as adjusted) of the Series F Preferred Stock. The Series F Preferred Stock votes on an as-converted basis. We used the proceeds from the sale of the Series F Preferred Shares to repay outstanding bank debt and pay transaction expenses. For the year ended December 31, 2002 and through November 5, 2003, accrued dividends on the Series F Preferred Stock were added to the investment value of such shares. In connection with the Deutsche Bank/Essar transaction on November 5, 2003, half of the then-outstanding shares of Series F Preferred Stock were converted into Common Stock, and there are currently 23,375 shares of Series F Preferred Stock outstanding. Also in connection with the Deutsche Bank/Essar transaction, the holders of the outstanding shares of Series F Preferred Stock have waived their above-described rights to dividends and a liquidation preference, as well as certain rights to adjustment of the conversion price to convert their Series F Preferred Stock into Common Stock.

In conjunction with the December 10, 1999 closing of the Questor Transaction and the associated repayment of bank debt, we entered into the Credit Agreement with Bank of Nova Scotia ("Scotiabank") and Credit Suisse First Boston ("CSFB"), thereby curing all outstanding defaults through December 31, 1999. Under the amended agreement, our lenders expanded their aggregate revolving commitments under the Credit Agreement from $30.0 million to $45.0 million at closing. We met certain financial targets in the fourth quarter of 1999, which resulted in a $1.5 million increase in the commitment under the Credit Agreement, and we met certain financial targets in the first quarter of 2000, which resulted in an additional $2.5 million increase in the commitment. Borrowings under the Credit Agreement bore interest at fluctuating rates based upon prime rate or the London Interbank Borrowing Offered Rate ("LIBOR") at our election. The margin above the applicable prime rate or LIBOR was determined based upon the funded debt to earnings before interest, taxes, depreciation and amortization ratio.

As a result of charges recorded in the second quarter of 2000 (see "Results of Operations" above), we were in default of certain covenants of the Credit Agreement at June 30, 2000. On July 28, 2000, following negotiations with Scotiabank and CSFB, we entered into the First Amendment to the Credit Agreement (the "First Amendment"), which: i) waived our default under certain financial covenants of the Credit Agreement; and ii) amended and restated certain covenants of the agreement related to the interest rate, availability under the revolving line of credit, and certain financial targets. As a result of the First Amendment, our borrowing base under the Credit Agreement was restricted to $49.0 million.

As a condition of obtaining the lender's consent on the sale of the collateralized assets of Elrick and Lavidge on April 12, 2002, we agreed to reduce the size of the revolving commitment under the Credit Agreement to $35.0 million from $49.0 million. During the quarter ended September 30, 2002, in order to reduce costs, we reduced the size of the revolving commitment from $35.0 million to $30.0 million, as we did not believe the loan-borrowing base would necessitate the level of commitment. Upon the sale of Elrick and Lavidge, the margins were fixed at certain levels on LIBOR and prime borrowings until maturity of the agreement.

On April 14, 2003 we entered into the Fourth Amended and Restated Credit Agreement with Scotiabank and Credit Suisse First Boston. Under the amended agreement, the maturity date for the revolving line of credit was extended to April 16, 2004 from June 30, 2003. The amended agreement provided for the waiver of all outstanding defaults through March 31, 2003 and reduced the aggregate revolving commitments under the agreement from $30.0 million to $19.0 million. Additionally, the agreement required that during the term of the credit facility, cash balances above certain levels must be applied to minimize the outstanding balance under the revolving line of credit. Margins under the agreement are fixed at certain levels on prime borrowings until the maturity of the agreement. In exchange for the extension of the line of credit, the lenders required a base fee of $1,000, $200 of which was paid at the time of the extension and the $800 balance of which was to be paid at the earlier of April 16, 2004 or the renegotiation or pay-off of the loan. The line of credit was paid off on November 5, 2003, as a result of the Deutsche Bank/Essar transaction. Based on the trailing twelve-month covenants for the period ended March 31, 2003 the Company was in default of certain covenants under its Third Amended and Restated Credit Agreement with Scotiabank and Credit Suisse First Boston. Such covenants, however, were waived under the Fourth Amended and Restated Credit Agreement.

The weighted-average interest rate on the outstanding balance of $5.9 million at December 31, 2002 was 5.0%. Interest payments were due quarterly. Accrued interest at December 31, 2002 was $0.1 million. Interest expense was $0.8 million, $0.6 million and $2.3 for 2003, 2002 and 2001, respectively.

On November 5, 2003, all amounts owed under the Fourth Amended and Restated Credit Agreement were paid in full using a portion of the proceeds from the Deutsche Bank/Essar transaction, with the exception that the Company has entered into a Cash Collateral Agreement with the lenders that permits the Company to keep in place the letters of credit issued by the lenders. The letters of credit are collateralized by the cash collateral account pursuant to the Cash Collateral Agreement. With the exception of the provisions in the Credit Agreement relating to letters of credit and certain other general obligations thereunder, all liens, covenants and obligations under the Credit Agreement have been released.

As part of the Deutsche Bank/Essar transaction on November 5, 2003, Deutsche Bank and Essar purchased three-year promissory notes in the aggregate principal amount of $28.231 million from the Company. These notes have a floating interest rate equal to the three-month London Interbank Borrowing Offered Rate plus 0.50%. Interest under the notes is payable quarterly in cash or the Company may, at its option, cause such interest to be capitalized and added to the principal amount of the notes. The principal amount of each note is payable in two installments. The first installment of $12.344 million was due on the earlier of February 5, 2004 or the date on which the Company had availability under a new credit facility. On January 28, 2004, $8.0 million of the first required installment of $12.344 million was paid. On that same date, the promissory notes were amended. The principal amount of the amended notes in the aggregate was $20.231 million, with each note still payable in two installments. The first installment of $4.344 million was due as the cash collateralized letters of credit were replaced under the new credit facility and the funds released to the Company. On March 3, 2004 and March 8, 2004, the Company made payments totaling $2.0 million dollars to Deutsche Bank and Essar. The remaining $2.344 million was extended to January 3, 2005, on March 30, 2004. The second installment of $16.054 million, which includes capitalized interest of $0.166 million through March 30, 2004, is due on April 26, 2007. The notes are guaranteed by all of the Company's subsidiaries.

On January 26, 2004, we entered into the Loan Agreement with Foothill that will allow the company to borrow up to $25.0 million, with a maturity date of January 26, 2007. Interest rates under the agreement are variable and are tied to the London Interbank Borrowing Offered Rate and the Wells Fargo prime rate. The Loan Agreement contains restrictions and covenants limiting among other

things, the amount of indebtedness incurred by us and our subsidiaries, certain financial targets and capital expenditures. Proceeds from the Loan Agreement will be used for working capital, capital expenditures and expansion of existing centers, or other purposes. As a result of the agreement, Foothill has been granted a continuing security interest in substantially all of our assets. See Item 1. Business—Deutsche Bank/Essar Transaction.

In 1996, IQI issued a subordinated note payable to a shareholder aggregating $3.0 million. In December 1997, IQI and the shareholder consummated an agreement to settle outstanding issues between the shareholder, IQI and Thayer Capital (then IQI's principal shareholder). As part of such settlement, the aggregate principal balance of the note was reduced to $1.0 million and the interest rate increased from 8% to 12% on the remaining note. The $2.0 million reduction to the shareholder note was treated as a contribution of capital by the shareholder. On April 14, 2003, we reached agreement with the shareholder to extend the maturity date of the $1.0 million note from November 18, 2003 to April 17, 2004.

In connection with the March 1998 amendment to the Credit Agreement, IQI issued a subordinated note payable to Thayer Capital of $2.0 million with interest payable quarterly at an annual rate of 15%. Proceeds from the note were used for working capital purposes and to pay down $1.0 million of the term portion of the Credit Agreement. Payments under the note are subordinated to the Credit Agreement. Therefore, quarterly accrued interest is rolled into the principal balance of the note. At December 31, 2002 and 2001, the balance due on the note was approximately $4.0 million and $2.5 million, respectively and we recognized $0.5 million, $0.6 million and $0.5 million in interest expense, during 2003, 2002 and 2001, respectively pursuant to the note. On April 14, 2003, we reached agreement with the note holder to extend the maturity date of the note from August 31, 2003 to April 17, 2004.

Prior to the IQI Merger, on July 6, 1998, we received an additional financing commitment from Thayer Capital and certain other shareholders of IQI. Under the commitment, the Thayer-led group agreed to lend us, at our election, up to an additional $4.0 million in subordinated indebtedness at any time within 90 days after the IQI Merger. As of October 23, 1998, we had drawn the full commitment amount of $4.0 million. In connection with this commitment and effective upon the IQI Merger, we issued the Thayer-led group additional warrants to purchase up to 350,000 shares of our common stock at an exercise price of $2.375 per share and provided certain anti-dilution protection. This indebtedness is convertible into our common stock at a conversion price of $2.375 per share. This debt is in addition to, and on the same basic terms as, the subordinated debt that Thayer Equity had previously loaned to us. These borrowings were subsequently converted to preferred stock. See "Notes to Consolidated Financial Statements—9. Subordinated Indebtedness and 11. Preferred Stock."

In connection with the IQI Merger, Thayer Capital provided us with $6.8 million in subordinated indebtedness as well as a guarantee for $2.0 million in bridge financing to assist in funding our working capital needs. This subordinated indebtedness is convertible into shares of our common stock at a conversion price of $2.00 per share. In connection with the guarantee, and for additional consideration of $110,000, we issued to Thayer Equity warrants to purchase 1,100,000 shares of our common stock at an exercise price of $1.96. These borrowings were subsequently converted to preferred stock. See "Notes to Consolidated Financial Statements—9. Subordinated Indebtedness and 11. Preferred Stock."

On March 30, 1999, Thayer Equity provided us with approximately $5.7 million in additional subordinated indebtedness. Approximately one-half of the proceeds from this financing were used to pay down bank debt and the remainder for working capital purposes. The additional indebtedness is convertible into our common stock at a conversion price of $1.15 per share. This debt is in addition to, and on the same basic terms as, the subordinated debt that Thayer Equity had previously loaned to us.

The note carries an annual interest rate of 12%. Payments under the note are subordinated to the Credit Agreement; therefore, quarterly accrued interest is rolled into the principal balance of the note. At December 31, 2002 and 2001, the balance due on the note was $8.9 million and $7.9 million, respectively. We recognized $0.9 million, $1.0 million and $0.9 million in interest expense during 2003, 2002 and 2001, respectively pursuant to the note. On April 14, 2003, we reached agreement with the note holder to extend the maturity date of the note from August 31, 2003 to April 17, 2004.

In accordance with the terms of our then-existing senior and subordinated loans, as well as the terms of our agreement with Deutsche Bank and Essar, we were required to repay or otherwise retire our obligations to various lenders from the proceeds of this transaction (and, to the extent the subordinated debt was not paid off, the holders of the subordinated debt discharged the debt and released us from any further liability under their promissory notes). As a result of the November 5, 2003 Deutsche Bank/Essar transaction, all subordinated indebtedness was repaid and/or forgiven, and all warrants were canceled. The termination of the Company's agreement to be acquired by AllServe resulted in the possibility of a break-up fee of up to $1.1 million, owed to AllServe. The $1.1 million fee was reserved as a partial reduction of the gain on early extinguishment of debt at December 31, 2003. Any part of the $1.1 million reserved for the break-up fee that is not paid to AllServe will be distributed to the subordinated debtholders, net of certain expenses. See Item 1. Business—Deutsche Bank/Essar Transaction.

In February 2002, we were granted a summary judgment in a case against Mr. Michael G. Santry, a former director, pursuant to a suit we filed on July 5, 2001 in the District Court of Dallas County to recover monies owed us under a secured promissory note dated September 16, 1997. Mr. Santry was ordered to pay us $2.2 million plus prejudgment interest. The note bears interest at an annual rate of 7%, and was originally secured by 7,000 shares of our common stock, options to purchase 1,750,000 shares of our common stock held by Mr. Santry, and other collateral. On May 26, 2000, under the terms of an amended and restated promissory note and an amended pledge agreement, we extended the term of the loan until March 31, 2001 and Mr. Santry agreed to pay accrued, but unpaid, interest on the loan for the period October 1, 1999 through September 30, 2000, pay rent on office space sub-leased from us, and make certain other payments to us. On July 1, 2000, October 1, 2000, January 1, 2001 and April 1, 2001, Mr. Santry defaulted on certain payment conditions of the amended and restated secured promissory note. As a result, we exercised our rights under the amended and restated secured promissory note to cancel the options to purchase 1,750,000 shares of our common stock held by Mr. Santry. Mr. Santry resigned as a director on August 9, 2000. Mr. Santry remains obligated under the promissory note, which remains secured by the collateral described above, less the cancelled options. Because Mr. Santry was an affiliate and the amount of the loan had been outstanding for more than one year, the balance of the note receivable was reclassified as a reduction to additional paid-in capital in shareholders' equity in the fourth quarter of 1999. Any amounts recovered as a result of the judgment will be recorded as capital upon receipt. As of December 31, 2003, no monies had been recovered as a result of the judgment.

We primarily compete in the CRM market that provides progressive corporations with outsourced multi-channel support (customer interaction support across multiple communications channels including the Internet, e-mail and the telephone). The CRM industry is very competitive and is spread among many competitors, including a large number of in-house organizations and numerous independent providers like us. To compete more effectively in this market, we offer clients a suite of web-enabled customer care capabilities that transform a number of our production workstations into multi-channel

capable workstations able to handle a variety of customer interactions, especially those originating from the Internet.

We also anticipate the continued implementation of our site selection strategy, which focuses on locating client service centers in areas where we believe we can more effectively attract and retain employees and efficiently control front-line costs including the potential expansion into non-U.S. locations. Our growth and continued implementation of our growth strategies may necessitate additional client service centers and such facilities will require furniture, equipment and technology consistent with our existing facilities. Any additional client service centers will require capital expenditures and may require additional borrowing under the existing Loan Agreement. In addition, expenses associated with opening such centers may temporarily adversely affect operating income.

Although no assurances can be made in this regard, management anticipates that through the maturity of the new debt agreement we should be able to sufficiently fund the combination of our future working capital needs combined with additional sources of capital. Expenditures to improve our technology platform and the capital equipment requirements for the build-out of additional facilities needed to meet unanticipated growth may require funding from sources of capital outside of our current Loan Agreement and anticipated cash flow from operations.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. We believe that our critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies, see the notes to the consolidated financial statements.

In 2002, we changed our method of accounting for certain intangibles, including acquisition goodwill, from an amortization method to an impairment-only approach. Under the provisions of SFAS 142, intangible assets, including acquisition goodwill, that are not subject to amortization are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired, using a two step impairment assessment. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss. As a result of the performance of the impairment test, we concluded that acquisition goodwill was impaired, and accordingly, recognized a goodwill impairment loss of $43.4 million. The non-cash impairment charge was reported as a cumulative effect of an accounting change retroactive to January 1, 2002, in accordance with the provisions of SFAS 142. The goodwill impaired was related to prior acquisitions for which the perceived incremental value at time of acquisition did not materialize. We did not recognize any goodwill impairment for the year ended December 31, 2003.

Trade receivables are comprised primarily of amounts owed to Aegis through its CRM services and are presented net of an allowance for doubtful accounts. Contracts with individual clients determine

when receivables are due, generally within 30 days, and whether interest is accrued on late payments. The amount of the allowance for doubtful accounts is calculated as follows: Account balances over 90 days past due are specifically identified, reviewed and reserved, based upon management's best estimate. An additional reserve amount equal to two percent of the remaining accounts receivable balance is added to the amount for which a specific reserve was established based on historical trends. This combined amount comprises the balance in the allowance account. The adequacy of the reserve is periodically reviewed to determine its appropriateness. Receivable accounts are reviewed on a regular basis for collectibility. If collectibility of the account is no longer assured, the amount is written-off against the allowance account.

Customer solutions revenues earned under contracts based on time incurred and/or on transactions handled are recognized after the related services are performed at rates realizable under the contracts. Customer solutions revenues earned under contracts based on successful sales are recognized on the date such sale is verified by the customer. Principally all clients have the contractual right to, and from time to time do, audit documentation in support of their respective billings. While management believes all such billings are proper and accurate, the Company periodically records reserves against revenues representing management's best estimate of billing adjustments or concessions that may be made as a result of such audits.

In January 2003, the Company entered into a services agreement with Trilegiant Corporation ("Trilegiant"). Under the agreement, the Company, via forwarded call transfers, offers Trilegiant membership services to individuals. The Company is obligated to pay Trilegiant for the call transfers and recognizes this expense as a cost of services. When an individual agrees to enroll in the membership services program, a sale is made and the Company receives a commission from Trilegiant after the trial period is completed and Trilegiant has successfully billed the member. Sold memberships are subject to cancellation by the member with prorated refunds of membership fees.

Because the member can cancel their membership after date of sale, the Company uses historical cancellation information to record revenue for the period. The estimated amount of revenue recorded under the contract is determined by applying the historical cancellation rates to the gross amount of membership commissions. If the actual cancellation rate for the period is different from that used to determine revenue at the time of sale, a resulting adjustment is made to revenue and accounts receivable.

According to SEC Staff Accounting Bulletin No. 104, "Revenue Recognition", revenue recognition is appropriate if all of the following are met:

The Company feels that the amount of revenue recognized under this contract for the year ending December 31, 2003 is appropriate.

On November 5, 2003, the Company signed definitive documents to effect an investment in the Company by Deutsche Bank and Essar. In the transaction, Deutsche Bank and Essar provided approximately equal portions of a $28.231 million investment in the Company in return for three-year secured promissory notes and warrants to purchase up to 80 percent of the Company's common stock.

Terms of the notes were amended on January 28, 2004 and March 30, 2004. The Company accounted for the warrants and notes payable in accordance with APB No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants" ("APB 14"). Deutsche Bank and Essar were issued initial warrants to purchase 68.085 million warrants and the rights to purchase an additional 459.577 million warrants following the amendment of the Company's certificate of incorporation to increase the Company's number of authorized shares. See Item 1. Business—Deutsche Bank/Essar Transaction.

APB 14 requires a portion of the proceeds from the issuance of debt securities with detachable stock warrants to be allocated to the warrants and treated as paid-in capital. Any resulting discount or premium on the notes payable should be recorded and amortized over the life of the notes. The Company used the Black-Scholes model to determine the value of the warrants issued to Deutsche Bank and Essar. Under the Black-Scholes model, the value of the warrants are determined by taking the difference between acquiring the stock outright and the present value of paying the exercise price on the expiration day. As a result, the Company valued the warrants at $4.4 million. This amount was recorded as paid-in capital and the resulting discount on the notes payable was recorded and is being amortized using the interest method over the life of the notes.

The deal expenses of $0.4 million were treated as debt issuance costs in accordance with APB No. 21, "Interest on Receivables and Payables" and are being amortized on a straight-line basis over the life of the notes, which approximates that of the interest method.

The Company was required, by the existing loan terms, to repay or otherwise retire its existing loan obligations with the proceeds of the Deutsche Bank and Essar transaction. To the extent the subordinated debt was not paid off, the holders of the subordinated debt discharged the debt and released the Company from any further liability under their promissory notes, resulting in a $6.2 million gain on early extinguishment of debt. The termination of the Company's agreement to be acquired by AllServe resulted in the possibility of a break-up fee of up to $1.1 million, owed to AllServe. Any part of the $1.1 million reserved for the break-up fee that is not paid to AllServe will be distributed to the subordinated debtholders, net of certain expenses. If certain fees are paid to Allserve, this will reduce the amount paid to the subordinated debtholders, up to $1.1 million.

On January 1, 2002, the Company adopted SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). Management periodically evaluates the carrying value of our assets to determine if future operating results are adequate to cover the carrying value of those assets. In the event that facts and circumstances indicate that the value of property and equipment or other long-term assets may be impaired, an evaluation of recoverability is performed. Indicators may include continued future operating losses as well as the disposal of a material asset before the end of its estimated useful life. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying amount to determine if a write-down to fair value is required.

We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes ("SFAS 109"), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between book and tax basis of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

At December 31, 2003, we had deferred tax assets in excess of deferred tax liabilities of $20.9 million. Based upon our estimates of future taxable income and review of available tax planning strategies, we believe that it is more likely than not that any such assets will not be realized, resulting in a valuation allowance of $20.9 million. On a quarterly basis, we evaluate the need for this valuation allowance based on the expected realizability of our deferred tax assets and adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are our latest forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.

Aegis records an accrued liability for workers compensation based on an estimate of claims incurred but not reported as well as asserted claims at the end of the year. This estimate is derived from analysis performed by actuaries hired by the Company who have expertise in this area. However, although these estimates are generally reliable, changes in the employee mix and unforeseen events could result in an adjustment to these estimates.

In the ordinary course of business, Aegis has entered into various contractual relationships with strategic corporate partners, customers, suppliers, vendors and other parties. As such, the Company could be subject to litigation, claims or assessments arising from any or all of these relationships, or from its relationships with its employees. The Company accounts for contingencies such as these in accordance with SFAS No. 5, Accounting for Contingencies ("SFAS 5"). SFAS 5 requires the Company to record an estimated loss contingency when information available prior to issuance of the Company's financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. SFAS 5 further states that when there is a range of loss and no amount within that range is a better estimate than any other, that the minimum amount in the ranges shall be accrued. Accounting for contingencies arising from contractual or legal proceedings requires Company management to use its best judgment when estimating an accrual related to such contingencies. As additional information becomes known, the Company's accrual for a loss contingency could fluctuate, thereby creating variability in the Company's results of operations from period to period. Likewise, an actual loss arising from a loss contingency which significantly exceeds the amount accrued for in the Company's financial statements could have a material adverse impact on the Company's operating results for the period in which such actual loss becomes known. As of December 31, 2003, accruals for loss contingencies, excluding estimated legal fees to defend the Company against currently pending matters, totaled $0.2 million and are included in accrued liabilities in the accompanying consolidated balance sheet. The Company accrued a reserve of $1.1 million for the benefit of the subordinated debtholders at December 31, 2003, pending outcome of the Allserve litigation. If certain fees are paid to Allserve, this will reduce the amount paid to the subordinated debtholders, up to $1.1 million. This amount was not accounted for as a contingency, as it is not possible to accurately predict the outcome of this lawsuit at this time. Management's best estimate of the future costs to defend the Allserve lawsuit at this time is approximately $0.7 million.

On June 28, 2002, the FASB voted in favor of issuing SFAS No. 146, "Accounting for Exit or Disposal Activities" ("SFAS 146") addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force (EITF) has set forth in the EITF Issue No. 94-3, "Liability Recognition for Certain Employee

Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". The scope of SFAS 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred compensation contract. SFAS 146 is effective for financial statements issued for fiscal years beginning after December 31, 2002. The adoption of SFAS 146 did not have a material impact on our results of operations and financial position.

In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46") which requires the consolidation of variable interest entities as defined. FIN 46 is applicable to financial statements to be issued by us after December 31, 2002; however, disclosures are required currently if we expect to consolidate any variable interest entities. In December 2003, the FASB issued a revision to FIN 46 ("FIN 46R") to clarify some of the provisions of FIN 46. FIN 46 has not had an impact on our financial statements. Furthermore, we do not expect the adoption of the remaining provisions of FIN 46R will have an impact on our financial statements.

In May 2003, FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). This new statement provides direction as to classification of financial instruments that contain characteristics of both liabilities and equity and is effective for financial instruments entered into or modified after May 31, 2003, and becomes effective the first interim period beginning after June 15, 2003 for pre-existing instruments. The adoption of SFAS 150 did not have a material effect on the Company's financial position or results of operations.

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain information in this Form 10-K contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new services, any statements regarding future economic conditions or performance and any statement of assumptions underlying any of the foregoing. Terms such as "anticipates", "believes", "estimates", "expects", "plans", "predicts", "may", "should", "will", and "intends," the negative thereof and similar expressions are intended to identify forward-looking statements. Such statements are by nature subject to uncertainties and risks, including but not limited to those summarized below:

The Company has historically incurred losses. The Company experienced net losses of $11.5 million, $62.3 million and $9.4 million for the years ended December 31, 2003, 2002 and 2001 respectively. The Company incurred operating losses from continuing operations of $10.9 million, $27.0 million and $9.3 million for the years ended December 31, 2003, 2002 and 2001 respectively. While we believe that we will be able to reduce such losses and become profitable in future periods, there can be no assurance that we will be able to do so.

The Questor Investors (through their ownership of the convertible Series F Preferred Stock and common stock) collectively own at December 31, 2003, on an as-converted basis, approximately 64% of the voting issued and outstanding common stock and approximately 42% of the common stock and common stock equivalents outstanding. Thayer Capital and its affiliates (through their ownership of

common stock) collectively own approximately 8% of the common stock and approximately 12% of our voting equity securities. Deutsche Bank and Essar (through their ownership of warrants, on an as-converted basis) each own approximately 17% of the common stock.

Under the terms of a Stockholders Agreement among Deutsche Bank and Essar, Deutsche Bank and Essar each have the right to nominate three of the ten board members. The President and Chief Executive Officer, along with three independent directors will be the remaining four board members. Any major decision must be approved by at least three-fourths of the directors, which must include at least one Deutsche Bank director and one Essar director. As a result, Deutsche Bank and Essar can exercise significant control over the outcome of substantially all matters that require a Board of Directors or shareholder vote. This fact may discourage, delay or prevent a change in control of Aegis Communications Group, Inc. In addition, since our officers serve at the pleasure of the Board of Directors, Deutsche Bank and Essar may be able to exert influence over day-to-day operations. Additionally, each committee of the Board will be constituted so that the number of Deutsche Bank Designees (as defined in the Stockholders Agreement) and Essar Designees (as defined in the Stockholders' Agreement) on any such committee is as nearly as possible in the same proportion as the number of Deutsche Bank Designees and Essar Designees on the entire Board.

The Stockholders Agreement provides that the parties to the agreement satisfy a "right of first offer" to the others prior to a transfer of shares to a third party. The Stockholders Agreement also provides that the parties provide each other with certain "tag-along" rights in the event of a sale or transfer of shares to a third party. The Stockholders' Agreement and the Bylaws also provide that certain major decisions will require the affirmative vote of not less than three-fourths of the directors of the Board and the agreement of at least one Deutsche Bank director and one Essar director. The list of major decisions include:

Under the stockholders agreement, Deutsche Bank and Essar each have the right to nominate three of the ten board members. The President and Chief Executive Officer, along with three independent directors will be the remaining four board members. Although we expect that our board of directors will be able to resolve major business issues, we cannot assure you that deadlocks will not occur.

Questor, Thayer and their respective affiliates combined, own approximately 50% of the common stock and common stock equivalents outstanding and approximately 76% of voting equity securities (through their ownership of common stock and convertible preferred stock). Although Questor, Thayer and other affiliates of Aegis Communications Group, Inc. are restricted to some extent from reselling their respective shares of our common stock under applicable securities laws, both possess registration rights with respect to the shares of capital stock they own that can be exercised at any time. We cannot predict the effect that future sales of stock, especially by Questor or Thayer, will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of our common stock (including shares issued upon the conversion of preferred stock or the exercise of stock options), and even the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.

Our success depends in large part on the abilities and continued service of our executive officers and other key employees and our ability to hire and retain qualified executive officers and key personnel. We cannot assure you that we will be able to hire or retain these people. Losing one or more of them could materially and adversely affect our results of operations.

Historically a few major clients have accounted for the bulk of our revenue. In 2003, five separate clients accounted for approximately 26%, 15%, 14%, 11% and 11% of our revenues, respectively. Relying on one or a few major clients includes a number of more specific business risks that may adversely impact our ability to derive revenue from the client, including:

For example, in the fourth quarter of 2003, our contract with Cablevision expired and was not renewed by the client. Cablevision made a decision to consolidate its customer service into available in-house capacity. Other customers may do the same. Many of our clients are concentrated in the telecommunications and financial services industries. A significant downturn in any of these industries or a trend away from their use of telephone-based sales or outsourced customer relationship management services could materially and adversely affect our business. Although we believe our relations with our major clients are good, the loss of one or more of our major clients could have a material adverse effect on our operating results. See "Item 1. Business—Reliance on Major Clients."

At December 31, 2003, we had long-term capital leases of approximately $0.8 million and notes payable of $18.9 million (net of discounts), which results in a total debt to total capitalization ratio of approximately 80.1%. Our tangible net book value (including Series F Preferred Stock) was approximately $4.9 million at December 31, 2003. Although we used proceeds from the Deutsche Bank/Essar transaction to satisfy our old bank debt and subordinated debt, our leverage could adversely affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions or other purposes and could make our business more vulnerable to economic downturns and competitive pressures. Our future capital requirements and the sufficiency of available funds will depend on numerous factors that are difficult to predict, including results of operations, efforts to expand existing operations and capital expenditures. If funds available through the Loan Agreement with Foothill and cash flows from operations are insufficient to meet current or planned operating requirements, we will be required to obtain additional funds through additional equity or debt financings or from other sources. Any additional equity financings are most likely to be dilutive to our shareholders and the terms of any debt financings are likely to contain restrictive covenants that limit our ability to pursue certain courses of action. In addition, the terms of the Loan Agreement and the Deutsche Bank/Essar Transaction limit our ability to incur debt other than pursuant to the existing facilities. We cannot assure you that additional funding will be available on acceptable terms, if at all. If adequate funds are not available, we may be required to restructure our existing indebtedness or forego strategic decisions or delay, scale back or eliminate operations, which could have a material adverse effect on our business, financial condition and results of operations. See Item 1. Business—Deutsche Bank/Essar Transaction.

We have also informed Foothill of our failure to pay the full amount of certain scheduled payments of principal under the Notes, resulting in an event of default under the Notes. At our request, Deutsche Bank and Essar agreed to waive any violations of the Notes or any other provisions of the Notes caused by the such default. WE have also informed Foothill that we have failed to pay the full amount of certain schedule payments of principal under the Notes, resulting in an event of default under the Notes and therefor a cross-default under the Loan Agreement. As a request and subject to the terms of this Amendment, Foothill has waived any cross-default under the Loan Agreement caused by our default under the Notes.

We anticipate that the trend toward outsourcing of telephone and Internet-based sales, marketing, and customer relationship management activities, as well as increased penetration of new and existing

clients and markets, will drive future growth. A number of other factors, including the effective and timely initiation and development of client relationships, the opening of new client service centers, the recruitment, motivation and retention of qualified personnel, the slow recovery of the U.S. economy, our ability to find qualified non-U.S. locations and intensified competition among our telecommunications clients will affect growth. Sustaining growth will also require better and faster systems and additional management, operational and financial resources. We cannot assure you that we will be able to manage expanding operations effectively or maintain or accelerate growth.

Our growth depends in part on continued demand for our services prompted by the outsourcing trend, as well as continued growth in the industries we serve. If the interest in outsourcing declines or there is a significant downturn in the telecommunications, financial services, consumer products, entertainment or other industries, we could be materially and adversely affected. The telecommunications and financial services industries continued to be under significant economic pressure during 2003.

In addition, the stock market generally has experienced extreme price and volume fluctuations, which have particularly affected the market price for many companies in similar industries and which have often been unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of our common stock. Since July 9, 1998, the market price per share of our common stock has ranged from $3.50 to $0.01. On April 1, 2004, the closing bid price for our stock was $0.14.

We could experience quarterly variations in revenues and operating income due to many factors, including:

In connection with certain contracts, we could incur costs in periods prior to recognizing revenue under those contracts. In addition, we must plan our operating expenditures based on revenue forecasts, and a revenue shortfall below such forecast in any quarter would likely materially and adversely affect our operating results for that quarter.

Our contracts generally do not ensure a minimum level of revenue, and the profitability of each client program may fluctuate, sometimes significantly, throughout the various stages of such program. Although we seek to sign long-term contracts with our clients, our contracts generally enable the client to terminate the contract, or terminate or reduce program call volumes, on relatively short notice. Although, certain of such contracts require the client to pay a contractually agreed amount in the event of early termination, others do not, and we cannot assure you that we will be able to collect such amount or that such amount, if received, will sufficiently compensate us for our investment in the canceled program or for the revenues we may lose as a result of early termination.

Both federal and state governments regulate our business. The FCC rules under the Federal Telephone Consumer Protection Act of 1991 prohibit telemarketing firms from initiating telephone solicitations to residential telephone subscribers before 8:00 a.m. or after 9:00 p.m., local time, and prohibit the use of automated telephone dialing equipment to call certain telephone numbers. In addition, the FCC rules require telemarketing firms to maintain a list of residential consumers who have stated that they do not want to receive telephone solicitations called DNC lists and to avoid making calls to such consumers.

The Federal Telemarketing and Consumer Fraud and Abuse Protection Act of 1994 broadly authorized the FTC to issue regulations prohibiting misrepresentation in telephone sales. The FTC issued its TSR, which became effective December 31, 1995. Generally, these rules prohibit abusive telephone solicitation practices and impose disclosure and record keeping requirements on telemarketers. Both the FCC and the FTC introduced new amendments to their respective Acts during 2003, which placed further restrictions on the use of automated telephone dialing equipment relative to abandoned calls and require enhanced record keeping. These amendments also introduced a national do not call list that became effective in 2003 and require all telemarketing firms to suppress consumer records found on the national list. In January 2004, the requirement to deliver a caller id with name and number became effective. The advent of number portability between landlines and wireless telephone numbers in November 2003 created confusion with reference to the prohibition of telemarketing calls to wireless numbers. No clearinghouse is available to date to provide a suppression list of recently ported numbers, making a good faith effort the only safe harbor available to the telemarketing industry.

state insurance commissions and participate in regular continuing education programs. Some industries we serve are also subject to various state government regulations with regard to selling practices and consumer disclosure requirements.

Our business is very labor intensive and characterized by high personnel turnover. Although by industry standards we believe our employees are highly qualified and well trained, many employees receive modest hourly wages and have relatively short tenure with Aegis Communications Group, Inc. A higher turnover rate among our employees would increase our recruiting and training costs and decrease operating efficiencies and productivity. Some of our operations require specially trained employees. Growth in our business will require us to recruit and train qualified personnel at an accelerated rate from time to time. We cannot assure you that we will be able to continue to hire, train and retain a sufficient labor force of qualified employees. A significant portion of our costs consists of wages paid to hourly workers. An increase in hourly wages, costs of employee benefits or employment taxes could materially adversely affect our operating results.

During 2000, the United Steelworkers of America ("USWA") undertook an effort to organize our call center workforce located in Elkins, West Virginia. We believe that a unionized workforce would be contrary to our best interests, and to our employees', customers' and shareholders' best interests as well, and accordingly, vigorously opposed the unionization effort. Although the USWA ultimately withdrew its election petition in Elkins, there can be no assurances that the USWA or another union will not endeavor to organize our workforce in Elkins or other call center locations. Unionization of our workforce could materially and adversely affect our results of operations.

Our industry is very competitive. We cannot assure you that, as the CRM industry continues to evolve, additional competitors with greater resources than ours will not enter the industry or that our clients will not choose to conduct more of their telephone-based sales or customer relationship management activities internally. Further, the impact of non-U.S. companies entering our industry with lower operating costs, the development of new forms of direct sales and marketing techniques such as interactive home shopping through television, computer networks, including the Internet and other media, could adversely effect the demand for our services. In addition, the increased use of new telephone-based technologies, such as interactive voice response systems, and increased use of the Internet as a tool by our clients could reduce the demand for certain of our offered services. Moreover, the effectiveness of marketing by telephone could also decrease as a result of consumer saturation and increased consumer resistance to this direct marketing tool. Although we attempt to monitor industry trends and respond accordingly, we cannot assure you that we will be able to anticipate and successfully respond to such trends in a timely manner. See "Item 1. Business—Industry and Competition."

We depend on service provided by various local and long distance telephone companies. If service is disrupted or telecommunications costs increase significantly and we cannot recover those costs by increasing the price of our services, our operating results will suffer.

Our business will suffer if we are unable to protect our client service centers, computer and telecommunications equipment and software systems against damage from fire, power loss, telecommunications interruption or failure, technology failure or sabotage, natural disaster and other similar events. We may incur contractual damages to some clients or allow some clients to terminate or renegotiate their contracts with us if one of these events occurs. We maintain property damage and business interruption insurance, but it may not adequately compensate us for any losses we may incur.

We discuss other operating, financial or legal risks or uncertainties in this Form 10-K in specific contexts and in our other filings with the SEC. We are also subject to general economic risks, the risk of loss of a major customer and other risks and uncertainties.

We have exposure to market risk associated with the floating rate portion of the interest charged on the Deutsche Bank/Essar note payables, along with the Foothill line of credit. The Deutsche Bank/Essar note payables, which mature on April 26, 2007, and the Foothill line of credit bear interest at fluctuating rates based on the prime rate and/or LIBOR. Our exposure to interest rate risk due to changes in the prime rate or LIBOR is not expected to be material and, at December 31, 2003, the fair value of the Loan Agreement approximates its related carrying value because the obligation bears interest at the current market rate.

We invest our cash reserves in high quality short-term liquid money market instruments with major financial institutions. The rate of interest earned on these investments varies with overall market rates. A hypothetical one hundred basis point change in the interest rate earned on these investments would not have a material effect on our income or cash flows.

As required by rule 13a-15(b), Aegis management, including the chief executive officer and chief financial officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of Aegis' disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the chief executive officer and the chief financial officer concluded that Aegis' disclosure controls and procedures were effective as of the end of the period covered by this report. As required by rule 13a-15(d), Aegis management, including the chief executive officer and the chief financial officer, also conducted an evaluation of Aegis' internal controls over financial reporting to determine whether any changes occurred during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, Aegis' internal control over financial reporting. Based on that evaluation, there has been no such change during the fourth fiscal quarter.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

This information will be contained in our definitive proxy statement for the 2004 Annual Meeting of Stockholders under the captions "Election of Directors," "Executive Officers," "Code of Ethics," "Audit Committee Financal Expert," and "Audit Committee" and is incorporated herein by reference.

This information will be contained in our definitive proxy statement for the 2004 Annual Meeting of Stockholders under the caption "Compensation of Directors and Executive Officers" and is incorporated herein by reference. Information in the definitive proxy statement section entitled "Report of the Compensation Committee of the Board of Directors" and in the subsection entitled "Performance Graph" are not incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

This information will be contained in our definitive proxy statement for the 2004 Annual Meeting of Stockholders under the caption "Security Ownership of Certain Beneficial Owners and Management" and is incorporated herein by reference.

This information will be contained in our definitive proxy statement for the 2004 Annual Meeting of Stockholders under the caption "Certain Relationships and Related Transactions" and is incorporated herein by reference.

This information will be contained in our definitive proxy statement for the 2004 Annual Meeting of Stockholders under the caption "Corporate Governance" and is incorporated herein by reference.

Aegis Communications Group, Inc.
Schedule II—Valuation and Qualifying Accounts
Years Ended December 31, 2003, 2002 and 2001

Description	Balance at Beginning of Year			Net Write-Off	Balance at End of Year
Year Ended December 31, 2003:
Allowance for doubtful accounts	$	639	$	747	$	(845	)	$	541
Deferred tax asset valuation allowance	$	18,438	$	2,477	$	—		$	20,915
Year Ended December 31, 2002:
Allowance for doubtful accounts	$	512	$	291	$	(164	)	$	639
Deferred tax asset valuation allowance	$	6,709	$	11,729	$	—		$	18,438
Year Ended December 31, 2001:
Allowance for doubtful accounts	$	969	$	233	$	(690	)	$	512
Deferred tax asset valuation allowance	$	709	$	6,000	$	—		$	6,709

2.1		Agreement and Plan of Merger dated April 7, 1998 between ATC Communications Group, Inc., ATC Merger Sub, Inc., and IQI, Inc. (Incorporated by reference to Exhibit 4.6 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended March 31, 1998).
3.1		Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of the registrant's Form 10-K Annual Report for the year ended December 31, 1999).
3.2		Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 of the registrant's Form 10-K Annual Report for the year ended December 31, 2000).
4.1		Specimen of Share Certificate of Company's common stock (Incorporated by reference to Exhibit 4.1 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 1998).
4.2		Form of Series B Preferred Stock certificate, as amended. (Incorporated by reference to the registrant's Form 10-K Annual Report for the year ended June 30, 1994).
4.3		Elimination Certificate for Series D Junior Participating Preferred Stock (Incorporated by reference to Exhibit 4.3 of the registrant's Form 8-K filed on December 20, 1999).
4.4		Series D and E Preferred Stock Certificate of Designation (Incorporated by reference to Exhibit 4.10 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended June 30, 1999).
4.5		Amendment to Series D & E Preferred Stock Certificate of Designation (Incorporated by reference to Exhibit 4.2 of the registrant's Form 8-K filed on December 20, 1999).
4.6		Series F Preferred Stock Certificate of Designation (Incorporated by reference to the Exhibit 4.1 of the registrant's Form 8-K filed on December 20, 1999).
4.7		Warrant to Purchase Shares of Common Stock from the Company to Deutsche Bank AG—London acting through DB Advisors, LLC as investment advisor, dated November 5, 2003 (Incorporated by reference to Exhibit 4.7 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).
4.8		Warrant to Purchase Shares of Common Stock from the Company to Essar Global Limited, dated November 5, 2003 (Incorporated by reference to Exhibit 4.8 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).
10.1		Securities Purchase and Registration Rights Agreement by and between ATC Communications Group, Inc. and Thayer Equity Investors III, L.P. dated April 7, 1998 (Incorporated by reference to Exhibit 4.7 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended March 31, 1998).
10.2		Warrant to Purchase Shares of common stock of ATC Communications Group, Inc. issued to Thayer Equity Investors III, L.P. dated April 7, 1998 (Incorporated by reference to Exhibit 4.8 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended March 31, 1998).

10.3		Second Warrant to Purchase Shares of common stock of ATC Communications Group, Inc. dated May 4, 1998, (Incorporated by reference to Exhibit 10.29 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended March 31, 1998).
10.4		Promissory Note by and among Advanced Telemarketing Corporation, ATC Communications Group, Inc., and Thayer Equity Investors III, L.P. dated May 4,1998, (Incorporated by reference to Exhibit 10.26 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended March 31, 1998).
10.5		Security Agreement between ATC Communications Group, Inc. and Thayer Equity Investors III, L.P. dated May 4, 1998, (Incorporated by reference to Exhibit 10.27 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended March 31, 1998).
10.6		Pledge Agreement between ATC Communications Group, Inc. and Thayer Equity Investors III, L.P. dated May 4, 1998, (Incorporated by reference to Exhibit 10.28 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended March 31, 1998).
10.7		Reimbursement and Indemnification Agreement by and among Advanced Telemarketing Corporation, ATC Communications Group, Inc., and Thayer Equity Investors III, L.P. dated May 4, 1998, (Incorporated by reference to Exhibit 10.25 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended March 31, 1998).
10.8		Promissory Note by and between Aegis Communications Group, Inc. and Thayer Equity Investors III, L.P. dated March 31, 1999 in the original principal amount of $5.7 million (Incorporated by reference to Exhibit 10.24 of the registrant's Form 10-K Annual Report for the year ended December 31, 1998).
10.9		Securities Exchange Agreement entered into as of June 30, 1999 by and among Aegis Communications Group, Inc., Thayer Equity Investors III, L.P., Edward Blank, The Edward Blank 1995 Grantor Retained Annuity Trust and ITC Service Company (Incorporated by reference to Exhibit 10.25 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended June 30, 1999).
10.10		Series Four Warrant to Purchase Shares of common stock of Aegis Communications Group, Inc. issued to Thayer Equity Investors III, L.P., Edward Blank, The Edward Blank 1995 Grantor Retained Annuity Trust and ITC Service Company dated June 30, 1999 (Incorporated by reference to Exhibit 10.27 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended June 30, 1999).
10.11		Series Five Warrant to Purchase Shares of common stock of Aegis Communications Group, Inc. issued to Thayer Equity Investors III, L.P. dated June 30, 1999 (Incorporated by reference to Exhibit 10.28 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended June 30, 1999).
10.12		Parent Guaranty, dated as of August 6, 1999, made by Thayer Equity Investors III, L.P. pursuant to the Fourth Amendment to the Second Amended and Restated Credit Agreement, in favor of each of the Bank of Nova Scotia, as documentation agent and administrative agent for the lenders, and Credit Suisse First Boston, as syndication agent for the lenders (Incorporated by reference to Exhibit 10.30 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended June 30, 1999).

10.13		Third Amended and Restated Credit Agreement dated December 10, 1999 (Incorporated by reference to Exhibit 10.8 to the Company's Form 8-K Current Report filed on December 20, 1999).
10.14		Series F Senior Voting Convertible Preferred Stock Purchase and Registration Rights Agreement dated August 25, 1999 by and among the Company, Questor Partners Fund II, L.P., a Delaware limited partnership, Questor Side-by-Side Partners II, L.P., a Delaware limited partnership, and Questor Side-by-Side Partners II 3(c)(1), L.P., a Delaware limited partnership, Thayer Equity Investors III, L.P., a Delaware limited partnership, TC Co-Investors, LLC, a Delaware limited liability company, ITC Services Company, Edward Blank, trusts created by Edward Blank as both grantor and trustee under Article Fourth of The Edward Blank 1995 Grantor Retained Annuity Trust, dated December 29, 1995, a trust organized under the laws of New Jersey. (Incorporated by reference to Exhibit 10.31 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 1999).
10.15		Stockholders and Voting Agreement dated as of August 25, 1999 by and among Questor Partners Fund II, L.P., a Delaware limited partnership, Questor Side-by-Side Partners II, L.P., a Delaware limited partnership, and Questor Side-by-Side Partners II 3(c)(1), L.P., a Delaware limited partnership and the stockholders listed on Schedule A thereto (Incorporated by reference to Exhibit 10.34 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 1999).
10.16		Amendment No. 1 to the Series F Senior Voting Convertible Preferred Stock Purchase and Registration Rights Agreement dated August 26, 1999 (Incorporated by reference to Exhibit 10.32 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 1999).
10.17		Amendment No. 2 to the Series F Senior Voting Convertible Preferred Stock Purchase and Registration Rights Agreement dated October 22, 1999 (Incorporated by reference to Exhibit 10.33 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 1999).
10.18		Stockholders Agreement dated December 10, 1999 by and among the Company, Questor Partners Fund II, L.P., a Delaware limited Partnership, Questor Side-by-Side Partners II, L.P., a Delaware limited partnership, Questor Side-by-Side Partners II 3(c)(1), L.P., a Delaware limited partnership, Thayer Equity Investors III, L.P., a Delaware limited partnership and TC Co-Investors, LLC, a Delaware limited liability company. (Incorporated by reference to Exhibit 10.4 of the registrant's Form 8-K filed on December 20, 1999).
10.19		Second Amended and Restated Promissory Note dated May 26, 2000 by and between Aegis Communications Group, Inc. and Michael G. Santry (Incorporated by reference to Exhibit 10.42 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended June 30, 2000).
10.20		Second Amended Pledge Agreement dated May 26, 2000 by and between Aegis Communications Group, Inc. and Michael G. Santry (Incorporated by reference to Exhibit 10.43 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended June 30, 2000).
10.21		Letter of Amendment, dated April 7, 1998, of Promissory Note by Michael G. Santry in favor of ATC Communications Group, Inc. (Incorporated by reference to Exhibit 4.12 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended March 31, 1998).

10.22		Stock Pledge Agreement between Michael G. Santry and ATC Communications Group, Inc., dated April 7, 1998 (Incorporated by reference to Exhibit 4.13 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended March 31, 1998).
10.23		1992 Stock Option Plan as amended (Incorporated by reference to Exhibit 4.1 of the registrant's Form S-8 Registration Statement—File No. 333-01131).
10.24		1996 Stock Option Plan as amended (Incorporated by reference to Exhibit 4.2 of the registrant's Form S-8 Registration Statement—File No. 333-01131).
10.25		Amended and Restated 1998 Stock Option Plan (Incorporated by reference to Exhibit 10.27 of the registrant's Form 10-K Annual Report for the year ended December 31, 2001).
10.26		Lease Agreement dated January 1, 1991 by and between Royal Tech Properties, Ltd. and Advanced Telemarketing Corporation. (Incorporated by reference to registrant's Form 10-K Annual Report for the year ended June 30, 1991).
10.27		Employment Agreement between Michael J. Graham and the Company dated May 8, 2000, as amended (Incorporated by reference to Exhibit 10.41 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended June 30, 2000).
10.28		Agreement by and among Stephen A McNeely and Aegis Communications Group, Inc. and its subsidiaries dated April 17, 2000 (Incorporated by reference to Exhibit 10.45 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 2000).
10.29		Employment Agreement dated October 13, 2000 by and among Aegis Communications Group, Inc. and its subsidiaries and Thomas P.G. Franklin (Incorporated by reference to Exhibit 10.46 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 2000).
10.30		Employment Agreement dated July 16, 2001, by and among Aegis Communications Group, Inc. and its subsidiaries and Herman M. Schwarz. (Incorporated by reference to Exhibit 10.48 of the registrant's Form 10-Q Quarterly Report for the quarterly period ending September 30, 2001).
10.31		Employment Agreement between Lee O. Waters and Aegis Communications Group, Inc. and its subsidiaries dated December 3, 2001 (Incorporated by reference to Exhibit 10.34 of the registrant's Form 10-K Annual Report for the year ended December 31, 2001).
10.32		Employment Agreement between Joseph Marinelli and Aegis Communications Group, Inc. and it subsidiaries dated August 28, 2000 (Incorporated by reference to Exhibit 10.32 of the registrant's Form 10-K Annual Report for the year ended December 31, 2002).
10.33		Agreement between Richard Interdonato and Aegis Communications Group, Inc. and its subsidiaries dated August 8, 2002 (Incorporated by reference to Exhibit 10.33 of the registrant's Form 10-K Annual Report for the year ended December 31, 2002).
10.34		Agreement between Herman M. Schwarz and Aegis Communications Group, Inc. and its subsidiaries dated March 21, 2003 (Incorporated by reference to Exhibit 10.34 of the registrant's Form 10-K Annual Report for the year ended December 31, 2002).

10.35		Agreement between Michael J. Graham and Aegis Communications Group, Inc. and its subsidiaries dated March 21, 2003 (Incorporated by reference to Exhibit 10.35 of the registrant's Form 10-K Annual Report for the year ended December 31, 2002).
10.36		Agreement between Joseph Marinelli and Aegis Communications Group, Inc. and its subsidiaries dated March 21, 2003 (Incorporated by reference to Exhibit 10.36 of the registrant's Form 10-K Annual Report for the year ended December 31, 2002).
10.37		Agreement between Thomas P.G. Franklin and Aegis Communications Group, Inc. and its subsidiaries dated March 21, 2003 (Incorporated by reference to Exhibit 10.37 of the registrant's Form 10-K Annual Report for the year ended December 31, 2002).
10.38		Agreement between Lee O. Waters and Aegis Communications Group, Inc. and its subsidiaries dated March 21, 2003 (Incorporated by reference to Exhibit 10.38 of the registrant's Form 10-K Annual Report for the year ended December 31, 2002).
10.39		Fourth Amended and Restated Credit Agreement, dated April 14, 2003 among IQI, Inc., the Company (as a guarantor), and various financial institutions, with The Bank of Nova Scotia as documentation agent and administrative agent and Credit Suisse First Boston as a syndication agent (Incorporated by reference to Exhibit 99.1 of the Company's Form 8-K Current Report filed on April 21, 2003).
10.40		Agreement and Plan of Merger dated as of July 11, 2003 by and among AllServe Systems PLC, AllServe Systems, Inc. and the Company (Incorporated by reference to Annex A of the Company's Preliminary Proxy Statement filed on July 30, 2003).
10.41		Note and Warrant Purchase Agreement dated as of November 5, 2003 by and among the Company, Deutsche Bank AG—London acting through DB Advisors, LLC as investment advisor and Essar Global Limited (Incorporated by reference to Exhibit 10.2 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).
10.42		Secured Promissory Note, dated November 5, 2003, in the original principal amount of $14,087,352 from the Company to Deutsche Bank AG—London acting through DB Advisors, LLC (Incorporated by reference to Exhibit 10.3 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).
10.43		Secured Promissory Note, dated November 5, 2003, in the original principal amount of $14,143,815 from the Company to Essar Global Limited (Incorporated by reference to Exhibit 10.4 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).
10.44		Registration Rights Agreement, dated November 5, 2003, by and among the Company, Deutsche Bank AG—London acting through DB Advisors, LLC as investment advisor, Essar Global Limited, Questor Partners Fund II, L.P., Questor Side-by-Side Partners II, L.P., Questor Side-by-Side Partners II 3(c)(1), L.P., Thayer Equity Investors III, L.P., TC Co-Investors, LLC, Edward Blank and the Edward Blank 1995 Grantor Retained Annuity Trust (Incorporated by reference to Exhibit 10.5 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).
10.45		Stockholders Agreement, dated November 5, 2003, by and among the Company, Deutsche Bank AG—London acting through DB Advisors, LLC as investment advisor, Essar Global Limited, Questor Partners Fund II, L.P., Questor Side-by-Side Partners II, L.P., Questor Side-by-Side Partners II 3(c)(1), L.P., Thayer Equity Investors III, L.P. and TC Co-Investors, LLC (Incorporated by reference to Exhibit 10.6 of the registrant's Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).

10.46		Subsidiary Guaranty dated as of November 5, 2003 (filed herewith).
10.47		Loan and Security Agreement, dated as of January 26, 2004, by and among Aegis Communications Group, Inc., each of its subsidiaries that are signatories thereto, the lenders that are signatories thereto, and Wells Fargo Foothill, Inc. as the Arranger and Administrative Agent (filed herewith)(exhibits excluded)
10.48		Amended and Restated Secured Promissory Note, dated as of January 28, 2004, in the original principal amount of $10,087,352 payable to Deutsche Bank AG—London Acting Through DB Advisors, LLC (filed herewith).
10.49		Amended and Restated Secured Promissory Note, dated as January 28, 2004, in the original principal amount of $10,143,815 payable to Essar Global Limited (filed herewith).
10.50		General Security Agreement, dated as of January 26, 2004, by and among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto and Wilmington Trust Company, as agent for Deutsche Bank AG—London Acting Through DB Advisors, LLC and Essar Global Limited (filed herewith)(exhibits excluded).
10.51		Trademark Collateral Assignment and Security Agreement, dated as of January 26, 2004, by and among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto and Wilmington Trust Company, as collateral trustee for Deutsche Bank AG—London Acting Through DB Advisors, LLC and Essar Global Limited (filed herewith)(exhibits excluded).
10.52		Copyright Collateral Assignment and Security Agreement, dated as of January 26, 2004, by and among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto and Wilmington Trust Company, as collateral trustee for Deutsche Bank AG—London Acting Through DB Advisors, LLC and Essar Global Limited (filed herewith)(exhibits excluded).
10.53		Stock Pledge Agreement, dated as of January 26, 2004, by Aegis Communications Group, Inc. and IQI, Inc. in favor of Wilmington Trust Company, as agent for Deutsche Bank AG—London Acting Through DB Advisors, LLC and Essar Global Limited (filed herewith)(exhibits excluded).
10.54		Amendment No. 1 to Subsidiary Guaranty, dated as of January 26, 2004, among Advanced Telemarketing Corporation, IQI, Inc., LEXI International, Inc., Interserv Services Corporation, Deutsche Bank AG London, acting through DB Advisors, LLC, Essar Global Limited and Wilmington Trust Company, as Collateral Trustee (filed herewith).
10.55		Collateral Trustee Agreement, dated as of January 26, 2004, among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto, Deutsche Bank AG—London, acting through DB Advisors, LLC, Essar Global Limited and Wilmington Trust Company, as Collateral Trustee (filed herewith)(exhibits excluded).
10.56		Trademark Collateral Assignment and Security Agreement, dated January 26, 2004, by and among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto, the lenders that are signatories thereto, and Wells Fargo Foothill, as the Arranger and Administrative Agent (filed herewith)(exhibits excluded).

10.57		Copyright Collateral Assignment and Security Agreement, dated January 26, 2004, by and among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto, the lenders that are signatories thereto, and Wells Fargo Foothill, as the Arranger and Administrative Agent (filed herewith)(exhibits excluded).
10.58		Amendment Number 1 to and Waiver and Consent Under Loan and Security Agreement, dated as of March 30, 2004, among Aegis Communications Group, Inc., each of its subsidiaries that are signatories thereto, the lenders that are signatories thereto, and Wells Fargo Foothill, Inc. as the Arranger and Administrative Agent (filed herewith)(exhibits excluded).
10.59		Waiver Under Amended and Restated Secured Promissory Notes, dated as of March 30, 2004, between Aegis Communications Group, Inc., Deutsche Bank AG—London and Essar Global Limited (filed herewith)(exhibits excluded).
10.60		Second Amended and Restated Secured Promissory Note, dated March 30, 2004, in the original principal amount of $9,170,266 payable to Deutsche Bank AG—London Acting Through DB Advisors, LLC (filed herewith).
10.61		Second Amended and Restated Secured Promissory Note, dated March 30, 2004, in the original principal amount of $9,227,340 payable to Essar Global Limited (filed herewith).
21.1		Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21.1 of the registrant's Form 10-K Annual Report for the year ended June 30, 1998).
23.1		Consent of BDO Seidman, LLP, dated March 31, 2004 (filed herewith).
31.1		Certification of the Chief Executive Officer Pursuant to Rule 13a-15(e) or 15d-15(c), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley act of 2002. (filed herewith)
31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-15(e) or 15d-15(c), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley act of 2002. (filed herewith)
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes Oxley Act of 2002. (furnished herewith)
99.1		Letter from Questor Management Company, dated March 13, 2001 offering to acquire all outstanding shares of common stock not already owned by the acquisition group. (Incorporated by reference to Exhibit 99.3 of the registrant's Form 8-K Report filed on March 22, 2001).
99.2		Letter from Questor Management Company dated June 11, 2001 withdrawing offer to acquire outstanding shares of common stock not already owned by the acquisition group. (Incorporated by reference to Exhibit 99.2 of the registrant's Form 8-K dated June 12, 2001).

Copies of the above Exhibits are available to stockholders of current record at a charge of $0.50 per page, minimum of $5.00 each. Direct requests to:

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.

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.

		Page
Report of Independent Public Accountants—December 31, 2003, 2002 and 2001		F-2
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001		F-3
Consolidated Balance Sheets as of December 31, 2003 and 2002		F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 2003, 2002 and 2001		F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001		F-7
Notes to Consolidated Financial Statements		F-9

To the Board of Directors and Shareholders of
Aegis Communications Group, Inc.
Irving, Texas

We have audited the accompanying consolidated balance sheets of Aegis Communications Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the years ended December 31, 2003, 2002 and 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 of America. 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 presentation of the financial statements. 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 Aegis Communications Group, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the years ended December 31, 2003, 2002 and 2001 in conformity with accounting principles generally accepted in the United States of America.

Aegis Communications Group, Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)