<PAGE>
As filed with the Securities and Exchange Commission on March 7, 1997
Registration No. 333-20633
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SECURITIES AND EXCHANGE COMMISSION
____________________
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
STARTEK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 7389 84-1370538
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
111 HAVANA STREET
DENVER, COLORADO 80010
(303) 361-6000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
MICHAEL W. MORGAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
STARTEK, INC.
111 HAVANA STREET
DENVER, COLORADO 80010
(303) 361-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
____________________
Copies to:
BLAIR L. LOCKWOOD, ESQ. PETER P. WALLACE, ESQ.
KAREN L. BARSCH, ESQ. MILBANK, TWEED, HADLEY &
OTTEN, JOHNSON, ROBINSON, MCCLOY
NEFF & RAGONETTI, P.C. 601 S. FIGUEROA STREET
950 17TH STREET, SUITE 1600 30TH FLOOR
DENVER, COLORADO 80202 LOS ANGELES, CALIFORNIA 90017
(303) 825-8400 (213) 892-4000
____________________
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
____________________
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
___________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
, 1997
3,666,667 SHARES
STARTEK, INC.
COMMON STOCK
Of the 3,666,667 shares of common stock, $.01 par value per share (the
"Common Stock"), offered hereby, 3,000,000 shares are being sold by StarTek,
Inc. ("StarTek" or the "Company") and 666,667 shares are being sold by the
Selling Stockholders named herein. The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholders. See "Principal
and Selling Stockholders." Prior to this offering, there has been no public
market for the Common Stock. It is currently estimated that the initial
public offering price will be between $14.00 and $16.00 per share. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Common Stock has been approved for listing
on the New York Stock Exchange under the symbol "SRT," pending notification of
issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price Underwriting Proceeds Proceeds to the
to the Discounts and to the Selling
Public Commissions(1) Company(2) Stockholders
- -------------------------------------------------------------------------------
Per Share........... $ $ $ $
Total(3)............ $ $ $ $
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(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
SEVERAL UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY, ESTIMATED AT $500,000.
THE COMPANY HAS AGREED TO PAY THE EXPENSES OF THE SELLING STOCKHOLDERS,
OTHER THAN UNDERWRITING DISCOUNTS AND COMMISSIONS.
(3) THE SELLING STOCKHOLDERS HAVE GRANTED TO THE UNDERWRITERS A 30-DAY OPTION
TO PURCHASE UP TO 550,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER
OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE TOTAL
PRICE TO THE PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS, PROCEEDS TO
THE COMPANY AND PROCEEDS TO THE SELLING STOCKHOLDERS WILL BE $_________,
$__________, $__________ AND $__________, RESPECTIVELY. SEE
"UNDERWRITING."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if accepted by the Underwriters, subject
to various prior conditions, including their right to reject any order in
whole or in part. It is expected that delivery of share certificates will be
made in New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE MORGAN STANLEY & CO.
SECURITIES CORPORATION INCORPORATED
<PAGE>
[StarTek Logo]
Global Integrated Outsourced Solutions
Technical Support and Inbound Product
Customer Care Teleservices Orders Teleservices
[Circle of Arrows]
Value Added
Process Management
Product Distribution Selection and
and Order Fulfillment Management of Suppliers
Management of Product
Assembly and Packaging
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE
MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND COMBINED FINANCIAL
STATEMENTS AND NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT TO THE
OFFERING RELATED TRANSACTIONS (DEFINED AND DESCRIBED BELOW), (II) GIVES EFFECT
TO A ___ FOR ONE STOCK SPLIT OF THE COMMON STOCK TO BE EFFECTED BY A STOCK
DIVIDEND IMMEDIATELY PRIOR TO THE CLOSING OF THIS OFFERING AND (III) ASSUMES
AN INITIAL PUBLIC OFFERING PRICE OF $15.00 PER SHARE OF COMMON STOCK, THE
MIDPOINT OF THE OFFERING PRICE RANGE SET FORTH ON THE COVER OF THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, REFERENCES TO "STARTEK" AND THE
"COMPANY" REFER TO STARTEK, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES, STARPAK,
INC. AND STARPAK INTERNATIONAL, LTD., COLLECTIVELY, OR, FOR PERIODS PRIOR TO
JANUARY 1997, REFER TO STARPAK, INC. AND STARPAK INTERNATIONAL, LTD.,
COLLECTIVELY. SEE "OFFERING RELATED TRANSACTIONS."
THE COMPANY
StarTek is a leading international provider of integrated, value-added
outsourced services primarily for Fortune 500 companies in targeted
industries. The Company's integrated outsourced services encompass a wide
spectrum of logistics management and customer-initiated ("inbound")
teleservices throughout a product's life cycle, including product order
teleservices, supplier management, product assembly and packaging, product
distribution, product order fulfillment, and customer care and technical
support teleservices. By focusing on these services as its core business,
StarTek allows its clients to focus on their primary businesses, reduce
overhead, replace fixed costs with variable costs and reduce working capital
needs.
The Company has continuously expanded its business and facilities to
offer additional services on an outsourced basis in response to the growing
needs of its clients and to capitalize on market opportunities both
domestically and internationally. StarTek operates from its Colorado
facilities located in Denver and Greeley and from a facility located in
Hartlepool, England. The Company also operates through a subcontract
relationship in Singapore. For the year ended December 31, 1996, the
Company's revenues increased approximately 72.5% to $71.6 million from $41.5
million for the year ended December 31, 1995. Pro forma net income increased
approximately 144.3% to $3.9 million from $1.6 million during the same period.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
StarTek's goal is to grow profitably by focusing on providing
high-quality integrated, value-added outsourced services. StarTek has a
strategic partnership philosophy, through which the Company assesses each of
its client's needs and, together with the client, develops and implements
customized outsourcing solutions. Management believes that its
entrepreneurial culture, long-term relationships with clients and suppliers,
efficient operations, dedication to quality and use of advanced technology and
management techniques provide StarTek a competitive advantage in attracting
and retaining clients that outsource non-core operations. Three of the
Company's top four clients have utilized its outsourced services for more than
five years and the fourth client initiated services with the Company in April
1996.
StarTek has focused primarily on the computer software, computer
hardware, electronics, telecommunications and other technology-related
industries because of their rapid growth, complex and evolving product
offerings and large customer bases, which require frequent, often
sophisticated, customer interaction. Management believes that there are
substantial opportunities to cross-sell StarTek's wide spectrum of outsourced
services to its existing base of approximately 100 clients, which includes
Broderbund Software, Inc., Canon, Inc., Electronic Arts, Inc., Federal Express
Corporation, Hewlett-Packard Company, Microsoft Corporation, Polaroid
Corporation, Sony Electronics, Inc., The 3DO Company, and Viacom
International, Inc. The Company intends to capitalize on the increasing trend
toward outsourcing by focusing on potential clients in additional targeted
industries, including health care, financial services, transportation services
and consumer products, which could benefit from the Company's expertise in
developing and delivering integrated, cost-effective outsourced services.
2
<PAGE>
STARTEK'S INTEGRATED SERVICES
The Company's interaction with a client's customers may begin with an
inbound call or message via the Internet requesting information or placing an
order for the client's product. A StarTek service representative takes the
order, and if the Company manages the client's inventory, the Company packs
and ships the order. If the Company does not manage the client's inventory,
the Company transmits the customer's request directly to the client. In the
event the Company manages the client's inventory, the Company may receive
finished goods directly from a client or the Company may manage the production
process on an outsourced basis, following product specifications provided by
the client. In the latter case, the Company selects and contracts with the
necessary suppliers and performs all tasks necessary to assemble and package
the finished product, which may be held by the Company pending receipt of
customer orders or shipped in bulk to distributors or retail outlets.
The Company's clients typically provide their customers with telephone
numbers for product questions and technical support. Calls are routed to
StarTek customer care or technical support service representatives who have
been trained to support specific products. That request also may lead to an
order for another product or service offered by the client, in which case the
Company takes the order and the cycle begins again. StarTek's clients may
utilize one or more of the Company's outsourced services.
BUSINESS STRATEGY
StarTek's strategic objective is to increase revenues and earnings by
maintaining and enhancing its position as a leading international provider of
integrated, value-added outsourced services. To reach this objective, the
Company intends to:
PROVIDE INTEGRATED OUTSOURCED SERVICES. StarTek seeks to provide
integrated outsourced services which enable its clients to provide their
customers with high-quality services at lower cost than through a client's own
in-house operations. The Company believes that its ability to tailor
operations, materials and employee resources objectively and to provide
integrated value-added outsourced services on a cost-effective basis will
allow the Company to become an integral part of its clients' businesses.
DEVELOP STRATEGIC PARTNERSHIPS AND LONG-TERM RELATIONSHIPS. StarTek
seeks to develop long-term client relationships, primarily with Fortune 500
companies in targeted industries. The Company invests significant resources
to establish strategic partnership relationships and to understand each
client's processes, culture, decision parameters and goals, so as to develop
and implement customized solutions. The Company believes that this
solution-oriented, value-added integrated approach to addressing its clients'
needs distinguishes StarTek from its competitors and plays a key role in the
Company's ability to attract and retain clients on a long-term basis.
MAINTAIN LOW-COST POSITION THROUGH MODERN PROCESS MANAGEMENT. StarTek
strives to establish a competitive advantage by frequently redefining its
operational processes to reduce costs and improve quality. StarTek's
continuous improvement philosophy and modern process management techniques
enable the Company to reduce waste and increase efficiency in the following
areas: (i) controlling overproduction; (ii) minimizing waiting time due to
inefficient work sequences; (iii) reducing inessential handling of materials;
(iv) eliminating nonessential movement and processing; (v) implementing
fail-safe processes; (vi) improving inventory management; and (vii) preventing
defects.
EMPHASIZE QUALITY. StarTek strives to achieve the highest quality
standards in the industry. To this end, the Company has received ISO 9002
certification, an international standard for quality assurance and consistency
in operating procedures, for all of its domestic facilities and services, and
expects to receive ISO 9002 certification for its United Kingdom facility in
mid-1997. Certain of the Company's existing clients require evidence of ISO
9002 certification, and the Company anticipates that many potential clients
may require ISO 9002 certification prior to selecting an outsourcing provider.
3
<PAGE>
CAPITALIZE ON SOPHISTICATED TECHNOLOGY. The Company believes it has
established a competitive advantage by capitalizing on sophisticated
technology and proprietary software, including automatic call distributors,
inventory management software, transportation management software, call
tracking systems and telephone-computer integration software. These
capabilities enable StarTek to improve efficiency, serve as a transparent
extension of its clients, receive telephone calls and data directly from its
clients' systems, and report detailed information concerning the status and
results of the Company's services and interaction with clients on a daily
basis.
GROWTH STRATEGY
The Company's growth strategy is designed to capitalize on the increasing
demand for outsourced services and improve and expand StarTek's position as an
international provider of integrated, value-added outsourced services. This
strategy includes the following key elements:
INCREASE CAPACITY. Management believes that as a provider of outsourced
services it must be ready to serve its clients in periods of peak demand for
its clients' products or services. Accordingly, the Company intends to
continue to increase product handling and teleservice workstation capacity to
meet anticipated demand for the Company's outsourced services. During 1996,
the Company increased its teleservice workstations by 54.6%, to 558 from 361.
In addition, the Company reengineered and expanded its primary product
handling facility to increase its daily capacity by approximately 200%, to
180,000 units from 60,000 units for certain types of products.
CROSS-SELL SERVICES TO EXISTING CLIENTS. Management believes there are
substantial opportunities to cross-sell its wide spectrum of outsourced
services to other divisions or operations within its existing clients'
organizations. StarTek capitalizes on its relationships and comprehensive
understanding of its clients' businesses to identify additional divisions and
areas where the Company could provide its services. For example, the
Company's two oldest current client relationships, which began in 1987 and
1988 utilizing only one service each, today utilize substantially all of the
Company's outsourced services. Management further believes that its ability
to provide integrated solutions helps the Company to create strategic
partnership relationships and gives the Company a competitive advantage to be
selected as the service provider of choice.
EXPAND CLIENT BASE. The Company intends to capitalize on its low-cost
position and extensive offering of services to penetrate further the
industries which the Company currently serves and to seek clients in other
industries. Management believes that there are several additional industries,
including health care, financial services, transportation services and
consumer products, which provide significant market opportunities to the
Company. To facilitate the Company's anticipated growth, the Company
increased its sales force to 12 full-time professionals as of the date of this
offering, from four at the end of 1996.
INCREASE INTERNATIONAL OPERATIONS. The Company currently conducts
business in North America, Europe and Asia. Management believes that many of
the trends leading to the growth of outsourced services in the United States
are occurring in international markets as well. Management also believes that
many companies, including several of its existing multinational clients, are
seeking outsourced services on an international basis. To capitalize on these
international opportunities, the Company intends to expand its international
operations.
DEVELOP NEW SERVICES. Management believes that the trend toward
outsourcing and rapid technological advances will result in new products and
types of customer interactions which will create opportunities for the Company
to provide additional outsourced services. StarTek intends to capitalize upon
its strategic long-term relationships to provide new outsourced services to
its clients as opportunities arise.
ACQUIRE COMPLEMENTARY COMPANIES AND EXPAND STRATEGIC ALLIANCES. StarTek
intends to evaluate the acquisition of complementary companies that could
extend its presence into new geographic markets or industries, expand its
client base, add new product or service applications and/or provide operating
synergies. Management believes that there could be many domestic and
international acquisition and strategic alliance opportunities as companies
consider
4
<PAGE>
selling their existing in-house operations and as smaller companies seek
growth capital and economies of scale to remain competitive.
The Company is a Delaware corporation with its executive offices at 111
Havana Street, Denver, Colorado 80010, and its telephone number is (303)
361-6000.
THE OFFERING
Common Stock Offered:
By the Company................... 3,000,000 shares
By Selling Stockholders(a)....... 666,667 shares
---------
Total.......................... 3,666,667 shares
Common Stock outstanding after
this offering(b).................. _________ shares
Use of Proceeds.................... The estimated net proceeds to the Company
of $41.4 million from this offering will
be used to repay substantially all
outstanding indebtedness of the Company
(including notes payable to the Principal
Stockholders), related prepayment
premiums, and for working capital and
other general corporate purposes,
including capital expenditures to
increase its capacity and for possible
future acquisitions. See "Use of
Proceeds."
Proposed New York Stock Exchange
symbol............................ SRT
_________________________
(a) Assumes no exercise of the over-allotment option to purchase up to 550,000
additional shares granted by the Selling Stockholders to the Underwriters.
See "Principal and Selling Stockholders" and "Underwriting."
(b) Excludes 985,000 shares and 90,000 shares reserved for future issuance
under the Company's Option Plan and Director Option Plan, respectively.
See "Management--Compensation of Directors" and "Management--Stock Option
Plan."
_________________________
5
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
The following summary historical and pro forma combined financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Combined Financial
Statements and notes thereto, included elsewhere in this Prospectus.
<TABLE>
YEARS ENDED DECEMBER 31,
SIX MONTHS ----------------------------------------------------
YEAR ENDED ENDED PRO FORMA
JUNE 30, DECEMBER 31, 1996
1992 1992 1993 1994 1995 1996 (UNAUDITED)(A)
------- ------------ ------- ------- ------- ------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $16,791 $11,880 $23,044 $26,341 $41,509 $71,584 $71,584
Gross profit....................... 3,518 2,101 5,005 4,986 8,279 14,346 14,346
Management fee expense............. -- 400 1,702 612 2,600 6,172 --
Operating profit (loss)............ 1,705 432 (176) (115) 338 410 6,582
Income (loss) before income taxes.. 1,618 424 (369) (331) (58) 38 6,210
Net income (loss).................. 1,031 482 (369) (331)(b) (58)(b) (74) 3,894
Net income per share(c)............
Shares outstanding(c)..............
SELECTED OPERATING DATA:
Capital expenditures............... $ 136 $ 153 $ 1,239 $ 670 $ 2,105 $ 1,333
Depreciation and amortization...... 149 79 456 588 873 1,438
AT DECEMBER 31, 1996
------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(D) ADJUSTED(E)
------- ------- -----------
BALANCE SHEET DATA:
Working capital (deficit).................................. $ 2,896 $(4,078) $35,316
Total assets............................................... 22,979 22,979 52,440
Total debt................................................. 6,475 13,448 200
Total stockholders' equity................................. 7,103 129 41,375
</TABLE>
_________________________
(a) The Company was a C corporation for federal and state income tax purposes
through June 30, 1992. From and after July 1, 1992, the Company has been
an S corporation and, accordingly, has not been subject to federal or state
income taxes. Pro forma net income (i) reflects the elimination of
management fee expense and (ii) includes a provision for federal, state and
foreign income taxes at an effective rate of 37.3%. See "Offering Related
Transactions."
(b) After the elimination of management fee expense of $612 in 1994 and $2,600
in 1995 and including a provision for federal, state and foreign income
taxes at a rate of 37.3% for both years of $105 for 1994 and $948 for 1995,
pro forma net income was $176 and $1,594 in 1994 and 1995, respectively.
(c) Calculated in the manner described in note 2 to the Combined Financial
Statements.
(d) The pro forma combined balance sheet at December 31, 1996 reflects, as
notes payable to the Principal Stockholders, amounts relating to
accumulated retained earnings and additional paid-in capital without
reflecting any proceeds from the sale by the Company of 3,000,000 shares
of Common Stock.
(e) Gives effect to the sale by the Company of 3,000,000 shares of Common Stock
in this offering and the application of the estimated net proceeds
therefrom, including repayment of indebtedness of the Company. See "Use of
Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF COMMON STOCK.
RELIANCE ON PRINCIPAL CLIENT RELATIONSHIPS
A substantial portion of the Company's revenue is generated from
relatively few clients and the loss of a significant client or clients could
have a material, adverse effect on the Company's business, results of
operations and financial condition. The Company's two largest clients in
1996 were Hewlett-Packard Company ("Hewlett Packard") and Microsoft
Corporation ("Microsoft"). The Company provides various outsourced services
to multiple divisions of Hewlett Packard, which the Company considers to be
separate clients based upon the fact that each division acts through a
relatively autonomous decision maker. In the aggregate, however, Hewlett
Packard's various divisions accounted for approximately 38.4% of the
Company's total revenues during 1996. The Company began its outsourcing
relationship with Hewlett Packard in 1987. Microsoft, which began its
outsourcing relationship with StarTek in April 1996, accounted for
approximately 33.4% of the Company's total revenues during 1996. There can
be no assurance that the Company will be able to retain its significant
clients or that, if it were to lose one or more of its significant clients,
it would be able to replace such clients with clients that generate a
comparable amount of revenues. See "Business--Clients" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's business has been and is expected to be significantly
slower in the first and second quarters of each year due to the timing of its
client's marketing programs and the introduction of new products, which are
typically geared toward the Christmas holiday season. Additionally, the
Company has experienced, and expects to experience in the future, quarterly
variations in revenues as a result of a variety of factors, many of which are
outside the Company's control, including: (i) the timing of new projects;
(ii) the expiration or termination of existing projects; (iii) the timing of
increased expenses incurred to obtain and support new business; (iv) the
seasonal pattern of certain of the businesses served by the Company; and (v)
the cyclical nature of certain clients' businesses. In 1996, the percentage
of the Company's revenues generated from the first through the fourth quarter
were 21.3%, 19.7%, 21.6% and 37.4%, respectively. If the Company's revenues
are below management's expectations in any given quarter, StarTek's operating
results could be materially adversely affected for that quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results."
DIFFICULTIES OF MANAGING RAPID GROWTH
The Company has experienced rapid growth over the past several years and
anticipates continued future growth. Continued growth depends on a number of
factors, including the Company's ability to (i) initiate, develop and
maintain new and existing client relationships and expand its marketing
operations; (ii) recruit, motivate and retain qualified management and other
personnel; (iii) rapidly expand the capacity of the Company's existing
facilities or identify, acquire or lease suitable new facilities on
acceptable terms, and complete build-outs of such facilities in a timely and
economic fashion; (iv) maintain the high quality of the services that StarTek
provides to its clients; and (v) maintain relationships with high-quality and
reliable suppliers. The Company's continued rapid growth can be expected to
place a significant strain on the Company's management, operations, employees
and resources. There can be no assurance that the Company will be able to
maintain or accelerate its current growth, effectively manage its expanding
operations or achieve planned growth on a timely or profitable basis. If the
Company is unable to manage growth effectively, its business, results of
operations and financial condition could be materially adversely affected.
See "Business--Growth Strategy."
7
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's success to date has depended in large part on the skills
and efforts of A. Emmet Stephenson, Jr., the Company's co-founder and
Chairman of the Board, and of Michael W. Morgan, the Company's co-founder,
President and Chief Executive Officer. Although A. Emmet Stephenson, Jr. and
Michael W. Morgan will own approximately ___% and ___% of the outstanding
Common Stock (___% and ___% if the Underwriters' over-allotment option is
fully exercised) after this offering, neither has entered into an employment
agreement with the Company and there can be no assurance that the Company can
retain the services of these individuals. The loss of either of Messrs.
Stephenson or Morgan, or the Company's inability to hire or retain other
qualified officers or key employees, could have a material adverse effect on
the Company's business, results of operations, growth prospects and financial
condition. See "Management."
DEPENDENCE ON KEY INDUSTRIES AND TREND TOWARD OUTSOURCING
The Company's clients are primarily Fortune 500 companies involved in
technology-related industries. The Company's business and growth is largely
dependent on the continued demand for the Company's services from clients in
these industries and industries targeted by the Company, and current trends
in such industries to outsource their product order teleservices, supplier
management, product assembly and packaging, product distribution, product
order fulfillment, inbound customer care and technical support teleservices
and other outsourced services offered by the Company. A general economic
downturn in the computer industry or in other industries targeted by the
Company or a slowdown or reversal of the trend in any of these industries to
outsource services provided by the Company could have a material adverse
effect on the Company's business, results of operations, growth prospects and
financial condition. See "Business--Clients."
RISKS ASSOCIATED WITH THE COMPANY'S CONTRACTS
Although the Company currently seeks to sign multi-year contracts with
its clients, the Company's contracts generally (i) permit termination upon
relatively short notice by the client; (ii) do not designate the Company as
the client's exclusive outsourced service provider; (iii) do not penalize the
client for early termination; and (iv) hold the Company responsible for
products which fail to meet the clients' specifications. Further, the
Company frequently works on a purchase order basis with no minimum purchase
guarantee. Several of the Company's contracts require the Company to
maintain its ISO 9002 certification. Management believes, however, that
maintaining satisfactory relationships with its clients has a more
significant impact on the Company's revenues than the specific terms of its
client contracts. Although several of the Company's clients have elected not
to renew or extend short-term contracts, or have terminated contracts on
relatively short notice to the Company, to date, none of the foregoing types
of contractual provisions has had a material adverse effect on the Company's
business, results of operations or financial condition. See
"Business--Services," "Business--Sales and Marketing," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Substantially all of the Company's significant arrangements with its
clients for product order teleservices, supplier management, product assembly
and packaging, product distribution, product order fulfillment and customer
care and technical support teleservices generate revenues based, in large
part, on the number and duration of customer inquiries (subject to certain
minimum monthly payments) and the volume, complexity and type of components
involved in the client's products. Changes in the number or type of
components of product units assembled by the Company may have an effect on
the Company's revenues independent of the number of product units assembled.
Consequently, the amount of revenues generated from any particular client is
generally dependent upon customers' purchase and use of the client's
products. There can be no assurance as to the number of customers who will
be attracted to the products of the Company's clients or that the Company's
clients will continue to develop new products that will require the Company's
services. See "Business--Clients" and "Business--Technology."
8
<PAGE>
RISKS ASSOCIATED WITH RAPIDLY CHANGING TECHNOLOGY
The Company's business is highly dependent on its computer equipment,
telecommunications equipment and software systems. The Company's failure to
maintain sophisticated technological capabilities or to respond effectively
to technological changes could have a material adverse effect on the
Company's business, results of operations and financial condition. The
Company's future success also will be highly dependent upon its ability to
enhance existing services and introduce new services to respond to changing
technological developments. Significant advances or changes in technology,
which significantly reduce or eliminate the need for services provided by the
Company, could have a material adverse effect on the Company's business. For
example, significant development of the Internet as a delivery system for
computer software and game play could adversely impact the demand for the
Company's product order teleservices, product order fulfillment, product
assembly and packaging and product distribution services. There can be no
assurance that the Company can successfully develop and bring to market any
new services in a timely manner, that such services will be commercially
successful or that clients' and competitors' technologies or services will
not render the Company's services noncompetitive or obsolete. See
"Business--Technology."
RISKS OF BUSINESS INTERRUPTION
The Company's operations are dependent upon its ability to protect its
facilities, clients' products, confidential customer information, computer
equipment, telecommunications equipment and software systems against damage
from fire, power loss, telecommunications interruption, natural disaster,
theft, unauthorized intrusion, computer viruses and other emergencies, and
the ability of its suppliers to deliver component parts on an expedited
basis. While the Company maintains contingency plans for such events or
emergencies and backs up its computers daily, there can be no assurance that
such plans will be sufficient. In the event the Company experiences a
temporary or permanent interruption or other emergency at one or more of its
facilities through casualty, operating malfunction, employee malfeasance,
disruption of supplier arrangements or otherwise, the Company's business
could be materially adversely affected and the Company may be required to pay
contractual damages to its clients or allow its clients to terminate or
renegotiate their contracts with the Company. While the Company maintains
property and business interruption insurance, such insurance may not
adequately compensate the Company for all losses that it may incur. See
"Business--Services."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION
The Company currently conducts business in Europe and Asia, in addition
to its North American operations. Such international operations accounted
for approximately 16.8% of the Company's revenues for 1996. A component of
the Company's growth strategy is to expand its international operations.
There can be no assurance that the Company will be able to continue or expand
its capacity to market, sell and deliver its services in international
markets, or that it will be able to acquire companies or integrate acquired
companies to expand international operations. In addition, there are certain
risks inherent in conducting international business, including exposure to
currency fluctuations, longer payment cycles, greater difficulties in
accounts receivable collection, difficulties in complying with a variety of
foreign laws, unexpected changes in regulatory requirements, difficulties in
staffing and managing foreign operations, political instability and
potentially adverse tax consequences. There can be no assurance that one or
more of such factors will not have a material adverse effect on the Company's
international operations and, consequently, on the Company's business,
results of operations, growth prospects and financial condition. See
"Business--Growth Strategy" and "Business--Services."
9
<PAGE>
DEPENDENCE ON LABOR FORCE
The Company's success is largely dependent on its ability to recruit,
hire, train and retain qualified employees. The Company's industry is labor
intensive and has experienced high personnel turnover. Some of the Company's
operations, particularly its technical support teleservices, require
specially trained employees. A significant increase in the Company's
employee turnover rate could increase the Company's recruiting and training
costs and decrease operating efficiency and productivity. Also, the addition
of significant new clients or the implementation of new large-scale programs
may require the Company to recruit, hire and train qualified personnel at an
accelerated rate. There can be no assurance that the Company will be able to
continue to recruit, hire, train and retain sufficient qualified personnel to
staff adequately for existing business or future growth. In addition,
because a significant portion of the Company's operating costs relate to
labor costs, an increase in wages (including an increase in the mandatory
minimum wage by the federal government), costs of employee benefits, or
employment taxes could have a material adverse effect on the Company's
business, results of operations and financial condition. Further, certain of
the Company's facilities are located in geographic areas with relatively low
unemployment rates, thus potentially making it more difficult and costly to
hire qualified personnel. See "Business--Employees and Training" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SUBSTANTIAL PORTION OF NET PROCEEDS ALLOCATED FOR GENERAL WORKING CAPITAL
A substantial portion ($28.1 million) of the net proceeds to the Company
from this offering has been allocated to working capital and other general
corporate purposes. This amount may increase substantially as other
anticipated uses of net proceeds are funded through cash flow or otherwise
reduced. The net proceeds may be utilized at the discretion of the Board of
Directors. As a result, investors may not know in advance how such net
proceeds will be utilized by the Company. See "Use of Proceeds."
CONTROL BY PRINCIPAL STOCKHOLDERS
Prior to this offering, all of the outstanding capital stock of the
Company was owned or controlled by executive officers of the Company and
their affiliates (collectively, the "Principal Stockholders"). Following
closing of this offering, A. Emmet Stephenson, Jr., Chairman of the Board of
the Company, and his family, will beneficially own approximately ___% of the
outstanding shares of Common Stock (approximately ___% if the Underwriters'
over-allotment option is fully exercised). As a result, Mr. Stephenson and
his family will continue to be able to elect the entire Board of Directors of
the Company and to control substantially all other matters requiring action
by the Company's stockholders. Such voting concentration may have the effect
of discouraging, delaying or preventing a change in control of the Company.
See "Principal and Selling Stockholders."
HIGHLY COMPETITIVE MARKET
The markets in which the Company competes are highly competitive. The
Company expects competition to persist and intensify in the future. The
Company's competitors include small firms offering specific applications,
divisions of large companies, large independent firms and, most
significantly, the in-house operations of the Company's clients or potential
clients. A number of competitors have or may develop financial and other
resources greater than those of the Company. Similarly, there can be no
assurance that additional competitors with greater name recognition and
resources than the Company will not enter the Company's markets. Because the
in-house operations of the Company's existing or potential clients are
significant competitors of the Company, the Company's performance and growth
could be negatively impacted if its existing clients decide to provide
in-house services that currently are outsourced or if potential clients
retain or increase their in-house capabilities. Further, a decision by a
major client to consolidate its outsourced services with a company other than
StarTek may have an adverse impact on the Company, particularly due to the
fact that the Company is not the largest supplier of any of the services
currently provided by the Company to any of its largest clients. In
addition,
10
<PAGE>
competitive pressures from current or future competitors could result in
significant price erosion, which could have a material adverse effect upon
the Company's business, results of operations and financial condition. See
"Business--Industry and Competition."
DIFFICULTIES OF COMPLETING AND INTEGRATING ACQUISITIONS AND JOINT VENTURES
One component of the Company's growth strategy is to pursue strategic
acquisitions of companies that have services, products, technologies,
industry specializations or geographic coverage that extend or complement the
Company's existing business. The Company has never made an acquisition and
there can be no assurance that the Company will be able to identify or
acquire any such companies on favorable terms. If an acquisition is
completed, there can be no assurance that such acquisition will enhance the
Company's business, results of operations or financial condition. As part of
its growth strategy, the Company may also pursue opportunities to undertake
strategic alliances in the form of joint ventures. Joint ventures involve
many of the same risks as acquisitions, as well as additional risks
associated with possible lack of control of the joint ventures. See "Use of
Proceeds" and "Business--Growth Strategy."
NO PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after this offering, or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price of the Common Stock
offered hereby will be determined by negotiations among the Company, the
Selling Stockholders and the Underwriters based upon several factors and may
not be indicative of the market price at which the Common Stock will trade
after this offering. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price.
The market price of the Common Stock may be highly volatile and could be
subject to wide fluctuations in response to quarterly variations in operating
results, the success of the Company in implementing its business and growth
strategies, announcements of new contracts or contract cancellations,
announcements of technological innovations or new products or services by the
Company or its competitors, changes in financial estimates by securities
analysts or other events or factors. In addition, the stock market has
experienced significant price and volume fluctuations that have particularly
affected the market prices of equity securities of many companies and that
have often been unrelated to the operating performance of such companies.
These broad market fluctuations may adversely affect the market price of the
Common Stock. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against such a company. Any such litigation initiated
against the Company could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Quarterly Results."
SUBSTANTIAL AND IMMEDIATE DILUTION
Investors in this offering will incur immediate dilution of $_____ per
share in the pro forma net tangible book value per share of Common Stock
(based upon the initial public offering price of $15.00 per share). See
"Dilution."
11
<PAGE>
SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Stock. The Company is unable to make any
prediction as to the effect, if any, that future sales of Common Stock or the
availability of Common Stock for sale may have on the market price of the
Common Stock prevailing from time to time. In addition, any such sale or
such perception could make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price
that the Company deems appropriate. Upon closing of this offering, the
Company will have _____ shares of Common Stock outstanding, excluding shares
of Common Stock issuable upon exercise of options outstanding under the
StarTek, Inc. Stock Option Plan (the "Option Plan") and the StarTek, Inc.
Director Stock Option Plan (the "Director Option Plan"). The Company and the
Selling Stockholders have agreed not to offer, sell, contract to sell or
otherwise dispose of, any shares of Common Stock for a period of 180 days
after the date of this offering without the prior consent of Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"). Following expiration of
that 180-day period, substantially all of the shares of Common Stock held by
the Selling Stockholders will be eligible for public sale, subject to
compliance with certain volume limitations prescribed by Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"). See "Shares
Eligible for Future Sale" and "Underwriting."
ANTI-TAKEOVER PROVISIONS
Upon closing of this offering, the Board of Directors will have the
authority to issue up to 15,000,000 shares of preferred stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any vote or action by the
stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of the
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no present plan to
issue any shares of preferred stock. Furthermore, certain provisions of the
Company's Restated Certificate of Incorporation, Restated Bylaws and Delaware
law could delay or complicate a merger, tender offer or proxy contest
involving the Company. See "Description of Capital Stock."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that can be
identified by the use of forward-looking terminology such as "may," "will,"
"should," "expect," "anticipate," "estimate," or "continue" for the negation
thereof or other variations thereon or comparable terminology. The matters
set forth under "Risk Factors" constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties that could cause actual results to differ
materially from those in such forward-looking statements.
12
<PAGE>
OFFERING RELATED TRANSACTIONS
The following transactions will be completed prior to the closing of this
offering (the "Offering Related Transactions").
TERMINATION OF S CORPORATION STATUS
Since July 1, 1992, the Company has been classified as an S corporation
under Subchapter S of the Internal Revenue Code of 1986, as amended, and
comparable state tax laws. As a result, the earnings of the Company have
been taxed for federal and state income tax purposes directly to its
stockholders, rather than to the Company. The S corporation status of the
Company will terminate upon closing of this offering, and, accordingly, from
and after such date, the Company will be directly subject to federal and
state income taxes. Immediately prior to the closing of this offering, the
Company will take certain actions relating to the termination of the S
corporation status of the Company and its subsidiaries, as described below.
See "Termination of Management Fees" and "Notes Payable to Principal
Stockholders" below.
TERMINATION OF MANAGEMENT FEES
Historically, the Company has paid certain management fees and bonuses to
the Principal Stockholders, and/or their affiliates, for services rendered to
the Company, in amounts generally equal to the annual earnings of the
Company, in addition to general compensation for services rendered. The
Principal Stockholders have reinvested in the Company an amount equal to
approximately 53% of the management fees and bonuses received, with a
substantial portion of the balance used to pay applicable federal and state
income taxes. The Company has terminated such management fee and bonus
arrangements as of December 31, 1996, and no similar management fees or
bonuses will be paid to the Principal Stockholders or their affiliates after
the closing of this offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Management," "Certain
Relationships and Related Party Transactions--Management Fees" and note 1 to
the Combined Financial Statements.
After closing of this offering, an affiliate of A. Emmet Stephenson, Jr.,
will, however, be paid an advisory fee as described in "Certain Relationships
and Related Party Transactions--Management Fees," and Michael W. Morgan will
receive a salary and may be paid bonuses at the discretion of the
Compensation Committee (as defined below).
NOTES PAYABLE TO PRINCIPAL STOCKHOLDERS
Immediately prior to closing this offering, the Company will declare a
dividend in an amount equal to the estimated additional paid-in capital and
retained earnings of the Company as of the closing date, payable to the
Principal Stockholders pursuant to certain promissory notes, which will equal
approximately $7.0 million, plus an adjustment for any additional paid-in
capital and retained earnings after December 31, 1996 through the closing
date. The promissory notes payable to the Principal Stockholders will be
paid from net proceeds to the Company from this offering. From this amount,
the Principal Stockholders will be required to pay applicable federal and
state income taxes on earnings of the Company attributable to the period from
January 1, 1997 through closing of this offering, the period in which the
Company will continue to operate as an S corporation. See "Use of Proceeds"
and "Certain Relationships and Related Party Transactions--Notes Payable to
Principal Stockholders."
13
<PAGE>
FORMATION OF STARTEK AND HOLDING COMPANY STRUCTURE
The Company was incorporated in Delaware in December 1996. Effective
January 1, 1997, shareholders of StarPak, Inc. exchanged all of their
outstanding shares of capital stock for shares of common stock of the
Company, and StarPak, Inc. became a wholly-owned subsidiary of the Company.
Effective January 24, 1997, shareholders of StarPak International, Ltd.
contributed all of their outstanding shares of capital stock to the Company,
and StarPak International, Ltd. became a wholly-owned subsidiary of the
Company. Accordingly, the Company became a holding company for the
businesses conducted by StarPak, Inc. and StarPak International, Ltd.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock by the Company offered hereby, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by the
Company, are estimated to be $41.4 million, assuming an initial public
offering price of $15.00 per share (the midpoint of the offering range set
forth on the cover page of this Prospectus). The Company will not receive
any proceeds from the sale of shares of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
The Company intends to use approximately $13.3 million of the net
proceeds of this offering to repay substantially all of its outstanding
indebtedness, which includes approximately $3.9 million of bank and mortgage
indebtedness, $2.4 million of capitalized lease obligations and $7.0 million
of notes payable to Principal Stockholders (subject to adjustment as
described in "Offering Related Transactions"). The Company will pay
approximately $105,000 of prepayment premiums in connection with the
repayment of such capitalized lease obligations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The balance of the net
proceeds (approximately $28.1 million) will be used for working capital and
other general corporate purposes, including approximately $8.0 million for
capital expenditures to expand and build-out its existing facilities (to
increase its number of teleservice workstations and product handling
capacity) and to make strategic acquisitions of complementary businesses.
The Company has not entered into any agreements, commitments or
understandings and is not currently engaged in any negotiations with respect
to any such acquisitions. Pending such uses, the Company plans to invest the
net proceeds to the Company from this offering in investment grade,
interest-bearing securities. See "Risk Factors--Substantial Portion of Net
Proceeds Allocated for General Working Capital," and "Offering Related
Transactions--Notes Payable to Principal Stockholders."
15
<PAGE>
DIVIDEND POLICY
The Company intends to retain all future earnings in order to finance
continued growth and development of its business and does not expect to pay
any cash dividends with respect to its Common Stock in the foreseeable
future. The Company expects that any future credit facility will limit or
restrict the payment of dividends. The payment of any dividends will be at
the discretion of the Company's Board of Directors and will depend upon,
among other things, the availability of funds, future earnings, capital
requirements, contractual restrictions, the general financial condition of
the Company and general business conditions.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 on (i) a historical basis, (ii) a pro forma basis to give
effect to the Offering Related Transactions, and (iii) a pro forma as
adjusted basis to give effect to the sale by the Company of 3,000,000 shares
of Common Stock in this offering and the application of the estimated net
proceeds therefrom. The capitalization of the Company should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Use of Proceeds," "Offering Related
Transactions," and the Combined Financial Statements and notes thereto,
included elsewhere in this Prospectus.
DECEMBER 31, 1996
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
CASH AND CASH EQUIVALENTS................. $ 2,742 $ 2,742 $32,203
------- ------- -------
------- ------- -------
DEBT:
Line of credit.......................... $ 3,500 $ 3,500 --
Capital lease obligations............... 2,421 2,421 --
Notes payable to Principal
Stockholders........................... -- 6,973 --
Other debt.............................. 554 554 200
------- ------- -------
TOTAL DEBT............................ 6,475 13,448 200
STOCKHOLDERS' EQUITY:
Preferred stock, undesignated, par value
$.01 per share; 15,000,000 shares
authorized, no shares issued and
outstanding............................ -- -- --
Common stock, par value $.01 per share;
95,000,000 shares authorized,
_________ shares issued and outstanding,
_________ shares issued and outstanding,
as adjusted(a)......................... 1 1 31
Additional paid-in capital.............. 6,148 -- 41,320
Cumulative translation adjustment....... 129 129 129
Retained earnings....................... 1,038 -- (105)
Note receivable - stockholder........... (213) -- --
------- ------- -------
TOTAL STOCKHOLDERS' EQUITY............ 7,103 130 41,375
------- ------- -------
TOTAL CAPITALIZATION.................. $13,578 $13,578 $41,575
------- ------- -------
------- ------- -------
- -------------------
(a) Excludes 985,000 shares and 90,000 shares of Common Stock reserved for
issuance under the Option Plan and the Director Option Plan, respectively,
705,000 shares of which will be subject to options to be granted on or
prior to closing of this offering. See "Management--Compensation of
Directors" and "Management--Stock Option Plan."
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<PAGE>
DILUTION
As of December 31, 1996, the Company had a pro forma net tangible book
value of $129,488, or $__________ per share of Common Stock, based upon _____
shares of Common Stock outstanding. Pro forma net tangible book value per
share is determined by dividing the pro forma net tangible book value of the
Company (total tangible assets less total liabilities), giving effect to the
Offering Related Transactions on such date, by the number of shares of Common
Stock outstanding as of such date after giving effect to a ____ for one stock
split of the Common Stock. After giving effect to the Offering Related
Transactions, a _____ for one stock split of the Common Stock and the sale by
the Company of the 3,000,000 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $15.00 per share and
application of the net proceeds therefrom, the Company's pro forma net
tangible book value as of December 31, 1996 would have been $41,350,000, or
$_____ per share of Common Stock. This represents an immediate increase in
pro forma net tangible book value of $_____ per share to the Principal
Stockholders and an immediate dilution in net tangible book value of $_____
per share to new investors purchasing shares of Common Stock in this
offering. The following table illustrates the per share dilution to the new
investors:
Assumed initial public offering price per share..... $15.00
Pro forma net tangible book value per share as of $
December 31, 1996.................................. ------
Increase in pro forma net tangible book value per
share attributable to new investors................ ------
Pro forma net tangible book value per share after
giving effect to this offering..................... ------
Pro forma net tangible book value dilution per $
share to new investors............................. ------
------
The following table sets forth as of December 31, 1996, on a pro forma
basis, the number of shares purchased from the Company, the total
consideration paid and the average price per share paid by the Principal
Stockholders and new investors purchasing shares of Common Stock from the
Company in this offering:
<TABLE>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
--------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Principal Stockholders.. % $ % $
New investors........... 3,000,000 45,000,000 15.00
--------- ----- ---------- -----
Total................. 100.0% $ 100.0%
--------- ----- ---------- -----
--------- ----- ---------- -----
</TABLE>
The foregoing table excludes 985,000 shares and 90,000 shares reserved for
issuance under the Option Plan and Director Option Plan, respectively. See
"Management--Compensation of Directors" and "Management--Stock Option Plan."
18
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The following selected combined financial data for the years ended
December 31, 1994, 1995 and 1996, and as of December 31, 1995 and 1996 have
been derived from the combined financial statements of the Company, which
have been audited by Ernst & Young LLP, included elsewhere in this
Prospectus. The selected combined financial data for the year ended December
31, 1993 and as of December 31, 1994 have been derived from the combined
financial statements of the Company, which have been audited by Ernst & Young
LLP. The selected combined financial data (i) for the year ended June 30,
1992 and the six months ended December 31, 1992 and (ii) as of June 30, 1992,
and December 31, 1992 and 1993, is unaudited. This information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Combined Financial Statements
and notes thereto, included elsewhere in this Prospectus.
<TABLE>
YEARS ENDED DECEMBER 31,
YEAR SIX MONTHS ---------------------------------------------------------------
ENDED ENDED PRO FORMA
JUNE 30, DECEMBER 31, 1996
1992 1992 1993 1994 1995 1996 (UNAUDITED)(a)
-------- ------------ ------- ------- ------- ------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $16,791 $11,880 $23,044 $26,341 $41,509 $71,584 $71,584
Cost of services............... 13,273 9,779 18,039 21,355 33,230 57,238 57,238
------- ------- ------- ------- ------- ------- -------
Gross profit................... 3,518 2,101 5,005 4,986 8,279 14,346 14,346
Selling, general and
administrative expenses....... 1,813 1,269 3,479 4,489 5,341 7,764 7,764
Management fee expense......... -- 400 1,702 612 2,600 6,172 --
------- ------- ------- ------- ------- ------- -------
Operating profit (loss)........ 1,705 432 (176) (115) 338 410 6,582
Net interest expense and
other......................... 87 8 193 216 396 372 372
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes......................... 1,618 424 (369) (331) (58) 38 6,210
Income tax expense (benefit)... 587 (58) -- -- -- 112 2,316
------- ------- ------- ------- ------- ------- -------
Net income (loss).............. $ 1,031 $ 482 $ (369) $ (331)(b) $ (58)(b) $ (74) $ 3,894
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Net income per share (c).......
Shares outstanding (c).........
SELECTED OPERATING DATA:
Capital expenditures........... $ 136 $ 153 $ 1,239 $ 670 $ 2,105 $ 1,333
Depreciation and amortization.. 149 79 456 588 873 1,438
PRO FORMA
BALANCE SHEET DATA AS ADJUSTED(d)
(END OF PERIOD): --------------
Working capital............... $ 1,058 $ 1,560 $ 943 $ 434 $ 798 $ 2,896 $35,316
Total assets.................. 4,032 6,614 7,712 12,352 21,580 22,979 52,440
Total debt.................... 587 732 2,473 3,288 7,294 6,475 200
Total stockholders' equity.... 1,637 2,031 2,624 3,006 3,798 7,103 41,375
</TABLE>
- -------------------
(a) The Company was a C corporation for federal and state income tax purposes
through June 30, 1992. From and after July 1, 1992, the Company has been
an S corporation and, accordingly, has not been subject to federal or state
income taxes. Pro forma net income (i) reflects the elimination of
management fee expense and (ii) includes a provision for federal, state and
foreign income taxes at an effective rate of 37.3%. See "Offering Related
Transactions."
(b) After the elimination of management fee expense of $612 in 1994 and $2,600
in 1995 and including a provision for federal, state and foreign income
taxes at a rate of 37.3% for both years of $105 for 1994 and $948 for 1995,
pro forma net income was $176 and $1,594 in 1994 and 1995, respectively.
(c) Calculated in the manner as described in note 2 to the Combined Financial
Statements.
(d) Gives effect to (i) notes payable to the Principal Stockholders relating to
accumulated retained earnings and additional paid-in capital of
approximately $7,000 and (ii) the sale by the Company of 3,000,000 shares
of Common Stock in this offering and the application of the estimated net
proceeds therefrom, including repayment of indebtedness of the Company.
See "Use of Proceeds" and "Capitalization."
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Combined
Financial Statements and notes thereto, included elsewhere in this Prospectus.
OVERVIEW
The Company has grown profitably by developing integrated outsourced
services that enable its clients to provide their customers with high-quality
services at lower costs than a client's own in-house operations. StarTek has
continuously expanded its business and facilities to offer additional
services in response to the growing needs of its clients and to capitalize on
market opportunities both domestically and internationally. From 1993 to
1996, the Company's revenues grew at a compound annual growth rate of 45.9%.
For the year ended December 31, 1996, the Company's revenues increased
approximately 72.5% to $71.6 million from $41.5 million for the year ended
December 31, 1995. Pro forma net income increased approximately 144.3% to
$3.9 million from $1.6 million during the same period. Management attributes
this growth to the successful implementation of the Company's strategy of
developing long-term strategic partnerships with large clients in targeted
industries.
StarTek generates its revenues by providing integrated outsourced
services throughout a product's life cycle, including product order
teleservices, supplier management, product assembly and packaging, product
distribution, product order fulfillment, and inbound customer care and
technical support teleservices. The Company generally recognizes revenues as
services are performed under each contract. Substantially all of the
Company's significant arrangements with its clients for its services generate
revenues based, in large part, on the number and duration of customer
inquiries (subject to certain minimum monthly payments) and the volume,
complexity and type of components involved in the handling of the client's
products. Changes in the number or type of components in the product units
assembled by the Company may have an effect on the Company's revenues,
independent of the number of product units assembled.
A key element of the Company's ability to grow is the availability of
capacity to respond quickly to the needs of new clients or the increased
needs of existing clients. The Company's 138,000-square-foot facility in
Denver, Colorado, which was initially occupied at the end of 1995, is
approximately one-third utilized and can be expanded to accommodate
additional outsourced services. Management also believes that it can expand
significantly the capacity of its Greeley, Colorado and Hartlepool, England
facilities.
The Company's cost of services primarily includes labor,
telecommunications, materials and freight charges that are variable in
nature, as well as certain facilities charges. Competitive vendor rates for
materials, printing, compact disc duplication and packaging costs, together
with competitive labor rates which comprise the majority of the Company's
costs, have been and are expected to continue to be a key component of the
Company's expenses. All other expenses, including expenses attributable to
technology support, sales and marketing, human resource management and other
administrative functions that are not allocable to specific client services,
are recorded as selling, general and administrative ("SG&A") expenses. SG&A
expenses tend to be either semi-variable or fixed in nature.
Since July 1992, the Company has operated as an S corporation and,
accordingly, was not subject to federal or state income taxes. As an S
corporation, the Company has historically paid certain management fees,
bonuses and other fees to the Principal Stockholders and/or their affiliates
in amounts generally equal to the annual earnings of the Company, and all of
such amounts are reflected as management fee expense on its combined
statement of operations. Upon receipt of such management fees and bonuses,
the Principal Stockholders historically contributed approximately 53% of such
amounts to the Company to provide the Company with necessary working capital,
with a substantial portion of the balance used to pay applicable federal and
state income taxes. The amounts so contributed are reflected in additional
paid-in-capital on the Company's combined balance sheet. The Company has
terminated this management fee and bonus arrangement effective as of December
31, 1996. See note 1 to the Combined Financial Statements.
20
<PAGE>
From and after January 1, 1997, all compensation payable to persons who
are now stockholders of the Company (or an affiliate of such stockholder)
will be in the form of salaries, bonuses or advisory fees and all such
payments will be reflected in SG&A expenses on the combined statement of
operations. At current rates, such payments will aggregate $516,000
annually. See "Management--Executive Compensation" and "Offering Related
Transactions--Management Fees" and note 1 to the Combined Financial
Statements.
The S corporation status of the Company will terminate upon closing of
this offering and, thereafter, the Company will be subject to federal and
state income taxes. Pro forma net income (i) reflects elimination of
management fee expense and (ii) includes a provision for federal, state and
foreign income taxes at an effective rate of 37.3%.
The Company frequently purchases components of its clients' products as
an integral part of its supplier management services and in advance of
providing its product assembly and packaging services. These components are
shown as raw materials inventory in the Company's balance sheet. At the
close of an accounting period, packaged and assembled products (together with
other associated costs) are reflected as finished goods inventory, pending
shipment. The Company generally has the right to be reimbursed by the client
for unused inventory. Client-owned inventories are not reflected in the
Company's balance sheet.
The Company's business is highly seasonal. Certain of the Company's
services related to product assembly and packaging are heavily utilized in
the third and fourth quarters in preparation for the Christmas holiday
season. Accordingly, the Company's revenues are typically higher in the
third quarter than in the first and second quarter, and peak in the fourth
quarter. In 1996, the percentage of the Company's revenues generated from
the first to the fourth quarter were as follows: 21.3%, 19.7%, 21.6% and
37.4%, respectively.
QUARTERLY RESULTS
The following table sets forth certain unaudited statement of operations
data for the quarters in the years ended December 31, 1995 and 1996. The
unaudited quarterly information has been prepared on the same basis as the
annual information and, in management's opinion, includes all adjustments
necessary to present fairly the information for the quarters presented.
<TABLE>
1995 QUARTERS ENDED 1996 QUARTERS ENDED
----------------------------------------------- -----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ ----------- -------- ------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $7,984 $6,126 $9,683 $17,716 $15,219 $14,108 $15,479 $26,778
Cost of services..... 6,380 4,758 7,536 14,556 12,655 11,121 12,198 21,264
SG&A expenses........ 1,226 1,194 1,301 1,620 1,707 1,856 1,756 2,445
Management fee
expense............. 192 83 682 1,643 199 700 498 4,775
------ ------ ------ ------- ------- ------- ------- -------
Operating profit
(loss).............. 186 91 164 (103) 658 431 1,027 (1,706)
</TABLE>
The following table sets forth certain unaudited pro forma statement of
operations data for the quarters in the year ended December 31, 1996.
<TABLE>
1996 QUARTERS ENDED
-----------------------------------------------
(DOLLARS IN THOUSANDS)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues............ $15,219 $14,108 $15,479 $26,778
Cost of services.... 12,655 11,121 12,198 21,264
SG&A expenses....... 1,707 1,856 1,756 2,445
Management fee
expense............ -- -- -- --
------- ------- ------- -------
Operating profit.... 857 1,131 1,525 3,069
</TABLE>
21
<PAGE>
The following table sets forth certain unaudited statement of operations
data, expressed as a percentage of revenues.
<TABLE>
1995 QUARTERS ENDED 1996 QUARTERS ENDED
----------------------------------------------- -----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ ----------- -------- ------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services..... 79.9 77.7 77.8 82.2 83.2 78.8 78.8 79.4
SG&A expenses........ 15.4 19.5 13.5 9.1 11.2 13.2 11.3 9.1
Management fee
expense............. 2.4 1.4 7.0 9.3 1.3 5.0 3.2 17.8
----- ----- ----- ----- ----- ----- ----- -----
Operating profit
(loss).............. 2.3 1.4 1.7 (0.6) 4.3 3.0 6.7 (6.3)
</TABLE>
The following table sets forth certain unaudited pro forma statement of
operations data, expressed as a percentage of revenues.
<TABLE>
1996 QUARTERS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues............. 100.0% 100.0% 100.0% 100.0%
Cost of services..... 83.2 78.8 78.8 79.4
SG&A expenses........ 11.2 13.2 11.3 9.1
Management fee
expense............. -- -- -- --
----- ----- ----- -----
Operating profit..... 5.6 8.0 9.9 11.5
</TABLE>
The Company has experienced, and expects to experience in the future,
quarterly variations in revenues and earnings as a result of a variety of
factors, many of which are outside the Company's control, including (i) the
seasonal pattern of certain of the businesses served by the Company; (ii) the
timing of new projects; (iii) the expiration or termination of existing
projects; and (iv) the timing of increased expenses incurred to obtain and
support new business. See "Risk Factors--Variability of Quarterly Operating
Results."
For the quarterly periods in 1995 and 1996, revenues fluctuated
principally due to the seasonal pattern of certain of the businesses served
by the Company and the addition of new client programs. Revenues in the
first quarter of 1996 as compared to the fourth quarter of 1995 declined
principally due to the seasonal pattern of certain businesses serviced by the
Company. Revenues in the second quarter of 1996 were higher than expected,
as compared to prior seasonal patterns, due to increased activities for a
significant new client in that quarter.
For the quarterly periods in 1995 and 1996, cost of services as a
percentage of revenues fluctuated principally due to the mix of services
performed for clients. Cost of services in the fourth quarter of 1995 was
adversely affected by start-up costs of the Denver facility, which opened at
the end of 1995, and costs incurred in connection with the switch by certain
of the Company's clients to compact discs from 3-1/2-inch floppy disks. Cost
of services as a percentage of revenues was higher in the first and second
quarters of 1996, partially as a result of product recall and rework costs
incurred on a certain product assembled, packaged and distributed in Europe
from the United Kingdom facility. The product recall related to certain
anomalies detected by the Company in a portion of finished product assembled,
packaged and distributed from the Company's United Kingdom facility. Upon
detection of the anomaly, the Company initiated the recall and inspected all
potentially affected products. The circumstances necessitating the recall
were discovered in March 1996 and the recall and related reworking of
products was completed in October 1996. In addition, the first quarter of
1996 was adversely affected by start-up costs of the Denver facility, which
opened at the end of 1995.
For the quarterly periods in 1995 and 1996, SG&A expenses as a percentage
of revenues fluctuated principally due to the spreading of fixed and
semi-variable costs over a revenue base that fluctuates quarter to quarter.
22
<PAGE>
Management fee expense fluctuated as a percentage of revenues generally
based on estimated tax requirements of the recipients of the management fees
in the first three quarters of each year and, in the fourth quarter of each
year, was based on cumulative operating profits for the entire year less
management fee expense for the preceding three quarters. Effective December
31, 1996, the management fee and bonus arrangements previously reflected as
management fee expense have been terminated and no further management fees
will be payable by the Company.
Operating profit (loss) and income (loss) before income taxes fluctuated
within the quarterly periods of 1995 and 1996 based primarily on the factors
noted above.
The unaudited pro forma quarterly information for 1996 presents the
effects on operating profit of the elimination of management fee expense paid
to stockholders and their affiliates as these fees were discontinued
effective December 31, 1996 and no further management fees will be payable by
the Company. For the quarterly periods of 1995, pro forma management fee
expense would be $0.0 for each quarter and operating profits for the first,
second, third and fourth quarters of 1995 would be $378,000, $174,000,
$846,000 and $1,540,000, respectively, which represents 2.5%, 1.2%, 5.5% and
5.8% of revenues for the respective quarterly periods.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of revenues:
YEARS ENDED DECEMBER 31,
-----------------------------------
PRO FORMA
1994 1995 1996 1996
----- ----- ----- ---------
Revenues.............................. 100.0% 100.0% 100.0% 100.00%
Cost of services...................... 81.1 80.1 80.0 80.0
----- ----- ----- ------
Gross Profit.......................... 18.9 19.9 20.0 20.0
SG&A expenses......................... 17.0 12.8 10.8 10.8
Management fee expense................ 2.3 6.3 8.6 0.0
----- ----- ----- ------
Operating profit (loss)............... (0.4) 0.8 0.6 9.2
Net interest expense and other........ 0.8 1.0 0.5 0.5
----- ----- ----- ------
Income (loss) before income taxes..... (1.2) (0.2) 0.1 8.7
Income tax expense.................... -- -- 0.2 3.3
----- ----- ----- ------
Net income (loss)..................... (1.2) (0.2) (0.1) 5.4
----- ----- ----- ------
----- ----- ----- ------
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased $30.1 million, or 72.5%, to $71.6 million
for the year ended December 31, 1996 from $41.5 million for the year ended
December 31, 1995. New clients accounted for $25.2 million of this increase,
primarily attributable to the addition of a significant new client in April
1996, while existing clients accounted for the remaining $4.9 million of this
increase. Revenues for 1996 reflect the addition of the Denver facility,
which opened at the end of 1995.
COST OF SERVICES. Cost of services increased $24.0 million, or 72.2%, to
$57.2 million for the year ended December 31, 1996 from $33.2 million for the
year ended December 31, 1995. As a percentage of revenues, cost of services
was relatively unchanged at 80.0% for the year ended December 31, 1996 from
80.1% for the year ended December 31, 1995.
GROSS PROFIT. As a result of the foregoing factors, gross profit
increased $6.0 million, or 73.3%, to $14.3 million for the year ended
December 31, 1996 from $8.3 million for the year ended December 31, 1995. As
a percentage of revenues, gross profit was relatively unchanged at 20.0% for
the year ended December 31, 1996 from 19.9% for the year ended December 31,
1995.
23
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased
$2.4 million, or 45.4%, to $7.8 million for the year ended December 31, 1996
from $5.3 million for the year ended December 31, 1995. As a percentage of
revenues, SG&A expenses decreased to 10.8% for the year ended December 31,
1996 from 12.8% for the year ended December 31, 1995, reflecting the
spreading of fixed and semi-variable costs over a larger revenue base.
MANAGEMENT FEE EXPENSE. Management fee expense increased $3.6 million,
or 137.4%, to $6.2 million for the year ended December 31, 1996 from $2.6
million for the year ended December 31, 1995. As a percentage of revenues,
management fee expense increased to 8.6% for the year ended December 31, 1996
from 6.3% for the year ended December 31, 1995. Management fee expense was
determined by the Board of Directors and related primarily to changes in
operating profit of the Company. Effective December 31, 1996, the management
fee and bonus arrangements previously reflected as management fee expense
have been terminated and no further management fees will be payable by the
Company.
OPERATING PROFIT. As a result of the foregoing factors, operating profit
increased $0.1 million, or 21.3%, to $0.4 million for the year ended December
31, 1996 from $0.3 million for the year ended December 31, 1995. As a
percentage of revenues, operating profit decreased to 0.6% for the year ended
December 31, 1996 from 0.8% for the year ended December 31, 1995.
NET INTEREST EXPENSE AND OTHER. Net interest expense and other remained
relatively unchanged at $0.4 million for the year ended December 31, 1996 and
for the year ended December 31, 1995. As a percentage of revenues, net
interest expense and other decreased to 0.5% for the year ended December 31,
1996 from 1.0% for the year ended December 31, 1995, reflecting lower
outstanding borrowings relative to revenues of the Company.
INCOME BEFORE INCOME TAXES. As a result of the foregoing factors, income
before income taxes increased $0.1 million to $0.0 million for the year ended
December 31, 1996 from $(0.1) million for the year ended December 31, 1995.
As a percentage of revenues, income before income taxes increased to 0.1% for
the year ended December 31, 1996 from (0.2)% for the year ended December 31,
1995.
INCOME TAX EXPENSE. The Company has operated as an S corporation for
federal and state income tax purposes and, accordingly, was not subject to
federal or state income taxes. The Company was, however, subject to certain
foreign income taxes. A provision for foreign income taxes was made in the
year ended December 31, 1996, as prior foreign loss carryovers have been
fully utilized.
NET INCOME (LOSS). Based upon its S corporation status and the factors
discussed above, net loss remained relatively unchanged at $0.1 million for
the year ended December 31, 1996 and for the year ended December 31, 1995.
As a percentage of revenues, net loss for the year ended December 31, 1996
and for the year ended December 31, 1995 remained relatively unchanged at
0.1% and 0.2%, respectively.
PRO FORMA MANAGEMENT FEE EXPENSE, PRO FORMA OPERATING PROFIT, PRO FORMA
INCOME BEFORE INCOME TAXES, PRO FORMA INCOME TAXES AND PRO FORMA NET INCOME.
Pro forma amounts reflect the elimination of management fees paid to
stockholders and their affiliates as these fees were discontinued effective
December 31, 1996, and provide for related income taxes at 37.3% of pre-tax
income as if the Company were taxed as a C corporation. As a result of the
foregoing factors: (1) pro forma management fee expense is $0.0 million for
1995 and 1996; (2) pro forma operating profit increased $3.7 million, or
124.0%, to $6.6 million for the year ended December 31, 1996 from $2.9
million for the year ended December 31, 1995; (3) pro forma income before
income taxes increased $3.7 million, or 144.3%, to $6.2 million for the year
ended December 31, 1996 from $2.5 million for the year ended December 31,
1995; (4) pro forma income taxes increased $1.4 million, or 144.3%, to $2.3
million for the year ended December 31, 1996 from $0.9 million for the year
ended December 31, 1995; and (5) pro forma net income increased $2.3 million,
or 144.3%, to $3.9 million for the year ended December 31, 1996 from $1.6
million for the year ended December 31, 1995.
24
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues increased $15.2 million, or 57.6%, to $41.5 million
in 1995 from $26.3 million in 1994. New clients accounted for $6.1 million
of this increase, while existing clients accounted for the remaining $9.1
million of this increase.
COST OF SERVICES. Cost of services increased $11.9 million, or 55.6%, to
$33.2 million in 1995 from $21.4 million in 1994. As a percentage of
revenues, cost of services decreased to 80.1% in 1995 from 81.1% in 1994.
This change was primarily due to improvement in profit margins at the United
Kingdom facility as productivity improved, and improvement in product
fulfillment profit margins in domestic operations as improved product
fulfillment systems were placed in service. As a result of technological
changes in software distribution, the foregoing improvements were partially
offset by lower profit margins realized from the switch by the Company's
clients to lower-margin compact discs from higher-margin 3-1/2 inch floppy
disks included in such clients' final products.
GROSS PROFIT. As a result of the foregoing factors, gross profit
increased $3.3 million, or 66.0%, to $8.3 million for the year ended December
31, 1996 from $5.0 for the year ended December 31, 1995. As a percentage of
revenues, gross profit increased to 19.9% in 1995 from 18.9% in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased
$0.9 million, or 19.0%, to $5.3 million in 1995 from $4.5 million in 1994.
As a percentage of revenues, SG&A expenses decreased to 12.8% in 1995 from
17.0% in 1994, reflecting the spreading of fixed and semi-variable costs over
a larger revenue base.
MANAGEMENT FEE EXPENSE. Management fee expense increased $2.0 million,
or 324.8%, to $2.6 million in 1995 from $0.6 million in 1994. As a
percentage of revenues, management fee expense increased to 6.3% in 1995 from
2.3% in 1994. Management fee expense was determined by the Board of
Directors of the Company and related primarily to changes in operating profit
of the Company. Effective December 31, 1996, the management fee and bonus
arrangements previously reflected as management fee expense have been
terminated and no further management fees will be payable by the Company.
OPERATING PROFIT. As a result of the foregoing factors, operating profit
increased $0.5 million to $0.4 million in 1995 from $(0.1) million in 1994.
As a percentage of revenues, operating profit increased to 0.8% in 1995 from
(0.4)% in 1994.
NET INTEREST EXPENSE AND OTHER. Net interest expense and other increased
$0.2 million, or 83.3%, to $0.4 million in 1995 from $0.2 million in 1994.
As a percentage of revenues, net interest expense and other increased to 1.0%
in 1995 from 0.8% in 1994, reflecting higher outstanding borrowings relative
to revenues of the Company.
LOSS BEFORE INCOME TAXES. As a result of the foregoing factors, loss
before income taxes decreased $0.3, or 82.5%, to $(0.1) million in 1995 from
$(0.3) million in 1994. As a percentage of revenues, loss before income
taxes decreased to (0.2)% in 1995 from (1.2)% in 1994.
NET INCOME (LOSS). Based upon the S corporation status of the Company
and the factors discussed above, net loss decreased $0.2 million, or 82.5%,
to $0.1 million in 1995 from $0.3 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its operations and capital
expenditures primarily through cash flow from operations, borrowings under
various lines of credit, capital lease arrangements, short-term borrowings
from its stockholders and their affiliates, and additional capital
contributions by its stockholders. The Company has a $3.5 million revolving
line of credit with Norwest Business Credit, Inc. (the "Bank"), which matures
on June 30, 1999. Borrowings under the line of credit bear interest at the
Bank's base rate, plus 1%. At
25
<PAGE>
December 31, 1996 and March 7, 1997, $3.5 million of borrowings were outstanding
under the line of credit, accruing interest at 9.25%. Borrowings under the line
of credit have been used primarily for general corporate purposes. Outstanding
borrowings will be repaid in full from net proceeds to the Company from this
offering. See "Use of Proceeds."
The Company has entered into several capital leases with three to five
year terms. At December 31, 1996, the outstanding lease obligations were
$2.4 million, accruing interest at rates ranging from 8.7% to 13.0%. At
December 31, 1996 and March 7, 1997, available additional borrowings under
these arrangements were $1.0 million. Substantially all of outstanding
capital lease obligations will be repaid in full from net proceeds to the
Company from this offering. See "Use of Proceeds."
In February 1997, the Company ordered call center computer hardware and
software with an aggregate purchase price of $0.8 million. The Company
intends to finance this computer equipment through an operating lease, which
operating lease will become effective upon completion of the installation of
the computer equipment. Installation is scheduled for April 1997.
Net cash provided by operating activities increased to $1.4 million for
the year ended December 31, 1996 from net cash used in operating activities
of $1.5 million for 1995. The principal causes of this $2.9 million change
were (i) an increase in depreciation and amortization and (ii) a decrease in
accounts receivable, partially offset by a decrease in accounts payable (net
of an increase in accrued and other liabilities) and an increase in
inventories. Net cash used in operating activities in 1995 was $1.5 million
as compared to $0.4 million of net cash provided by operating activities in
1994. The principal cause of this decrease in net cash flow from operating
activities between the periods was an increase in accounts receivable,
partially offset by an increase in accounts payable.
Net cash used in investing activities was $0.7 million for the year ended
December 31, 1996 as compared to $1.3 million of net cash used in investing
activities for 1995. The principal cause for this decrease related to
reduced purchases of property, plant and equipment in 1996. During 1994 and
1995, the Company's net cash used in investing activities did not change
significantly; however, the components of investing expenditures varied due
to (i) the purchase of the Denver facility in October 1995, (ii) collections
of notes receivable - affiliates and stockholders in 1995 and (iii) advances
made to stockholders and affiliates in 1994.
Net cash provided by financing activities decreased to $1.4 million for
the year ended December 31, 1996 from $3.2 million for 1995. The principal
causes for this decrease were (i) reduced bank borrowings in 1996 and (ii)
payments of notes payable - affiliate and stockholder in 1996, partially
offset by increases in contributed capital. Net cash provided by financing
activities increased to $3.2 million in 1995 from $1.1 million in 1994. The
principal causes for this increase were (i) mortgage borrowings pertaining to
the purchase of the Denver facility in 1995, (ii) an increase in borrowings
from an affiliate in 1995 and (iii) an increase in bank borrowings and
capital lease payments in 1995.
The principal sources of the Company's liquidity have been cash flow from
operations, borrowings under the Company's line of credit, capital lease
financing, borrowings from stockholders and their affiliates, and capital
contributions from its stockholders. The Company expects to maintain a $3.5
million credit facility. The credit facility is expected to contain
covenants which restrict, to a certain extent, dividends, capital
expenditures and loans to affiliates and stockholders, without prior written
consent of the lender. StarTek intends to use a portion of the net proceeds
to the Company from this offering to repay substantially all of its
outstanding indebtedness and capitalized lease obligations, and approximately
$8.0 million for capital expenditures to expand and build-out its existing
facilities.
The Company believes that cash flow from operations and net proceeds to
the Company from this offering, together with available funds under a credit
facility, will be sufficient to support its operations and capital
expenditure and liquidity requirements for the next 12 months and anticipated
operations and cash expenditures for the foreseeable future. However,
long-term capital requirements depend on many factors, including, but not
limited to, the rate at which the Company expands its business, whether
internally or through acquisitions and strategic alliances. To the extent
that the funds generated from the sources described above are insufficient to
26
<PAGE>
fund the Company's activities in the short or long term, the Company would need
to raise additional funds through public or private financings. No assurance
can be given that additional financing will be available or that, if available,
it will be available on terms acceptable to the Company.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of inflation
on its operations, the Company does not believe that inflation has had, or is
likely in the foreseeable future to have, a material effect on its results of
operations or financial condition.
27
<PAGE>
BUSINESS
GENERAL
StarTek is a leading international provider of integrated, value-added
outsourced services primarily for Fortune 500 companies in targeted
industries. The Company's integrated outsourced services encompass a wide
spectrum of logistics management and customer-initiated ("inbound")
teleservices throughout a product's life cycle, including product order
teleservices, supplier management, product assembly and packaging, product
distribution, product order fulfillment, and customer care and technical
support teleservices. By focusing on these services as its core business,
StarTek allows its clients to focus on their primary businesses, reduce
overhead, replace fixed costs with variable costs and reduce working capital
needs.
The Company has continuously expanded its business and facilities to
offer additional services on an outsourced basis in response to the growing
needs of its clients and to capitalize on market opportunities both
domestically and internationally. StarTek operates from its Colorado
facilities located in Denver and Greeley and from a facility located in
Hartlepool, England. The Company also operates through a subcontract
relationship in Singapore. For the year ended December 31, 1996, the
Company's revenues increased approximately 72.5% to $71.6 million from $41.5
million for the year ended December 31, 1995. Pro forma net income increased
approximately 144.3% to $3.9 million from $1.6 million during the same
period. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
StarTek's goal is to grow profitably by focusing on providing
high-quality integrated, value-added outsourced services. StarTek has a
strategic partnership philosophy, through which the Company assesses each of
its client's needs and, together with the client, develops and implements
customized outsourcing solutions. Management believes that its
entrepreneurial culture, long-term relationships with clients and suppliers,
efficient operations, dedication to quality and use of advanced technology
and management techniques provide StarTek a competitive advantage in
attracting and retaining clients that outsource non-core operations. Three
of the Company's top four clients have utilized its outsourced services for
more than five years and the fourth client initiated services with the
Company in April 1996.
StarTek has focused primarily on the computer software, computer
hardware, electronics, telecommunications and other technology-related
industries because of their rapid growth, complex and evolving product
offerings and large customer bases, which require frequent, often
sophisticated, customer interaction. Management believes that there are
substantial opportunities to cross-sell StarTek's wide spectrum of outsourced
services to its existing base of approximately 100 clients, which includes
Broderbund Software, Inc., Canon, Inc., Electronic Arts, Inc., Federal
Express Corporation, Hewlett Packard, Microsoft, Polaroid Corporation, Sony
Electronics, Inc., The 3DO Company, and Viacom International, Inc. The
Company intends to capitalize on the increasing trend toward outsourcing by
focusing on potential clients in additional targeted industries, including
health care, financial services, transportation services and consumer
products, which could benefit from the Company's expertise in developing and
delivering integrated, cost-effective outsourced services.
STARTEK'S INTEGRATED SERVICES
The Company's interaction with a client's customers may begin with an
inbound call or message via the Internet requesting information or placing an
order for the client's product. A StarTek service representative takes the
order, and if the Company manages the client's inventory, the Company packs
and ships the order. If the Company does not manage the client's inventory,
the Company transmits the customer's request directly to the client. In the
event the Company manages the client's inventory, the Company may receive
finished goods directly from a client or the Company may manage the
production process on an outsourced basis, following product specifications
provided by the client. In the latter case, the Company selects and
contracts with the necessary suppliers and performs all tasks necessary to
assemble and package the finished product, which may be held by the Company
pending receipt of customer orders or shipped in bulk to distributors or
retail outlets.
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The Company's clients typically provide their customers with telephone
numbers for product questions and technical support. Calls are routed to
StarTek customer care or technical support service representatives who have
been trained to support specific products. That request also may lead to an
order for another product or service offered by the client, in which case the
Company takes the order and the cycle begins again. StarTek's clients may
utilize one or more of the Company's outsourced services.
BUSINESS STRATEGY
StarTek's strategic objective is to increase revenues and earnings by
maintaining and enhancing its position as a leading international provider of
integrated value-added outsourced services. To reach this objective, the
Company intends to:
PROVIDE INTEGRATED OUTSOURCED SERVICES. StarTek seeks to provide
integrated outsourced services which enable its clients to provide their
customers with high-quality services at lower cost than through a client's
own in-house operations. The Company believes that its ability to tailor
operations, materials and employee resources objectively and to provide
integrated, value-added outsourced services on a cost-effective basis will
allow the Company to become an integral part of its clients' businesses.
DEVELOP STRATEGIC PARTNERSHIPS AND LONG-TERM RELATIONSHIPS. StarTek
seeks to develop long-term client relationships, primarily with Fortune 500
companies in targeted industries. The Company invests significant resources
to establish strategic partnership relationships and to understand each
client's processes, culture, decision parameters and goals, so as to develop
and implement customized solutions. The Company believes that this
solution-oriented, value-added integrated approach to addressing its clients'
needs distinguishes StarTek from its competitors and plays a key role in the
Company's ability to attract and retain clients on a long-term basis.
MAINTAIN LOW-COST POSITION THROUGH MODERN PROCESS MANAGEMENT. StarTek
strives to establish a competitive advantage by frequently redefining its
operational processes to reduce costs and improve quality. StarTek's
continuous improvement philosophy and modern process management techniques
enable the Company to reduce waste and increase efficiency in the following
areas: (i) controlling overproduction; (ii) minimizing waiting time due to
inefficient work sequences; (iii) reducing inessential handling of materials;
(iv) eliminating nonessential movement and processing; (v) implementing
fail-safe processes; (vi) improving inventory management; and (vii)
preventing defects.
EMPHASIZE QUALITY. StarTek strives to achieve the highest quality
standards in the industry. To this end, the Company has received ISO 9002
certification, an international standard for quality assurance and
consistency in operating procedures, for all of its domestic facilities and
services, and expects to receive ISO 9002 certification for its United
Kingdom facility in mid-1997. Certain of the Company's existing clients
require evidence of ISO 9002 certification, and the Company anticipates that
many potential clients may require ISO 9002 certification prior to selecting
an outsourcing provider.
CAPITALIZE ON SOPHISTICATED TECHNOLOGY. The Company believes it has
established a competitive advantage by capitalizing on sophisticated
technology and proprietary software, including automatic call distributors,
inventory management software, transportation management software, call
tracking systems and telephone-computer integration software. These
capabilities enable StarTek to improve efficiency, serve as a transparent
extension of its clients, receive telephone calls and data directly from its
clients' systems, and report detailed information concerning the status and
results of the Company's services and interaction with clients on a daily
basis.
GROWTH STRATEGY
The Company's growth strategy is designed to capitalize on the increasing
demand for outsourced services and improve and expand StarTek's position as
an international provider of integrated value-added outsourced services.
This strategy includes the following key elements:
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INCREASE CAPACITY. Management believes that as a provider of outsourced
services it must be ready to serve its clients in periods of peak demand for
its clients' products or services. Accordingly, the Company intends to
continue to increase product handling and teleservice workstation capacity to
meet anticipated demand for the Company's outsourced services. During 1996,
the Company increased its teleservice workstations by 54.6%, to 558 from 361.
In addition, the Company reengineered and expanded its primary product
handling facility to increase its daily capacity by approximately 200% to
180,000 units from 60,000 units for certain types of products.
CROSS-SELL SERVICES TO EXISTING CLIENTS. Management believes there are
substantial opportunities to cross-sell its wide spectrum of outsourced
services to other divisions or operations within its existing clients'
organizations. StarTek capitalizes on its relationships and comprehensive
understanding of its clients' businesses to identify additional divisions and
areas where the Company could provide its services. For example, the
Company's two oldest current client relationships, which began in 1987 and
1988 utilizing only one service each, today utilize substantially all of the
Company's outsourced services. Management further believes that its ability
to provide integrated solutions helps the Company to create strategic
partnership relationships and gives the Company a competitive advantage to be
selected as the service provider of choice.
EXPAND CLIENT BASE. The Company intends to capitalize on its low-cost
position and extensive offering of services to penetrate further the
industries which the Company currently serves and to seek clients in other
industries. Management believes that there are several additional
industries, including health care, financial services, transportation
services and consumer products, which provide significant market
opportunities to the Company. To facilitate the Company's anticipated
growth, the Company increased its sales force to 12 full-time professionals
as of the date of this Prospectus, from four at the end of 1996.
INCREASE INTERNATIONAL OPERATIONS. The Company currently conducts
business in North America, Europe and Asia. Management believes that many of
the trends leading to the growth of outsourced services in the United States
are occurring in international markets as well. Management also believes
that many companies, including several of its existing multinational clients,
are seeking outsourced services on an international basis. To capitalize on
these international opportunities, the Company intends to expand its
international operations.
DEVELOP NEW SERVICES. Management believes that the trend toward
outsourcing and rapid technological advances will result in new products and
types of customer interactions which will create opportunities for the
Company to provide additional outsourced services. StarTek intends to
capitalize upon its strategic long-term relationships to provide new
outsourced services to its clients as opportunities arise.
ACQUIRE COMPLEMENTARY COMPANIES AND EXPAND STRATEGIC ALLIANCES. StarTek
intends to evaluate the acquisition of complementary companies that could
extend its presence into new geographic markets or industries, expand its
client base, add new product or service applications and/or provide operating
synergies. Management believes that there could be many domestic and
international acquisition and strategic alliance opportunities as companies
consider selling their existing in-house operations and as smaller companies
seek growth capital and economies of scale to remain competitive.
SERVICES
The Company offers a wide spectrum of outsourced services throughout a
product's life cycle, designed to provide cost-effective and efficient
management of the ancillary operations of its clients. The Company works
closely with its clients to develop, refine and implement efficient and
productive integrated outsourced solutions that link StarTek with such
clients and their customers. The processes that create such solutions
generally include the development of product manufacturing specifications,
packaging and distribution requirements, as well as product-related software
programs for telephone, facsimile, e-mail and Internet interactions involving
product order fulfillment, customer care and technical support.
Substantially all of the Company's teleservice activities are inbound
telephone calls, rather than outbound calls. Specific services that StarTek
provides to its clients include the following:
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PRODUCT ORDER TELESERVICES. Product order teleservices is generally the
process by which a call from a client's customer is received, identified and
routed to a StarTek service representative. Typically, a customer calls to
request product service information, to place an order for an advertised
product or to obtain assistance regarding a previous order or purchase. The
information and results of the call are then communicated either to StarTek's
employees for order processing and fulfillment or, if StarTek does not manage
the client's inventory, the Company transmits the customer's request directly
to the client. To properly handle these and other teleservices, StarTek
utilizes automated call distributors to identify each inbound call by the
number dialed by the customer and immediately route the call to a StarTek
service representative trained for that product. Product orders also occur
as a result of a StarTek service representative offering products in
connection with a customer care or technical support call. To facilitate
product orders, the Company can process credit card charges and other payment
methods in connection with its product order teleservices.
SUPPLIER MANAGEMENT. Company personnel are responsible for maintaining
and managing multiple supplier relationships. When the Company is selected
by a client to provide product assembly and packaging services, the Company
qualifies, selects, certifies and manages the sourcing and manufacturing of
the various products and related components including, among other things,
the printing of boxes, labels, manuals and other printed materials to be
included with the client's product and the mass duplication of software onto
various media. Such product and related components are then assembled and
packaged at the Company's facilities. The Company monitors the quality of
its suppliers through visits to manufacturing facilities and utilizes
just-in-time production to minimize inventory in the Company's warehouses.
Management believes that the Company's strong, long-term relationships with
multiple suppliers allows the Company to be flexible and responsive to its
clients, while minimizing costs and the Company's dependency on any single
supplier.
PRODUCT ASSEMBLY AND PACKAGING. The Company assembles and packages
products in various containers, including folding cartons, set-up boxes,
compact disc jewel cases, digi-packs, binders and slip cases. The Company
assembles and packages products in the United States, the United Kingdom and
Singapore and has a global capacity of approximately 400,000 units per day,
which capacity varies depending on the size and complexity of the product.
The Company's assembly lines have been designed with significant flexibility,
enabling the Company to assemble and package various types of products and
rapidly change the type of product produced. During peak periods of
operations, the Company's capacity is dependent upon (i) the complexity of
the product to be assembled; (ii) the availability of materials from
suppliers; (iii) the availability of temporary personnel to increase
capacity; (iv) the number of shifts operated by the Company; and (v) the
ability to activate additional production lines. During peak periods, the
Company has expanded assembly production to approximately four times the
output of slower periods.
PRODUCT DISTRIBUTION. The Company's sophisticated inventory management
systems enable the Company to ship and track products to distribution
centers, to individual stores and to its clients' customers directly.
Product orders are received by the Company via file transfer protocol (FTP),
the Internet, electronic data interchange (EDI) and facsimile, as well as
through the Company's product order teleservices described above.
PRODUCT ORDER FULFILLMENT. StarTek personnel process, pack and ship
product orders and requests for promotional and educational literature, and
direct customers of the Company's clients to product or service sources
("fulfillment") by telephone, e-mail, facsimile and the Internet, 24 hours
per day, seven days per week. The Company provides same-day shipping of
customer orders if the product is available.
CUSTOMER CARE TELESERVICES. Customer care programs are customized by the
Company to meet its clients' needs. The Company customizes responses to
various customer product inquiries by designing special greetings, marketing
messages and specific queue-time controls. A StarTek service representative
receiving a call can enter customer information into the Company's
call-tracking system, listen to a question, and quickly access a proprietary
networked database via personal computer to locate an answer to a customer's
question. A senior quality control team member is available to provide
additional assistance for complex or first-time customer questions. As
additional product information becomes available, the Company promptly
integrates such information into its database, thereby ensuring that answers
are based upon the latest product information.
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Each customer interaction presents the Company and its clients with an
opportunity to gather valuable customer information, including the customer's
demographic profile and preferences. This information can prompt the StarTek
service representative to make logical, progressive inquiries about the
customer's interest in additional products and services, identify additional
revenue generating and cross-selling opportunities, or resolve other issues
relating to a client's products or services.
TECHNICAL SUPPORT TELESERVICES. StarTek service representatives provide
technical support services by telephone, e-mail, facsimile and the Internet,
24 hours per day, seven days per week. Technical support inquiries are
generally driven by a customer's purchase of a product or by a customer's
need for ongoing technical assistance. Customers of StarTek's clients dial a
technical support number listed in their product manuals and, based on
touch-tone responses, are automatically connected to an appropriate StarTek
service representative who is specially trained in the applicable product.
Each StarTek service representative acts as a transparent extension of its
clients when resolving complaints, diagnosing and resolving product or
service problems, or answering technical questions.
INTERNATIONAL OPERATIONS
StarTek provides its outsourced services on an international basis from
the United Kingdom and Singapore. The Company's facility in the United
Kingdom provides the full range of the Company's outsourced services for
clients throughout Europe, including inbound product order, customer care and
technical support teleservices in five languages. The Company currently
provides supplier management, product assembly and packaging and product
distribution for one of its major clients through a subcontract relationship
with a company in Singapore. This subcontract relationship operates on a
purchase order basis.
CLIENTS
StarTek provided services to approximately 100 clients in North America,
Europe and Asia during 1996. StarTek's clients include companies engaged
primarily in the computer software, computer hardware, electronics,
communications and other technology-related industries. Approximately 38.4%
and 33.4% of the Company's revenues in 1996 were attributable to Hewlett
Packard and Microsoft, respectively. Hewlett Packard and Microsoft began
their outsourcing relationships with the Company in 1987 and April 1996,
respectively. Based upon 1996 revenues, StarTek's ten largest clients,
listed alphabetically, were:
Broderbund Software, Inc. Microsoft Corporation
Canon, Inc. Polaroid Corporation
Electronic Arts, Inc. Sony Electronics, Inc.
Federal Express Corporation The 3DO Company
Hewlett-Packard Company Viacom International, Inc.
The Company typically enters into a written agreement with each client
for outsourced services or performs services on a purchase order basis.
Under substantially all of the Company's significant arrangements with its
clients, the Company generates revenues based in large part, on the number
and duration of customer inquiries (subject to certain minimum monthly
payments) and the volume, complexity and type of components involved in the
clients products. Although the Company currently seeks to sign multi-year
contracts with its clients, the Company's contracts generally (i) permit
termination upon relatively short notice by the client, (ii) do not designate
the Company as the client's exclusive outsourced service provider and (iii)
do not penalize the client for early termination. To the extent the Company
works on a purchase order basis, the agreement with the client frequently
does not provide for minimum purchase requirements, except in connection with
its customer care and technical support services. See "Risk Factors--Risks
Associated with the Company's Contracts."
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SALES AND MARKETING
The Company's marketing objective is to develop long-term relationships
with existing and potential clients to become the preferred worldwide vendor
of outsourced services. StarTek invests significant resources to create a
strategic partnership relationship with its clients to understand their
existing operations, customer service processes, culture, decision parameters
and goals. A StarTek team assesses the client's outsourcing service needs,
and, together with the client, develops and implements customized solutions.
Management believes that, as a result of StarTek's strategic relationship
with its clients and comprehensive understanding of their businesses, the
Company can identify new revenue generating opportunities, customer
interaction possibilities and product service improvements not adequately
addressed by the client. The Company's sales strategy emphasizes multiple
contacts with a client to strengthen its relationship and facilitate the
cross-selling of services.
StarTek markets its outsourced services through a variety of methods,
including personal sales calls, client referrals, attendance at trade shows,
advertisements in industry publications, and the cross-selling of services to
existing clients. In order to enhance its marketing efforts, the Company
increased its sales force to 12 full-time professionals as of the date of
this Prospectus, from four at the end of 1996. As part of its marketing
efforts, the Company encourages visits to its facilities, where the Company
demonstrates its services, quality procedures and ability to accommodate
additional business.
Management believes a key element to sales growth is the ability to
flexibly, effectively and efficiently expand service capacity to meet client
needs as its clients grow or outsource more of their non-core operations to
the Company. In addition, to attract new clients to StarTek's services, the
Company must have the resources to promptly develop a strategy to meet a new
client's outsourcing goals, as well as the ability to implement operations
for such client quickly and accurately. In order to achieve these goals, the
Company currently maintains a level of excess capacity to expand its
operations as necessary to meet increased client demand.
TECHNOLOGY
The Company employs sophisticated technology and proprietary software
that incorporates digital switching, relational database management systems,
call tracking systems, workforce management systems, object-oriented software
modules and telephone-computer integration. The Company's digital switching
technology enables calls to be routed to the next available teleservice
representative with the appropriate product knowledge, skill and language
abilities. Call tracking and workforce management systems generate and track
historical call volumes by client, enabling the Company to schedule personnel
efficiently, anticipate fluctuations in call volume and provide clients with
detailed information concerning the status and results of the Company's
services on a daily basis. Management believes that the Company's
proprietary technology platform provides the Company with a competitive
advantage in maintaining existing clients and attracting new clients. A
portion of the net proceeds of this offering allocated for working capital
and general corporate purposes will be used by the Company to enhance its
existing telecommunications equipment and computer and software systems. See
"Use of Proceeds."
EMPLOYEES AND TRAINING
StarTek's success in recruiting, hiring, and training large numbers of
full-time, skilled employees and obtaining large numbers of hourly employees
during peak periods for product assembly, packaging and distribution services
is critical to the Company's ability to provide high quality outsourced
services. To maintain good employee relations and to minimize turnover, the
Company offers competitive pay, hires primarily full-time employees who are
eligible to receive the full range of employee benefits, and provides
employees with clear, visible career paths. As of February 28, 1997, the
Company had 1,051 employees, of which approximately 75% were full-time. The
number of temporary employees varies significantly during the year due to the
seasonal variations of the Company's business. Management believes that the
demographics surrounding its facilities, and its reputation, stability and
compensation plans should allow the Company to continue to attract and retain
qualified employees. The Company considers its employee relations to be
good. See "Risk Factors--Dependence on Labor Force."
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In keeping with StarTek's continuous improvement philosophy, the Company
is committed to training all of its employees. StarTek provides formal
training for senior management, supervisors, process managers, quality
coordinators, and teleservice representatives. StarTek also maintains an
employee quality program to backup every employee, including specialized
quality coordinators who teach problem solving, assist with teleservice calls
and offer immediate performance feedback. On a more informal basis, the
Company provides on-the-job process training and tutoring for all logistics
personnel. Employee teams gather daily to receive information about products
to be produced and techniques to be utilized, and have an opportunity to ask
questions and receive one-on-one training, as necessary.
The Company's in-house training program for customer care and technical
support teleservicing employees is founded on an in-depth, structured
learning environment that builds technical competence and teaches critical
software skills necessary to provide effective customer care and technical
support teleservices. Each teleservice representative is specially
designated and trained to support a particular product or group of products
for a particular client. A teleservice representative receives training in
product knowledge, call listening, and computer skills prior to answering any
customer calls independently. This training time depends on the complexity
of the product for which such representative will provide teleservices.
Further, the Company uses live and taped call reviews and customer feedback
surveys to continue to monitor and enhance its level of customer support
services.
INDUSTRY AND COMPETITION
With the goal of focusing on their core businesses, companies are
increasingly turning to outsourced service companies to perform specialized
functions and services. Outsourcing of non-core activities offers a
strategic advantage to companies in a wide range of industries by offering
them an opportunity to reduce operating costs and working capital needs,
improve their reaction to business cycles, manage capacity and improve
customer and technical information gathering and utilization. To realize
these advantages, companies are outsourcing the process of planning,
implementing and controlling the efficient flow of goods, services,
teleservices and related information from the point of origin to the point of
consumption. Additionally, rapid technological changes and rising customer
expectations for high-quality goods and services make it increasingly
difficult and expensive for companies to maintain the necessary personnel and
product capabilities in-house to support a product's life cycle on a
cost-effective basis. Companies which focus on providing these services as
their core business, including StarTek, are expected to continue to benefit
from these outsourcing trends.
StarTek competes on the basis of quality, reliability of service, price,
efficiency, speed and flexibility in tailoring services to client needs.
Management believes its comprehensive and integrated services differentiate
it from its non-client competitors who may only be able to provide one or a
few of the outsourced services that StarTek provides. The Company
continuously explores new outsourcing service opportunities, typically in
circumstances where clients are experiencing inefficiencies in non-core areas
of their businesses and management believes it can develop a superior
outsourced solution to such inefficiency on a cost-effective basis.
Management believes that it competes primarily with the in-house teleservice,
customer service and logistics management operations of its current and
potential clients. StarTek also competes with certain companies that provide
similar services on an outsourced basis including, APAC Teleservices, Inc.,
Kao Corporation, Logistix Corporation, MATRIXX Marketing Inc., National
TechTeam, Inc., Precision Response Corp., SITEL Corporation, Stream
International Inc., Sykes Enterprises Incorporated, TeleTech Holdings, Inc.
and West Teleservices Corporation. In addition, there are numerous
competitors of all sizes that provide product order teleservices and product
fulfillment distribution services.
FACILITIES
StarTek's facilities include a Company-owned 138,000-square-foot building
in Denver, Colorado (which also contains the Company's executive offices),
and a 100,000-square-foot Company-owned building and a 10,500-square-foot
Company-owned building, both located in Greeley, Colorado. StarTek performs
its international outsourced services from a leased 53,000-square-foot
building in Hartlepool, County Durham on the northeast coast of England. In
Asia, the Company utilizes a subcontractor that operates from a
25,000-square-foot facility located in Singapore.
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Of the Company's 614 teleservice workstations in the United States as of
February 28, 1997, 249 were located in the Denver building (which has space
to expand to approximately 1250 workstations) and 365 were located in the
Greeley buildings. The Company's other outsourced services in the United
States primarily operate from the Company's Greeley facilities. The
Company's United Kingdom facility provides space for each of the Company's
outsourced services and the Company's subcontractor in Singapore provides
space for the Company's supplier management, product assembly and packaging
and product distribution services. Management believes that its existing
facilities are adequate for its current operations, but that additional
facility capacity will be required to support continued growth. The Company
intends to use a portion of the net proceeds to the Company from this
offering to expand its existing facilities. See "Use of Proceeds."
INTELLECTUAL PROPERTY
The Company owns the servicemarks "StarTek" and "StarPak," and intends to
file for federal registration of these servicemarks prior to closing this
offering. Due to the common use of identical or phonetically similar
servicemarks by other companies in different businesses, there can be no
assurance that the United States Patent and Trademark Office will grant the
Company registration of its servicemarks, or that such servicemarks will not
be challenged by other users. The Company does not believe that it owns or
utilizes any other servicemarks that are material to its business. The
Company's operations, however, frequently incorporate proprietary and
confidential information. In accordance with industry practice, the Company
relies upon a combination of contract provisions and trade secret laws to
protect the proprietary technology it uses and to deter misappropriation of
its proprietary rights and trade secrets.
LEGAL PROCEEDINGS
The Company has been involved from time to time in litigation arising in
the normal course of business, none of which is expected by management to
have a material adverse effect on the business, financial condition or
results of operations of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
NAME AGE POSITION
- ---- --- --------
A. Emmet Stephenson, Jr. 51 Chairman of the Board and Director
Michael W. Morgan 36 President, Chief Executive Officer
and Director
E. Preston Sumner, Jr. 44 Executive Vice President and Chief
Operating Officer
Dennis M. Swenson 61 Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
Thomas O. Ryder 52 Director
Ed Zschau 57 Director
A. EMMET STEPHENSON, JR. co-founded the Company in 1987 and has served as
Chairman of the Board of the Company since its formation. Mr. Stephenson has
also served as President of Stephenson and Company, a private investment firm
in Denver, Colorado, for more than five years. Mr. Stephenson is a director
of Danaher Corporation and serves on the Advisory Boards of First Berkshire
Fund and Capital Resource Partners, L.P.
MICHAEL W. MORGAN co-founded the Company in 1987 and has held managerial
positions in companies providing outsourced services since 1984. Mr. Morgan
has served as President and Chief Executive Officer of the Company since May
1990 and has served as a Director of the Company since January 1997.
E. PRESTON SUMNER, JR. co-founded the Company in 1987, served as
Vice-Chairman of the Board from inception of the Company through December
1994 and rejoined the Company in February 1997 as Executive Vice President
and Chief Operating Officer. Mr. Sumner was also a managing director of
Stephenson Merchant Banking, a private investment firm in Denver, Colorado
from 1986 through December 1994. From January 1995 through February 1997,
Mr. Sumner was a director and Vice-President - Corporate Development of
Merrick & Company, an engineering and architectural firm and will continue to
serve as a director and non-executive chairman of the board of such company.
DENNIS M. SWENSON has served as Chief Financial Officer of the Company
since October 1995 and as Executive Vice President since October 1996. From
October 1991 to September 1995, Mr. Swenson was an independent financial
consultant. Mr. Swenson was a partner of Ernst & Young LLP from 1973 until
1991.
THOMAS O. RYDER has served as a Director of the Company since January
1997. He has been President of Travel Related Services International for
American Express TRS Company, Inc. since October 1995. Mr. Ryder has also
been Chairman of the Board of American Express Publishing Corporation since
December 1991. From February 1992 through October 1995, he served as
President of American Express Establishment Services Worldwide. From January
1988 through February 1992, Mr. Ryder served as President of Direct Marketing
Group, which included American Express Merchandise Services, American Express
Publishing Corporation and Epsilon Data Management Corporation. He is a
director of Club Mediterranee.
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ED ZSCHAU has served as a Director of the Company since January 1997. He
has been a Senior Lecturer of Business Administration at Harvard University
since February 1996. From April 1993 to July 1995, Mr. Zschau was General
Manager, Storage System Division at IBM Corporation. From July 1988 to April
1993, he was Chairman and Chief Executive Officer of Censtor Corp., a company
that researches and develops magnetic recording components for disk drives.
Mr. Zschau is a director of Indentix, Inc., GenRad, Inc. and Censtor Corp.
The executive officers of the Company serve at the discretion of its
Board of Directors. Directors of the Company hold office until the next
annual meeting of the Company's stockholders and until their successors have
been duly elected and qualified or until their earlier resignation, removal
from office or death.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors established a compensation committee and an audit
committee of its Board of Directors in January 1997.
COMPENSATION COMMITTEE. The Compensation Committee, which consists of
Messrs. Stephenson, Ryder and Zschau, will determine the compensation to be
paid to all executive officers of the Company. The current executive officer
salaries were set by the Board of Directors prior to establishment of the
Compensation Committee.
AUDIT COMMITTEE. The Audit Committee, which is comprised of Messrs.
Ryder and Zschau, the Company's two independent directors, will be
responsible to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans
and results of the audit engagement, approve professional services provided
by the independent public accountants, review independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls and financial
management practices.
COMPENSATION OF DIRECTORS
StarTek does not pay its directors any cash compensation for their
services as directors. Directors will be reimbursed for expenses incurred in
connection with meetings of the Board of Directors or committees thereof.
The Company has adopted the Director Option Plan, which provides for an
automatic initial grant and an annual grant to each director who is not an
employee or officer of the Company (a "non-employee director") of options to
acquire shares of Common Stock. A total of 90,000 shares of Common Stock
have been reserved for issuance pursuant to options granted under the
Director Option Plan. All options granted under the Director Option Plan
will be non-qualified options that are not intended to qualify under Section
422 of the Code.
The Director Option Plan provides that each non-employee director will
receive (i) options to acquire 10,000 shares of Common Stock upon the later
of the closing of an initial public offering of Common Stock or such
director's initial election to the Board of Directors and (ii) options to
acquire 3,000 shares of Common Stock on the date of each annual meeting of
stockholders thereafter at which such director is reelected. The exercise
price of each option granted under the Director Option Plan will equal the
fair market value of the Common Stock on the date of grant. Options granted
under the Director Option Plan will (a) vest immediately and (b) expire on
the earliest to occur of the tenth anniversary of the date of grant, one year
following the director's death or immediately upon the director's termination
of membership on the Board of Directors for "cause" (as defined in the
Director Option Plan).
The Company has granted Thomas O. Ryder and Ed Zschau options to acquire
10,000 shares of Common Stock each, at an exercise price per share equal to
the initial public offering price, pursuant to the terms of the Director Option
Plan.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1996, the Company did not have a
Compensation Committee of its Board of Directors, or other board committee
performing equivalent functions. Decisions concerning the compensation of
executive officers were made by the Board of Directors of each of the
operating subsidiaries of the Company. Except for A. Emmet Stephenson, Jr.,
there are no officers or employees of the Company who participated in
deliberations concerning such compensation matters.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
information concerning the compensation paid by the Company to the Chief
Executive Officer. No other executive officer of the Company earned or was
paid compensation of more than $100,000 for the year ended December 31, 1996.
See "Certain Relationships and Related Party Transactions." The Company
does not have a pension plan or a long-term incentive plan, has not issued
any restricted stock awards and did not grant any stock options during its
most recent fiscal year.
SUMMARY COMPENSATION TABLE
1996 ANNUAL COMPENSATION
--------------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
--------------------------- ----------- -----------
Michael W. Morgan $271,059(a) $666,893(b)
President and Chief
Executive Officer
- -------------------
(a) Mr. Morgan's base salary is and following this offering will continue to
be $271,059, subject to modification by the Compensation Committee.
(b) Includes $643,754 of bonus, which arrangement was terminated effective
December 31, 1996. Of the $643,754, Mr. Morgan recontributed $337,971
to the Company as additional capital. Substantially all of the balance
was used by Mr. Morgan to pay applicable federal and state income taxes
on S corporation earnings of the Company allocable to Mr. Morgan. See
"Offering Related Transactions--Termination of S Corporation Status" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Historically, the Company has paid an annual management fee of approximately
$200,000 to A. Emmet Stephenson, Jr., Inc., which is wholly-owned by A. Emmet
Stephenson, Jr., Chairman of the Board of the Company, for services rendered by
Mr. Stephenson to the Company, and $70,000 annually to Stephenson Properties as
rental for certain Company facilities. This management fee and rental
arrangement was terminated effective as of December 31, 1996. See "Certain
Relationships and Related Party Transactions--Management Fees" and --Real
Property." Effective as of January 1, 1997, the Company will pay an annual
advisory fee of $245,000 to A. Emmet Stephenson, Jr., Inc.
Effective as of February 18, 1997, the Company will pay E. Preston
Sumner, Jr., Executive Vice President and Chief Operating Officer of the
Company, an annual base salary of $150,000.
Effective as of January 1, 1997, the Company will pay Dennis M. Swenson,
Executive Vice President and Chief Financial Officer of the Company, an
annual base salary of $126,000.
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<PAGE>
STOCK OPTION PLAN
The Company has adopted the StarTek, Inc. Stock Option Plan (the "Option
Plan"), which authorizes the issuance of up to 985,000 shares of Common Stock
through the grant of (i) incentive stock options ("ISOs") within the meaning
of Section 422 of the Code, (ii) stock options that are not intended to
qualify under Section 422 of the Code ("NSOs" and together with ISOs,
"Options"), and (iii) stock appreciation rights ("SARs"). Directors (other
than non-employee directors), officers, employees, consultants and
independent contractors of the Company or any subsidiary of the Company, as
selected from time to time by the committee administering the Option Plan,
will be eligible to participate in the Option Plan.
The Option Plan provides that it is to be administered by a committee
comprised of two or more non-employee directors appointed by the Board of
Directors (the "Committee"). Subject to certain limitations, the Committee
has complete discretion to determine which eligible individuals are to
receive awards under the Option Plan, the form and vesting schedule of
awards, the number of shares subject to each award and the exercise price,
the manner of payment and expiration date applicable to each award. The
Board of Directors has appointed Thomas O. Ryder and Ed Zschau as members of
the Committee.
Set forth below is a summary of the terms of the Option Plan that will be
applicable to each of the various types of awards covered thereby.
OPTIONS. All options will expire on the date that is the earliest of
three months after the holder's termination of employment with the Company
(other than termination for cause), six months after the holder's death and
10 years after the date of grant. Options will be subject to forfeiture upon
termination of employment for "cause." The exercise price per share of an
ISO will be determined by the Committee at the time of grant, but in no event
may be less than the fair market value of the Common Stock on the date of
grant. Notwithstanding the foregoing, if an ISO is granted to a participant
who owns more than 10% of the voting power of all classes of stock of the
Company, the exercise price will be at least 110% of the fair market value of
the Common Stock on the date of grant and the exercise period will not exceed
five years from the date of grant. The exercise price per share of an NSO
will be determined by the Committee in its sole discretion.
STOCK APPRECIATION RIGHTS. SARs may be issued only in connection with an
NSO (a "Tandem SAR"), in which case the Tandem SAR terminates simultaneously
upon the expiration of the related NSO. A Tandem SAR will be exercisable
only if the fair market value of a share of Common Stock exceeds the exercise
price of the related NSO.
The Committee has granted to Messrs. Morgan, Sumner and Swenson, ISOs to
purchase 100,000 shares, 100,000 shares and 70,000 shares of Common Stock,
respectively, at an exercise price equal to the initial public offering
price. The Committee intends to grant to other employees of the Company, on
or prior to closing of this offering, ISOs to purchase 415,000 shares of
Common Stock, at an exercise price per share equal to the initial public
offering price. The foregoing Options will have a term of ten years and,
except as otherwise determined by the Committee, will vest 20% per year for a
five-year period commencing on the first anniversary of closing this offering.
39
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
MANAGEMENT FEES
For the years ended December 31, 1994, 1995 and 1996, the Company paid
management fees of $737,235, $2,526,122 and $5,728,381, respectively
(approximately $200,000 of which has been included in SG&A expenses for
financial statement purposes for each of the relevant years), to A. Emmet
Stephenson, Jr., Inc., a Colorado corporation, which is wholly-owned by A.
Emmet Stephenson, Jr., Chairman of the Board of the Company and a Principal
Stockholder. Mr. Stephenson and Toni E. Stephenson, his spouse and a
Principal Stockholder, made capital contributions to the Company equal to
approximately 53% of such management fees, with a substantial portion of the
remainder being used to pay applicable federal and state income taxes on such
fees. The Company has terminated the management fee arrangement effective as
of December 31, 1996. Effective January 1, 1997, the Company will pay an
annual advisory fee of $245,000 to A. Emmet Stephenson, Jr., Inc.
REAL PROPERTY
The Company leased office space at 100 Garfield Street, Denver, Colorado,
from Stephenson Properties, a partnership (the "Lessor") in which A. Emmet
Stephenson, Jr., the Company's Chairman of the Board and a Principal
Stockholder, and Toni E. Stephenson, a Principal Stockholder, are general
partners. The total annual lease payments for 1994, 1995 and 1996 made to
the Lessor by the Company were $70,000 each year (which has been included in
SG&A expenses for financial statement purposes for each of the relevant
years). This office lease was terminated effective December 31, 1996.
LOANS
In 1994, StarPak, Inc. loaned an aggregate amount of $663,494 to its
stockholders, with interest at 8.5% per annum. These notes were refinanced
annually and repaid by the stockholders in full on November 22, 1996. After
receipt of such loan proceeds in 1994, the stockholders of StarPak, Inc.
loaned $663,494 to StarPak International, Ltd., with interest at 8.5% per
annum, for working capital purposes. These notes were refinanced annually
and repaid by StarPak International, Ltd. on November 22, 1996.
On December 31, 1994, StarPak, Inc. loaned $77,779 to Michael W. Morgan,
President and Chief Executive Officer of the Company, payable on demand
without interest. The loan was repaid in full in August 1995.
On December 31, 1994, the Company loaned $667,800 to A. Emmet Stephenson,
Jr., Inc., which is wholly-owned by Mr. Stephenson. The loan was repaid in
full in August 1995.
In 1994, StarPak International, Ltd. borrowed $75,000 from Mr. and Mrs.
Stephenson for working capital purposes, with interest at 12% per annum. The
loan was refinanced annually until November 22, 1996, when the loan was
repaid in full.
On December 29, 1995, the Company borrowed approximately $1.1 million
from General Communications, Inc., a corporation owned by A. Emmet
Stephenson, Jr., the Company's Chairman of the Board and a Principal
Stockholder, and Toni E. Stephenson, a Principal Stockholder, for working
capital purposes. The loan accrued interest equal to the Company's line of
credit rate (10% at December 31, 1995) and matured on January 31, 1997. The
Company repaid the loan in full in April 1996.
On January 9, 1996, the Company borrowed $90,000 from Michael W. Morgan,
the Company's President and Chief Executive Officer and a Principal
Stockholder, for working capital purposes. The loan accrued interest equal
to the Company's line of credit rate (10% at December 31, 1995) and matured
in April 1996. The loan and all accrued interest was repaid at such time.
40
<PAGE>
During 1995, Michael W. Morgan, President and Chief Executive Officer of
the Company, exercised certain options to acquire shares of common stock of
StarPak, Inc. and delivered his promissory note in payment of the exercise
price, bearing interest at 4.63%, payable in installments during 1999. The
note was repaid in full in January 1997.
NOTES PAYABLE TO PRINCIPAL STOCKHOLDERS
Immediately prior to closing this offering, the Company will declare a
dividend in an amount equal to the estimated additional paid-in capital and
retained earnings of the Company as of the closing date, payable to the
Principal Stockholders pursuant to certain promissory notes, which will equal
approximately $7.0 million, plus an adjustment for any additional paid-in
capital and retained earnings after December 31, 1996 through the closing
date. The promissory notes payable to the Principal Stockholders will be
paid from net proceeds to the Company from this offering. From this amount,
the Principal Stockholders will be required to pay applicable federal and
state income taxes on earnings of the Company attributable to the period from
January 1, 1997 through closing of this offering, the period in which the
Company will continue to operate as an S corporation. See "Use of Proceeds."
FUTURE TRANSACTIONS
The Company has implemented a policy requiring that any material
transaction between the Company and its officers, directors or an affiliated
party is subject to approval by a majority of the directors not interested in
such transaction, who must determine that the terms of any such transaction
are no less favorable to the Company than can be obtained from an
unaffiliated third party.
41
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of the date of this
Prospectus, and as adjusted to reflect the sale of the shares of Common Stock
being offered hereby, by (i) each stockholder who is known by the Company to
beneficially own more than 5% of the currently outstanding shares of Common
Stock; (ii) each of the Company's Directors and executive officers; (iii) all
executive officers and Directors of the Company as a group; and (iv) the
Selling Stockholders.
<TABLE>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY
PRIOR TO THE OFFERING NUMBER OF OWNED AFTER THE OFFERING(a)
NAME AND ADDRESS OF -------------------------- SHARES BEING ---------------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED(a) NUMBER PERCENT
------------------- ------ ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
A. Emmet Stephenson, Jr.(b)(c) 32.82%
Michael W. Morgan(b)(d) 10.44
E. Preston Sumner, Jr.(b)(e) 0 0.00 100,000
Dennis M. Swenson(b)(f) 0 0.00 70,000
Toni E. Stephenson(b)(g) 32.82
FASSET Trust(b) 11.96
MASSET Trust(b) 11.96
Pamela S. Oliver(b)(h) 23.92
Thomas O. Ryder (j) 0 0.00 0 10,000(i)
Ed Zschau (k) 0 0.00 0 10,000(i)
All directors and executive
officers as a group
(5 persons) 43.26% ----
</TABLE>
- -------------------
(a) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is fully exercised, A. Emmet
Stephenson, Jr., Michael W. Morgan, Toni E. Stephenson, FASSET Trust and
MASSET Trust (the "Selling Stockholders") will sell up to 550,000
additional shares on a pro rata basis.
(b) The address of each person, trust or trustee is c/o the Company, 111 Havana
Street, Denver, Colorado 80010.
(c) Mr. Stephenson is the Chairman of the Board of the Company. See
"Management." Mr. Stephenson is the husband of Toni E. Stephenson.
Mrs. Stephenson disclaims beneficial ownership of shares owned by Mr.
Stephenson.
(d) Includes 100,000 shares of Common Stock issuable upon the exercise of
stock options granted to Mr. Morgan. See "Management--Stock Option Plan."
Mr. Morgan is President and Chief Executive Officer of the Company. See
"Management."
(e) Includes 100,000 shares of Common Stock issuable upon the exercise of stock
options granted to Mr. Sumner. See "Management--Stock Option Plan." Mr.
Sumner is Executive Vice President and Chief Operating Officer of the
Company. See "Management."
(f) Includes 70,000 shares of Common Stock issuable upon the exercise of stock
options granted to Mr. Swenson. See "Management--Stock Option Plan." Mr.
Swenson is Executive Vice President and Chief Financial Officer of the
Company. See "Management."
(g) Mrs. Stephenson is the wife of A. Emmet Stephenson, Jr. Mr. Stephenson
disclaims beneficial ownership of shares owned by Mrs. Stephenson. From
the inception of StarPak, Inc. and StarPak International, Ltd. until
January 23, 1997, Mrs. Stephenson was a director of each such company, and
will continue to act as a vice president of such companies, without
compensation.
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<PAGE>
(h) Represents shares owned by the FASSET Trust and MASSET Trust. Mrs. Oliver
is the sole trustee of each of the trusts and has sole voting power and
investment power with respect to the Common Stock held by the trusts. Mrs.
Oliver is Mr. Stephenson's sister. From the inception of StarPak, Inc. and
StarPak International, Ltd. until January 23, 1997, Mrs. Oliver was a
director of each such company, and will continue to act as a vice president
of such companies, without compensation.
(i) Includes 10,000 shares of Common Stock issuable upon the exercise of stock
options granted to Messrs. Ryder and Zschau. See "Management--Compensation
of Directors."
(j) Mr. Ryder's business address is 200 Vesey Street, New York, New York 10285.
(k) Mr. Zschau's business address is Harvard Business School, Baker Library
371, Boston, Massachusetts 02163.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, the Company will have _________ shares
of Common Stock outstanding. All of the shares offered hereby will be freely
tradeable without restriction or registration under the Securities Act,
except for any shares purchased by an "affiliate" of the Company (in general,
a person who has a control relationship with the Company), which will be
subject to the limitations of Rule 144 promulgated under the Securities Act.
All of the remaining _____ outstanding shares of Common Stock (or ___________
shares if the Underwriters' over-allotment option is fully exercised) are
deemed to be "restricted securities" as that term is defined in Rule 144.
Beginning 180 days after the date of this Prospectus, upon the expiration of
lock-up agreements with DLJ (described below), _____________ of these
restricted shares (_____________ shares if the Underwriters' over-allotment
option is fully exercised) will be available for sale subject to compliance
with Rule 144 volume and other requirements. The remaining _________ shares
of restricted securities (_____________ shares if the Underwriters'
over-allotment option is fully exercised) will be eligible for sale beginning
January 21, 1998, subject to compliance with Rule 144 volume and other
requirements.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
within the meaning of Rule 144 ("Restricted Shares") for at least one year,
including the holding period of any prior owner except an affiliate, would be
entitled to sell within any three-month period a number of shares that does
not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (approximately _____ shares after giving effect to this
offering) or (ii) the average weekly trading volume of the Common Stock on
the NYSE during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
"manner of sale" provisions, notice requirements and the availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years (including any period of
ownership of preceding nonaffiliated owners), would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
The Selling Stockholders and the Company have agreed with DLJ that until
180 days after the date of this Prospectus they will not, directly or
indirectly, offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or in any manner transfer all
or a portion of the economic consequences associated with the ownership of
the Common Stock, or cause a registration statement covering any shares of
Common Stock to be filed, without the prior written consent of DLJ, subject
to certain limited exceptions, including grants of options pursuant to, and
issuance of shares of Common Stock upon exercise of options under, the Option
Plan and the Director Option Plan. See "Risk Factors--Substantial Number of
Shares Eligible for Future Sale."
Prior to this offering, there has been no public market for the Common
Stock. The Company can make no predictions as to the effect, if any, that
public sales of shares of Common Stock or the availability of shares for sale
will have on the market price from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public market or the
perception that such sales could occur, could adversely affect the prevailing
market prices of the Common Stock and could impair the Company's future
ability to raise capital through an offering of its equity securities.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 95,000,000 shares
of Common Stock, and 15,000,000 shares of Preferred Stock, $.01 par value
("Preferred Stock"), which may be issued in one or more series. As of the
date of this Prospectus, the Company's issued and outstanding Common Stock is
held by five holders of record. Immediately following the completion of this
offering, an aggregate of _____ shares of Common Stock will be issued and
outstanding, and no shares of Preferred Stock will be issued or outstanding.
The following description of the Company's capital stock is a summary of
the material terms of such stock. It does not purport to be complete and is
subject in all respects to applicable Delaware law and to the provisions of
the Company's Restated Certificate of Incorporation and Restated Bylaws,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
COMMON STOCK
The Board of Directors of the Company in its sole discretion may issue
shares of Common Stock from the authorized and unissued shares of Common
Stock. Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders, including the election of
directors. The Company's Restated Certificate of Incorporation does not
provide for cumulative voting in the election of directors.
Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company does not anticipate paying any cash
dividends in the foreseeable future. See "Dividend Policy." In the event of
liquidation, dissolution or winding up of the Company, holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and after satisfaction of the liquidation preference of any
outstanding Preferred Stock.
Holders of Common Stock have no preemptive, conversion or redemption
rights and are not subject to further assessments by the Company. Upon
consummation of this offering, all of the then outstanding shares of Common
Stock will be validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors is authorized to issue from time to
time, without stockholder authorization, in one or more designated series,
any or all of the authorized but unissued shares of Preferred Stock with such
dividend, redemption, conversion and exchange provisions as may be provided
for the particular series. Any series of Preferred Stock may possess voting,
dividend, liquidation and redemption rights superior to those of the Common
Stock. The rights of the holders of Common Stock will be subject to and may
be adversely affected by the rights of the holders of any Preferred Stock
that may be issued in the future. Issuance of a new series of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire, or discourage a third party from acquiring, the
outstanding voting stock of the Company, and make removal of the present
Board of Directors more difficult. The Company has no present plans to issue
any shares of Preferred Stock. See "Risk Factors--Anti-Takeover Provisions."
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of
the Delaware General Corporation Law ("DGCL"). In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined) with a Delaware corporation for three
years following the date such person became an interested stockholder unless
(i) before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination, (ii) upon consummation of the transaction that resulted in the
interested
45
<PAGE>
stockholder becoming an interested stockholder, the interested stockholder
owns at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding shares owned by persons who are
both officers and directors of the corporation and shares held by certain
employee stock ownership plans) or (iii) following the transaction in which
such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of the corporation not owned by
the interested stockholder.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Restated Certificate of Incorporation and Restated Bylaws
provide that, to the fullest extent permitted by the DGCL, a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director. Under the DGCL,
liability of a director may not be limited (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend
payments or stock redemptions or repurchases and (iv) for any transaction
from which the director derives an improper personal benefit. The effect of
the provisions of the Company's Restated Certificate of Incorporation and
Restated Bylaws is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior), except in the situations described
in clauses (i) through (iv) above. This provision does not limit or
eliminate the rights of the Company or any stockholder to seek nonmonetary
relief such as an injunction or rescission in the event of a breach of a
director's duty of loyalty. In addition, the Company's Restated Certificate
of Incorporation and Restated Bylaws provide that the Company shall indemnify
its directors and officers, against losses incurred by any such person by
reason of the fact that such person was acting in such capacity.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Restated Certificate of Incorporation and the
Restated Bylaws of the Company summarized above may be deemed to have
anti-takeover effects and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider to be in such
stockholder's best interest, including those attempts that might result in a
premium over the market price for the shares held by stockholders. See "Risk
Factors--Anti-Takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is UMB Bank, N.A.,
Kansas City, Missouri.
46
<PAGE>
UNDERWRITING
Subject to certain terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement"), the Underwriters named below for
whom DLJ and Morgan Stanley & Co. Incorporated are serving as representatives
(the "Representatives"), have severally agreed to purchase from the Company
and the Selling Stockholders, the respective number of shares of Common Stock
set forth opposite their names below:
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
Donaldson, Lufkin & Jenrette Securities Corporation......
Morgan Stanley & Co. Incorporated........................
TOTAL............................................... 3,666,667
---------
---------
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval
of certain legal matters by counsel and to certain other conditions. If any
of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all of the shares of Common Stock (other than the
shares of Common Stock covered by the Underwriters' over-allotment option
described below) must be so purchased.
Prior to this offering, there has been no established trading market for
the Common Stock. The initial price to the public for the Common Stock
offered hereby will be determined by negotiation between the Company and the
Representatives. The factors to be considered in determining the initial
price to the public include the history of and the prospects for the industry
in which the Company competes, the performance and ability of the Company's
management, the past and present operations of the Company, the historical
results of operations of the Company, the prospects for future earnings of
the Company, the general condition of the securities markets at the time of
this offering and the recent market prices of securities of generally
comparable companies. The estimated initial public offering price range set
forth on the cover page of this Prospectus is subject to change as a result
of market conditions and other factors.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
price to the public set forth on the cover page of this Prospectus and to
certain dealers (who may include the Underwriters) at such price less a
concession not to exceed $__________ per share. The Underwriters may allow,
and such dealers may reallow, discounts not in excess of $__________ per
share to any other Underwriter and certain other dealers. After this
offering, the offering price and other selling terms may be changed by the
Underwriters.
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<PAGE>
The Selling Stockholders have granted to the Underwriters an option to
purchase up to an aggregate of 550,000 additional shares of Common Stock, pro
rata based on their relative holdings prior to this offering, at the initial
public offering price less underwriting discounts and commissions, solely to
cover over-allotments. Such option may be exercised in whole or in part from
time to time during the 30-day period after the date of this Prospectus. To
the extent that the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
from the Selling Stockholders on a pro rata basis a number of option shares
proportionate to such Underwriter's initial commitment as indicated in the
preceding table.
The Underwriters have reserved up to 5% of the shares of Common Stock
offered hereby for sale at the initial public offering price to certain
employees, consultants and other persons associated with the Company. The
number of shares of Common Stock available for sale to the general public
will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares not so purchased will be offered by the Underwriters to
the general public on the same basis as the other shares offered hereby.
This program will be administered by DLJ.
The Company and the Selling Stockholders have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock,
or in any manner transfer all or a portion of the economic consequences
associated with the ownership of such Common Stock, or to cause a
registration statement covering any shares of Common Stock to be filed, for
180 days after the date of this Prospectus without the prior written consent
of DLJ, subject to certain limited exceptions, and provided that the Company
may grant options pursuant to, and issue shares of Common Stock upon the
exercise of options under the Option Plan and the Director Option Plan. See
"Shares Eligible for Future Sale."
The Representatives have informed the Company that they do not expect to
make sales to accounts over which they exercise discretionary authority in
excess of ___% of the number of shares of Common Stock offered hereby.
The Common Stock has been approved for listing on the New York Stock
Exchange ("NYSE") under the symbol "SRT," pending notification of issuance.
In order to meet the requirements for listing on the NYSE, the Underwriters
have undertaken to sell lots of 100 or more shares of Common Stock to a
minimum of 2,000 beneficial holders.
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<PAGE>
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby will be
passed upon for the Company by Otten, Johnson, Robinson, Neff & Ragonetti,
P.C., Denver, Colorado. Certain legal matters will be passed upon for the
Underwriters by Milbank, Tweed, Hadley & McCloy, Los Angeles, California.
EXPERTS
The combined financial statements of StarTek, Inc. at December 31, 1995
and 1996 and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement"), of which this Prospectus forms a part, covering the Common Stock
to be sold pursuant to this offering. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. Such
additional information, exhibits and undertakings can be inspected at and
obtained from the Commission at prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at certain regional offices of
the Commission located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 13th Floor, 7 World Trade
Center, New York, New York, 10048. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. In addition, the Company intends to file an application to list
the Common Stock on the NYSE, and following such filing, the reports and
other information concerning the Company may be inspected at the offices of
such exchange. For additional information with respect to the Company, the
Common Stock and related matters and documents, reference is made to the
Registration Statement. Statements contained herein concerning any such
document are not necessarily complete and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such
reference.
The Company will issue annual reports and unaudited quarterly reports to
its stockholders for the first three quarters of each fiscal year. Annual
reports will include audited consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States
and a report of its independent public accountants with respect to the
examination of such financial statements. In addition, the Company will
issue such other interim reports as it deems appropriate.
49
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
STARTEK, INC.
PAGE
----
Report of Independent Auditors F-2
Combined Balance Sheets as of December 31, 1995 and 1996 F-3
Combined Statements of Operations for the years ended F-4
December 31, 1994, 1995 and 1996
Combined Statements of Stockholders' Equity for the years F-5
ended December 31, 1994, 1995 and 1996
Combined Statements of Cash Flows for the years ended F-6
December 31, 1994, 1995 and 1996
Notes to Combined Financial Statements F-8
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
StarTek, Inc.
We have audited the accompanying combined balance sheets of StarPak, Inc.
and StarPak International, Ltd. as of December 31, 1995 and 1996, and the
related combined statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of StarPak, Inc. and
StarPak International, Ltd. at December 31, 1995 and 1996, and the combined
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Denver, Colorado
February 18, 1997
F-2
<PAGE>
STARTEK, INC.
(NOTE 1)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
-------------------------------- 1996(NOTE 2)
1995 1996 (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 451,456 $ 2,742,313 $ 2,742,313
Trade accounts receivable, less allowance for
doubtful accounts of $197,747 and $311,172 in
1995 and 1996, respectively 13,261,904 11,030,948 11,030,948
Inventories (NOTE 3) 1,357,843 2,535,091 2,535,091
Prepaid expenses 225,162 140,132 140,132
Notes receivable--stockholders (NOTE 13) 663,494 -- --
------------ ------------ ------------
Total current assets 15,959,859 16,448,484 16,448,484
Property, plant and equipment, net (NOTE 4) 5,614,670 6,527,238 6,527,238
Other assets 5,627 3,000 3,000
------------ ------------ ------------
Total assets $ 21,580,156 $ 22,978,722 $ 22,978,722
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (NOTE 5) $ 3,450,708 $ 3,500,000 $ 3,500,000
Accounts payable 9,705,673 6,961,675 6,961,675
Accrued liabilities 551,588 1,584,347 1,584,347
Current portion of capital lease obligations 547,595 917,244 917,244
Current portion of long-term debt 7,059 5,673 5,673
Notes payable -- stockholders (NOTE 13) 738,494 -- --
Other 161,049 583,813 583,813
Notes payable to Principal Stockholders (NOTE 14) -- -- 6,973,300
------------ ------------ ------------
Total current liabilities 15,162,166 13,552,752 20,526,052
Capital lease obligations, less current portion (NOTE 6) 1,084,575 1,503,702 1,503,702
Long-term debt, less current portion (NOTE 7) 353,787 548,175 548,175
Note payable--affiliate (NOTE 13) 1,111,844 -- --
Other 69,885 271,305 271,305
Commitments (NOTE 6)
Stockholders' equity (NOTES 9 AND 10)
Common stock 432 432 432
Additional paid-in capital 2,907,826 6,148,196 --
Cumulative translation adjustment (9,922) 129,056 129,056
Retained earnings 1,112,897 1,038,438 --
Note receivable--stockholder for the
exercise of stock options (NOTE 10) (213,334) (213,334) --
------------ ------------ ------------
Total stockholders' equity 3,797,899 7,102,788 129,488
------------ ------------ ------------
Total liabilities and stockholders' equity $ 21,580,156 $ 22,978,722 $ 22,978,722
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
STARTEK, INC.
(NOTE 1)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31,
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------- (NOTE 2)
1994 1995 1996 (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 26,340,985 $ 41,509,363 $ 71,583,861 $ 71,583,861
Cost of services 21,354,828 33,230,050 57,238,261 57,238,261
------------ ------------ ------------ ------------
Gross profit 4,986,157 8,279,313 14,345,600 14,345,600
Selling, general and administrative expenses 4,489,529 5,341,384 7,763,900 7,763,900
Management fee expense (NOTE 2) 612,440 2,599,612 6,172,135 --
------------ ------------ ------------ ------------
Operating profit (loss) (115,812) 338,317 409,565 6,581,700
Net interest expense and other (NOTE 8) 215,541 396,255 372,134 372,134
------------ ------------ ------------ ------------
Income (loss) before income taxes (331,353) (57,938) 37,431 6,209,566
Income tax expense (NOTE 2) -- -- 111,890 2,316,168
------------ ------------ ------------ ------------
Net income (loss) $ (331,353) $ (57,938) $ (74,459) $ 3,893,398
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma net income per share (NOTE 2)
Shares outstanding
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
STARTEK, INC.
(NOTE 1)
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTE CUMULATIVE TOTAL
-------------- PAID-IN RETAINED RECEIVABLE- TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDER ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 35,612 $355 $1,123,419 $1,502,188 $ -- $ (2,121) $ 2,623,841
Issuance of stock for cash 6,925 70 726,816 -- -- -- 726,886
Translation loss -- -- -- -- -- (12,928) (12,928)
Net loss -- -- -- (331,353) -- -- (331,353)
------ ----- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 42,537 425 1,850,235 1,170,835 -- (15,049) 3,006,446
Issuance of stock for cash 820 8 89,195 -- -- -- 89,203
Issuance of stock for options exercised 1,728 17 231,147 -- -- -- 231,164
Note receivable--stockholder -- -- -- -- (213,334) -- (213,334)
Repurchase of stock (1,885) (18) (129,724) -- -- -- (129,742)
Contributed capital -- -- 866,973 -- -- -- 866,973
Translation gain -- -- -- -- -- -- 5,1275,127
Net loss -- -- -- (57,938) -- -- (57,938)
------ ----- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 43,200 432 2,907,826 1,112,897 (213,334) (9,922) 3,797,899
Contributed capital -- -- 3,240,370 -- -- -- 3,240,370
Translation gain -- -- -- -- -- 138,978 138,978
Net loss -- -- -- (74,459) -- -- (74,459)
------ ----- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 43,200 $432 $6,148,196 $1,038,438 $(213,334) $129,056 $7,102,788
------ ----- ---------- ---------- ---------- ---------- ----------
------ ----- ---------- ---------- ---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
STARTEK, INC.
(NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (331,353) $ (57,938) $ (74,459)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 588,222 873,246 1,437,843
Changes in operating assets and liabilities:
Accounts receivable (3,332,112) (6,225,471) 2,230,956
Inventories 14,759 (471,348) (1,177,248)
Prepaid expenses 24,024 (81,699) 85,030
Other assets (8,314) 6,855 2,627
Accounts payable 3,172,354 4,147,286 (2,743,998)
Accrued and other liabilities 270,611 283,519 1,656,943
------------- ------------ ------------
Net cash provided by (used in) operating activities 398,191 (1,525,550) 1,417,694
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (670,218) (2,104,525) (1,333,316)
Collections (advances) on notes receivable--
stockholders (97,049) 110,381 663,494
Collections (advances) on notes receivable--
affiliate (587,133) 667,800 --
------------- ------------ ------------
Net cash used in investing activities (1,354,400) (1,326,344) (669,822)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from line of credit borrowings 1,209,052 1,451,656 49,292
Principal payments on borrowings (364,282) (1,654) (6,998)
Proceeds from borrowings and capital lease
obligations -- 362,500 819,025
Principal payments on capital lease obligations (395,412) (589,624) (847,344)
Principal payments on notes payable--stockholders -- -- (738,494)
Proceeds from (principal payments on) note
payable--affiliate (100,000) 1,111,844 (1,111,844)
Issuance of common stock 726,886 107,033 --
Contributed capital -- 866,973 3,240,370
Repurchase of common stock -- (129,742) --
------------- ------------ ------------
Net cash provided by financing activities 1,076,244 3,178,986 1,404,007
Effect of exchange rate changes on cash (12,928) 5,127 138,978
------------- ------------ ------------
Net increase in cash and cash equivalents 107,107 332,219 2,290,857
Cash and cash equivalents at beginning of year 12,130 119,237 451,456
------------- ------------ ------------
Cash and cash equivalents at end of year $ 119,237 $ 451,456 $ 2,742,313
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
F-6
<PAGE>
STARTEK, INC.
(NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $212,981 $ 365,880 $ 535,107
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Equipment acquired or refinanced under capital
leases $ 65,153 $ 1,671,504 $ 1,017,095
Note received in exchange for the purchase of
common stock from options exercised -- $ 213,334 --
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
STARTEK, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying combined financial statements of StarTek, Inc. (the
"Company" or "StarTek") include the accounts of StarPak, Inc. and StarPak
International, Ltd. The Company was incorporated in Delaware on December 30,
1996. Prior to the formation of StarTek, StarPak, Inc. and StarPak
International, Ltd. (whose stockholder groups were substantially identical)
conducted business as affiliates under common control. Effective January 1,
1997, the shareholders of StarPak, Inc. exchanged all of the outstanding shares
of capital stock of StarPak, Inc. for shares of common stock of the Company, and
StarPak, Inc. became a wholly-owned subsidiary of the Company. Effective
January 24, 1997, the shareholders of StarPak International, Ltd. contributed
all of its outstanding shares of capital stock to the Company, and StarPak
International, Ltd. became a wholly-owned subsidiary of the Company. Because
the shareholder groups of StarPak, Inc. and StarPak International, Ltd. were
substantially identical and the relative holdings of the individual stockholders
in StarTek were not altered as a result of the contributions, the formation of
StarTek has been treated as a combination of entities under common control and
accounted for as if it were a pooling of interests. References to the Company
and StarTek include these combined entities.
BUSINESS OPERATIONS
The Company is an international provider of integrated outsourced services
primarily for Fortune 500 companies in targeted industries. The Company offers
a wide spectrum of services throughout a product's life cycle, including product
order teleservices, supplier management, product assembly and packaging, product
distribution, product fulfillment, customer care and technical support
teleservices. The Company has operations in North America, Europe and Asia.
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of StarPak, Inc. and
StarPak International, Ltd. All significant intercompany transactions have been
eliminated.
FOREIGN CURRENCY TRANSLATION
Translation gains and losses are accumulated as a separate component of
stockholders' equity. Translation gains and losses were not material for any
period presented. Foreign currency transaction gains and losses are included in
determining net income. Such gains and losses were not material for any period
presented.
NEW ACCOUNTING STANDARDS
In March 1995, FAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, was issued, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. FAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. The Company adopted FAS No. 121 in the first quarter of 1996.
The effect of adoption was not material.
F-8
<PAGE>
STARTEK, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are recognized as services are performed under each client
contract, which services may include product order teleservices, supplier
management, product assembly and packaging, product distribution, product order
fulfillment, and customer care and technical support teleservices.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist of cash and cash equivalents, accounts
receivable and payable, notes receivable, debt and capital lease obligations.
The carrying values of cash and accounts receivable and payable approximate fair
value. Management believes the difference between the fair values and carrying
values of the notes receivable, debt and capital lease obligations would not be
materially different since interest rates approximate market rates for material
items.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Additions, improvements
and major renewals are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. Costs related to the internal development of software are
expensed as incurred.
Depreciation and amortization of equipment acquired under capital leases
are computed using the straight-line method based on the following estimated
useful lives:
ESTIMATED USEFUL LIFE
---------------------
Buildings 30 years
Equipment, and equipment acquired under capital leases 3 to 5 years
Furniture and fixtures 7 years
F-9
<PAGE>
STARTEK, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAXES
Effective July 1, 1992, StarPak, Inc. elected Subchapter S status for income tax
purposes, and StarPak International, Ltd. has maintained Subchapter S status
since inception. As such, the income and expenses of the Company are reportable
on the tax returns of the stockholders, and no provision has been made for
federal and state income taxes. The Company is subject to foreign income taxes
on certain of its operations. A provision for foreign income taxes was made for
the year ended December 31, 1996, as loss carryovers relating to foreign
operations had been fully utilized.
MANAGEMENT FEE EXPENSE
Historically, certain S corporation stockholders and an affiliate have been paid
certain management fees, bonuses and other fees in connection with services
rendered to the Company, which have not been included in selling, general and
administrative expense, in addition to general compensation for services
rendered. Such management fees are reflected as management fee expense in 1994,
1995 and 1996 as set forth below. Effective December 31, 1996, these management
fees, bonuses and other fees were discontinued.
All compensation payable to persons who are now stockholders of the Company (or
an affiliate of such stockholder) will be in the form of advisory fees, salaries
and bonuses (which at current rates will aggregate approximately $516,000
annually) and will be included in selling, general and administrative expenses.
Such advisory fees and salaries are reflected as selling, general and
administrative expense in 1994, 1995 and 1996 as set forth below.
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Selling general and administrative expense $ 660,973 $ 560,002 $ 564,198
Management fee expense $ 612,440 $ 2,599,612 $ 6,172,135
</TABLE>
2. PRO FORMA INFORMATION (UNAUDITED) (See Note 14)
PRO FORMA COMBINED STATEMENT OF OPERATIONS
The pro forma combined statement of operations for the year ended
December 31, 1996 presents the effect on the historical combined financial
statements of the elimination of management fee expense paid to stockholders and
their affiliates as these fees will be discontinued upon the completion of the
Company's initial public offering and to provide related income taxes as if the
Company were taxed as a C corporation.
PRO FORMA COMBINED BALANCE SHEET
The pro forma combined balance sheet at December 31, 1996 reflects, as
notes payable to the Principal Stockholders, amounts relating to accumulated
retained earnings and additional paid-in capital without reflecting any proceeds
from the proposed public offering.
F-10
<PAGE>
STARTEK, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAXES
Upon closing of the proposed public offering, the Company's S corporation
status will terminate. The pro forma combined statement of operations reflects
a provision for federal, state and foreign income taxes at an effective rate of
37.3%. A provision for foreign income taxes was made for the year ended
December 31, 1996 in the historical combined statement of operations, as foreign
loss carryovers had been fully utilized. Foreign income taxes will be credited
fully against United States income taxes.
PRO FORMA NET INCOME PER COMMON SHARE
Pro forma net income per common share is based on the number of shares of
StarTek common stock to be outstanding after contribution of all StarPak, Inc.
and StarPak International, Ltd. shares. In addition, the calculation includes
464,887 shares deemed to be outstanding, representing the number of shares (at
an assumed initial offering price of $15.00 per share) sufficient to fund
payment of the Notes Payable to Principal Stockholders.
3. INVENTORIES
The Company frequently purchases components of its clients products as an
integral part of its supplier management services and in advance of providing
its product assembly and packaging services. These components are shown as raw
materials inventory in the Company's balance sheet. At the close of an
accounting period, packaged and assembled products (together with other
associated costs) are reflected as finished goods inventory, pending shipment.
The Company generally has the right to be reimbursed by the client for unused
inventory. Client-owned inventories are not reflected in the Company's balance
sheet.
Total inventories consisted of the following:
DECEMBER 31,
-------------------------------
1995 1996
Raw materials $1,281,363 $2,326,942
Finished goods 76,480 208,149
---------- ----------
$1,357,843 $2,535,091
---------- ----------
---------- ----------
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
DECEMBER 31,
--------------------------------
1995 1996
Land $ 374,234 $ 374,234
Buildings 1,553,028 1,553,028
Equipment 5,026,605 7,340,059
Furniture and fixtures 890,371 927,328
----------- ------------
7,844,238 10,194,649
F-11
<PAGE>
STARTEK, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Less accumulated depreciation
and amortization (2,229,568) (3,667,411)
----------- -----------
Property, plant and equipment, net $ 5,614,670 $ 6,527,238
----------- -----------
----------- -----------
5. LINE OF CREDIT
At December 31, 1995 and 1996, the Company had a revolving line of credit
agreement with a bank whereby the bank agreed to loan the Company up to
$3,600,000 and $4,500,000, respectively. Interest was payable monthly and
accrued at the bank's base rate plus 1.5% at December 31, 1995 (10%) and at the
bank's base rate plus 1% at December 31, 1996 (9.25%), payable monthly. This
revolving line of credit will reduce to $3,500,000 on March 8, 1997 and mature
on June 30, 1999. At December 31, 1995 and 1996, the Company had drawn
$3,450,708 and $3,500,000, respectively, against this line.
Under the revolving line of credit agreement the Company has pledged as
security all of its equipment, inventories and receivables. The Company must
also maintain certain financial ratios, and is subject to certain restrictions
on the payment of dividends, capital expenditures and loans to affiliates and
stockholders.
6. LEASES
The Company had an operating lease for office space with a partnership in
which major stockholders of the Company are general partners. Payments under
the lease for the years ended December 31, 1994, 1995 and 1996 were $70,000 each
year. The lease was cancelled effective December 31, 1996.
The Company's property held under capital leases consists of the following,
which is included in property, plant and equipment:
DECEMBER 31,
-------------------------------
1995 1996
Equipment $3,014,273 $4,650,393
Less accumulated amortization (998,286) (1,930,257)
---------- ----------
$2,015,987 $2,720,136
---------- ----------
---------- ----------
Amortization of leased assets is included in depreciation and amortization
expense.
As of December 31, 1996, future minimum rental commitments, by year and
in the aggregate, for the capital and operating leases are as follows:
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ---------- ---------
1997 $1,101,782 $126,828
1998 941,393 42,708
1999 492,275 --
F-12
<PAGE>
STARTEK, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2000 186,155 --
2001 52,895 --
---------- ----------
Total minimum lease payments 2,774,500 $169,536
----------
----------
Amounts representing interest (353,554)
----------
Present value of net minimum lease payments $2,420,946
----------
----------
Rental expense, including equipment rentals, for 1994, 1995 and 1996
was $229,925, $294,714 and $382,480, respectively.
F-13
<PAGE>
STARTEK, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. LONG-TERM DEBT
During 1995, the Company purchased land and an existing building for
approximately $1,500,000. The purchase was financed through the Company's
revolving line of credit and a mortgage loan in the amount of $362,500. In
January 1997, this loan was refinanced from proceeds of a $1,500,000 mortgage
loan on the same property. The loan bears interest at the bank's base rate plus
2% (10.25% at January 20, 1997). The loan is payable in monthly installments of
$15,625 plus accrued interest until the earlier of June 30, 1999 or the date of
termination of the revolving line of credit, when the remaining principal
balance is due.
In December 1996, the Company received a $200,000 economic development loan
which bears interest at 6% per annum and is collateralized by certain equipment.
Interest payments are due quarterly and, beginning January 1, 1999 and
continuing through January 1, 2001, principal payments of $30,000 are due semi-
annually. A final principal payment of $50,000 is due on July 1, 2001.
Future scheduled annual principal payments of long term debt as of
December 31, 1996 (including the effects of the above-described loan refinanced
by the Company in January 1997) are as follows:
1997 $ 187,500
1998 187,500
1999 1,185,000
2000 60,000
2001 80,000
------------
$ 1,700,000
------------
------------
8. NET INTEREST EXPENSE AND OTHER
Net interest expense and other consists of the following items:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
Interest expense $(239,068) $(445,849) $(443,764)
Interest income 12,782 2,595 18,288
Other income and expense 10,745 46,999 53,342
--------- --------- ---------
Total $(215,541) $(396,255) $(372,134)
--------- --------- ---------
--------- --------- ---------
F-14
<PAGE>
STARTEK, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY
The combined common stock and additional paid-in capital on a
company-by-company basis as of December 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL
------- ----------
<S> <C> <C>
DECEMBER 31, 1995
StarPak, Inc. - 5,000,000 shares, $.01 par
value, authorized; 33,618 shares outstanding $336 $2,703,497
StarPak International, Ltd. - 5,000,000 shares,
$.01 par value, authorized; 9,582 shares outstanding 96 204,329
------- ----------
$432 $2,907,826
------- ----------
------- ----------
DECEMBER 31, 1996
StarPak, Inc. - 5,000,000 shares, $.01 par
value, authorized; 33,618 shares outstanding $336 $5,638,771
StarPak International, Ltd. - 5,000,000 shares,
$.01 par value, authorized; 9,582 shares outstanding 96 509,425
------- ----------
$432 $6,148,196
------- ----------
------- ----------
</TABLE>
10. STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion
No. 25 ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FAS Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, requires use of option valuation models
that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense has been recognized.
Effective July 24, 1987, the stockholders of StarPak, Inc. approved a Stock
Option Plan ("Plan") which provided for the grant of stock options, stock
appreciation rights ("SARs") and supplemental bonuses to key employees. The
stock options were intended to qualify as "incentive stock options" as defined
in Section 422A of the Internal Revenue Code unless specifically designated
as"nonstatutory stock options."
The options granted could be exercised for a period of not more than ten
years and one month from the date of grant, or any shorter period as determined
by StarPak, Inc.'s Board of Directors. The option price of any incentive stock
option would be equal to or exceed the fair market value per share on the date
of grant, or 110% of the fair market value per share in the case of a 10% or
greater stockholder. Options generally vested ratably over a five-year period
from the date of grant. Unexercised vested options remained exercisable for
three calendar months from the date of termination of employment.
This Plan was terminated effective January 24, 1997.
F-15
<PAGE>
STARTEK, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
On February 13, 1997, the Company's Board of Directors approved the
StarTek, Inc. Stock Option Plan ("Option Plan") and, on January 27, 1997, the
Director Stock Option Plan ("Director Option Plan").
The Option Plan was established to provide stock options, SARs and
incentive stock options (cumulatively referred to as "Options") to key
employees, directors (other than non-employee directors), consultants, and other
independent contractors. The plan provides for Options to be granted for a
maximum of 985,000 shares of common stock and are to be awarded by determination
from a committee of non-employee directors. Unless otherwise determined by the
committee, all Options granted under the Option Plan vest 20% annually beginning
on the first anniversary of the Option's grant date and expire at the earlier of
(i) forfeiture of the grant by the participant, (ii) ten years (or five years
for participants owning greater than 10% of the voting stock) from the option's
grant date, (iii) three months after the termination of employment of the
participant as outlined by the plan, or (iv) the date six months after the
participant's death.
The Director Option Plan was established to provide stock options to non-
employee directors who are elected prior to the option's grant date and serve
continuously from the commencement of their term. The plan provides for stock
options to be granted for a maximum of 90,000 shares of common stock.
Participants are automatically granted options to acquire 10,000 shares of
common stock upon the later of their election as a Director or the closing of
the initial pubic offering of the Company's common stock (see note 14).
Additionally, each participant shall be automatically granted options to acquire
3,000 shares of common stock on the date of each annual meeting of stockholders
thereafter at which such director is reelected. All options granted under the
Director Option Plan are fully vested upon grant and expire at the earlier of
(i) the date of the participant's membership on the board is terminated for
cause, (ii) ten years from the option grant date, or (iii) the date one year
after the director's death.
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
1994 1995 1996
Outstanding-beginning of year. . . . . . . . 1,728 1,728 --
Granted. . . . . . . . . . . . . . . . . -- -- --
Exercised. . . . . . . . . . . . . . . . -- 1,728 --
Canceled . . . . . . . . . . . . . . . . -- -- --
------- ------ ----
Outstanding-end of year. . . . . . . . . . . 1,728 -- --
------- ------ ----
------- ------ ----
Exercisable at end of year . . . . . . . . . 472 -- --
------- ------ ----
------- ------ ----
Exercise prices for options outstanding as of December 31, 1994 and
exercised during 1995 ranged from $21 to $320 and had a weighted average price
of $134. Options for 6,597 shares of common stock were available for grant at
the beginning and end of the years 1994, 1995, and 1996.
During 1995, StarPak, Inc.'s Board of Directors accelerated the vesting on
all outstanding options to allow the holders to exercise any granted option.
Subsequently, all outstanding options were exercised. In aggregate, the option
holders paid $17,830 in cash and delivered a note of $213,334 bearing interest
at 4.63% to StarPak, Inc. in exchange for shares of common stock. This note is
secured by 896 shares of StarPak, Inc. common stock. On January 22, 1997, the
note and all accrued interest thereon was repaid in full.
F-16
<PAGE>
STARTEK, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. GEOGRAPHIC AREA INFORMATION
To date, the Company operates in North America, Europe and Asia. The
Company's operations in Asia were not material and have been combined with North
America in the following table. Prior to fiscal 1995, the Company operated
primarily in North America.
Information regarding geographical areas is as follows:
<TABLE>
<CAPTION>
NORTH
YEAR ENDED DECEMBER 31, 1995 AMERICA EUROPE ELIMINATIONS TOTAL
<S> <C> <C> <C> <C>
Revenues $37,376,167 $4,133,196 -- $41,509,363
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Operating profit $ 173,678 $ 164,639 -- $ 338,317
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Identifiable assets $19,355,906 $3,090,170 $(865,920) $21,580,156
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
NORTH
YEAR ENDED DECEMBER 31, 1995 AMERICA EUROPE ELIMINATIONS TOTAL
Revenues $59,562,623 $12,021,238 -- $71,583,861
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Operating profit $ 376,841 $ 32,724 -- $ 409,565
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Identifiable assets $21,235,666 $ 3,459,106 $(1,716,050) $22,978,722
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
12. SIGNIFICANT CLIENTS
Two clients accounted for 39.6% and 15.9% of revenues for the year ended
December 31, 1994. Two clients accounted for 46.3% and 10.9% of revenues for
the year ended December 31, 1995. Two clients accounted for 38.4% and 33.4% of
revenues for the year ended December 31, 1996.
The loss of one or more of its significant clients could have a material
adverse effect on the Company's business, operating results or financial
condition. To limit the Company's credit risk, management performs ongoing
credit evaluations of its clients and maintains allowances for potentially
uncollectible accounts. Although the Company is directly impacted by economic
conditions in which its clients operate, management does not believe significant
credit risk exists at December 31, 1996.
F-17
<PAGE>
13. RELATED PARTY TRANSACTIONS
The Company had the following notes receivable and payable from related
parties for the noted periods:
DECEMBER 31,
------------------
1995 1996
Notes receivable from stockholders bearing
interest of 8.5% and refinanced annually to be
due at the end of the following fiscal year.
These notes were repaid by the stockholders
on November 22, 1996. $663,494 --
Notes payable to stockholders bearing interest
of 8.5% and refinanced annually to be due at
the end of the following fiscal year. These
notes were repaid by the Company on
November 22, 1996. $ 663,494 --
Notes payable to stockholders bearing interest
at 12% and refinanced annually to be due at
the end of the following fiscal year. These
notes were repaid by the Company on
November 22, 1996. $ 75,000 --
Note payable to affiliate bearing interest equal
to StarTek's line of credit rate and due on
January 31, 1997. $1,111,844 --
14. PLANNED EVENTS SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)
The Company is contemplating an initial public offering of its common
stock.
Immediately prior to closing the offering, the Company will to declare a
dividend in an amount equal to the estimated additional paid-in capital and
retained earnings of the Company as of the closing date, payable to the
principal stockholders (the "Principal Stockholders") pursuant to certain
promissory notes, which will equal approximately $7.0 million, plus an
adjustment for any additional paid-in capital and retained earnings after
December 31, 1996 through the closing date. The promissory notes payable to the
Principal Stockholders will be paid from net proceeds of the offering to the
Company.
Upon closing of the offering, the S corporation status of the Company will
be terminated and the Company will be taxed as a C corporation thereafter. Upon
termination of the Company's S corporation status, the Company will be required
to record a one-time credit to earnings to record a net deferred tax asset. If
this credit were recorded at December 31, 1996, the amount would have been
approximately $292,000, relating to temporary differences primarily resulting
from accrued expense and depreciation. Additionally, the management fee, bonus
and other fee arrangements as described in Note 2 have been terminated effective
December 31, 1996.
F-18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFERING OR SOLICITATION.
-------------------------
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Offering Related Transactions. . . . . . . . . . . . . . . . . . . . . 13
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Selected Combined Financial Data . . . . . . . . . . . . . . . . . . . 19
Management's Discussion and Analysis
of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . 20
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Certain Relationships and
Related Party Transactions. . . . . . . . . . . . . . . . . . . . 40
Principal and Selling Stockholders . . . . . . . . . . . . . . . . . . 42
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . 44
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . 45
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . 49
Index to Combined Financial Statements . . . . . . . . . . . . . . . . F-1
-------------------------
UNTIL _________ , 1997 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,666,667 SHARES
[LOGO AND ART]
______________
STARTEK, INC.
COMMON STOCK
______________
PROSPECTUS
______________
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses (other than the underwriting discounts and commissions)
payable in connection with the issuance and distribution of the securities to be
registered hereunder are as follows:
SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . . .$20,445.00
NASD filing fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,947.00
NYSE listing fee . . . . . . . . . . . . . . . . . . . . . . . . . *
Printing and engraving expenses. . . . . . . . . . . . . . . . . . *
Legal fees and expenses. . . . . . . . . . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . *
Blue Sky fees and expenses (including legal fees). . . . . . . . . *
Transfer agent and registrar fees and expenses . . . . . . . . . . *
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . *
------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
------------
------------
_________________________
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation and Restated Bylaws
provide that to the fullest extent permitted by the DGCL, a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director. Under the DGCL, liability
of a director may not be limited (i) for any breach of the director's duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law;
(iii) in respect of certain unlawful dividend payments or stock redemptions or
repurchases; and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of the provisions of the Company's
Restated Certificate of Incorporation and Restated Bylaws is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior), except in the
situations described in clauses (i) through (iv) above. This provision does not
limit or eliminate the rights of the Company or any stockholder to seek
nonmonetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. In addition, the Company's Restated Certificate
of Incorporation and Restated Bylaws provide that the Company shall indemnify
its directors and officers, against losses incurred by any such person by reason
of the fact that such person was acting in such capacity.
The Form of Underwriting Agreement to be filed as Exhibit 1.1 to the
Registration Statement provides for indemnification by the Underwriters of the
Company and its directors and officers for certain liabilities arising under the
Securities Act or otherwise.
II-1
<PAGE>
Prior to closing this offering, the Company intends to obtain an annually
renewable directors' and officers' insurance policy insuring directors and
officers of the Company against claims made against them in their individual
capacities in an amount of up to $5,000,000 in the aggregate (with certain
restrictions) in conjunction with their duties as directors and officers of the
Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Described below is information regarding all unregistered securities that
have been issued by the Company during the past three years. The number of
shares of Common Stock set forth in this Item 15 have not been adjusted to give
effect to the ____-for-one stock split of the Company's Common Stock to be
effected by a stock dividend immediately prior to and subject to closing this
offering.
On January 1, 1997, the Company issued 33,618 shares of Common Stock to the
Principal Stockholders in exchange for the assignment to the Company by the
Principal Stockholders of all of the issued and outstanding shares of common
stock of StarPak, Inc., in reliance upon Section 4(2) of the Securities Act as a
transaction not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
EXHIBIT
NUMBER
---------
*** 1.1 Form of Underwriting Agreement
1.2 Form of Lock-up Agreement
* 3.1 Restated Certificate of Incorporation of the Company
* 3.2 Restated Bylaws of the Company
4.1 Specimen Common Stock certificate
5.1 Opinion and Consent of Otten, Johnson, Robinson, Neff & Ragonetti,
P.C.
** 10.1 StarTek, Inc. Stock Option Plan
10.2 Form of Stock Option Agreement
* 10.3 Form of StarTek, Inc. Director Stock Option Plan
* 10.4 Lease by and between East Mercia Developments Limited and StarPak
International, Ltd. and StarPak, Inc.
* 10.5 Promissory Note of StarPak, Inc. dated December 29, 1995 in the
principal amount of $1,111,844.17 payable to the order of General
Communications, Inc.
* 21.1 List of Subsidiaries of the Company
II-2
<PAGE>
** 23.1 Consent of Ernst & Young LLP
23.2 Consent of Otten, Johnson, Robinson, Neff & Ragonetti, P.C. (included
in Exhibit 5.1)
* 24.1 Power of Attorney (contained on page II-4)
** 27.1 Financial Data Schedule
- -----------------
* Previously filed.
** Revised and refiled herewith.
*** To be filed by amendment.
(b) COMBINED FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted because of the absence of
conditions under which they are required.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The Registrant hereby undertakes:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DENVER, STATE OF
COLORADO, ON THIS 7TH DAY OF MARCH, 1997.
STARTEK, INC.
By: /s/ A. Emmet Stephenson, Jr.
------------------------------
A. Emmet Stephenson, Jr.
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ------ ----
<S> <C> <C>
/s/ A. Emmet Stephenson, Jr. Chairman of the Board and Director March 7, 1997
- -----------------------------
A. Emmet Stephenson, Jr.
/s/ Michael W. Morgan Director, President and Chief March 7, 1997
- ------------------------------ Executive Officer (Principal
Michael W. Morgan Executive Officer)
/s/ Dennis M. Swenson Executive Vice President and Chief March 7, 1997
- ------------------------------- Financial Officer (Principal
Dennis M. Swenson Financial Officer and Principal
Accounting Officer)
/s/ Ed Zschau* Director March 7, 1997
- -------------------------------
Ed Zschau
/s/ Thomas O. Ryder* Director March 7, 1997
- -------------------------------
Thomas O. Ryder
</TABLE>
*By: /s/ A. Emmet Stephenson, Jr.
------------------------------------------
A. Emmet Stephenson, Jr., Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
Exhibit Number 1.2 Form of Lock-up Agreement
Exhibit Number 4.1 Specimen Common Stock Certificate
Exhibit Number 5.1 Opinion and Consent of Otten, Johnson, Robinson, Neff &
Ragonetti, P.C.
Exhibit Number 10.1 StarTek, Inc. Stock Option Plan
Exhibit Number 10.2 Form of Stock Option Agreement
Exhibit Number 23.1 Consent of Ernst & Young LLP
Exhibit Number 23.2 Consent of Otten, Johnson, Robinson, Neff & Ragonetti,
P.C. (contained in its opinion filed as Exhibit 5.1
herewith)
Exhibit Number 27.1 Financial Data Schedule
II-5
<PAGE>
Exhibit 1.2
LOCK-UP AGREEMENT
, 1997
-----------------
STARTEK, INC.
111 Havana Street
Denver, Colorado 80010
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
The undersigned understands that Donaldson, Lufkin & Jenrette
Securities Corporation and Morgan Stanley & Co., as representatives (the
"Representatives") of the several underwriters (the "Underwriters"), propose to
enter into an Underwriting Agreement with StarTek, Inc., a Delaware corporation
(the "Company") and the certain named Selling Stockholders listed on Annex I
thereto, providing for the initial public offering by the Underwriters,
including the Representatives, of common stock, $.01 par value per share ("the
Common Stock") of the Company (the "Initial Public Offering").
In consideration of the Underwriters' agreement to purchase and
undertake the Initial Public Offering of the Company's Common Stock and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the undersigned agrees not to, directly or indirectly, offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any Common Stock
(including, without limitation, shares of Common Stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission, and shares of Common
Stock, which may be issued upon exercise of a stock option or warrant) or any
securities convertible into or exercisable or exchangeable for such Common stock
or, in any manner, transfer all or a portion of the economic consequences
associated with the ownership of the Common Stock, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation, for a period of
180 days after the commencement of the Initial Public Offering.
In addition, the undersigned agrees that the Company may, and that the
undersigned will, (i) with respect to any shares of Common Stock for which the
undersigned is the record holder, cause the transfer agent for the Company to
note stop transfer instructions with respect to such shares of Common Stock on
the transfer books and records of the Company and (ii) with respect to any
shares of Common Stock for which the undersigned is the beneficial holder but
not the record holder, cause the record holder of such shares of Common Stock to
cause the transfer agent for the Company to note stop transfer instructions with
respect to such shares of Common Stock on the transfer books and records of the
Company.
<PAGE>
The undersigned hereby represents and warrants that the undersigned
has full power and authority to enter into this letter agreement, and that, upon
request, the undersigned will execute any additional documents necessary or
desirable in connection with the enforcement hereof. All authority herein
conferred or agreed to be conferred shall survive the death or incapacity of the
undersigned and any obligations of the undersigned shall be binding upon the
heirs, personal representatives, successors, and assigns of the undersigned.
Very truly yours,
----------------------------------------
(Signature)
- --------------------------------
(Name of - Please Type)
- --------------------------------
- --------------------------------
- --------------------------------
(Address)
- --------------------------------
(Social Security or Taxpayer
Identification No.)
Number of shares owned or Certificate numbers:
subject to warrants, options
or convertible securities: ---------------------------
------------------------------ ---------------------------
<PAGE>
EXHIBIT 4.1
[SPECIMEN COMMON STOCK CERTIFICATE]
[FACE OF CERTIFICATE]
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE $.01 PAR VALUE
NUMBER SHARES
THIS CERTIFICATE IS TRANSFERABLE CUSIP 85569C 10 7
IN KANSAS CITY, MO OR NEW YORK, NY
SEE REVERSE FOR CERTAIN DEFINITIONS
[STARTEK, INC. LOGO]
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
StarTek, Inc. transferable on the books of the Corporation by the
holder hereof or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated: [SEAL]
Countersigned and Registered: /s/ A. Emmet Stephenson, Jr.
UMB BANK, N.A. ----------------------------
Chairman of the Board
Transfer Agent
and Registrar
/s/ Dennis M. Swenson /s/ Michael W. Morgan
---------------------- ----------------------------
Secretary President
By Authorized Signature
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof of
the Corporation, and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or
the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common
UNIF GIFT MIN ACT--__custodian__ UNIF TRAN MIN ACT--__Custodian__
(Cust) (Minors) (Cust) (Minors)
under Uniform Gifts under Uniform Transfers
to Minors Act to Minors Act
------------- -------------
State State
TEN ENT--as tenants by the entireties
JT TEN --as joint tenants with
right of survivorship and
not as tenants in common
TOD --transfer on death direction
in event of owner's death,
to person named on face
subject to STA TOD rules
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
---------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
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shares of the common stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
--------------------------------------------
Attorney to transfer the said
<PAGE>
stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated
------------------------------
SIGNATURE GUARANTEED:
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- -------------------------------- ----------------------------------------
NOTICE: SIGNATURE(S) MUST BE NOTICE: THE SIGNATURE TO THIS
GUARANTEED BY AN ELIGIBLE ASSIGNMENT MUST CORRESPOND WITH
GUARANTOR INSTITUTION. THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
<PAGE>
EXHIBIT 5.1
March 7, 1997
StarTek, Inc.
111 Havana Street
Aurora, Colorado 80010
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended (the "Act"), of up to 4,216,667 shares (including 550,000 shares that
may be sold under the underwriters' over-allotment option) of the common
stock of StarTek, Inc., a Delaware corporation (the "Company"), par value
$0.01 per share (the "Shares"), to be sold by the Company and certain
stockholders of the Company, pursuant to a Registration Statement on Form S-1
(File No. 333-20633) (the "Registration Statement"), filed with the
Securities and Exchange Commission on January 29, 1997, you have requested
our opinion set forth below.
We have considered such facts and examined such questions of law as we
have considered appropriate for purposes of rendering the opinion expressed
below.
We are opining only as to the General Corporation Law of the State of
Delaware and we express no opinion with respect to the applicability or the
effect of any other laws or as to any matters of municipal law or of any
other local agencies within any state.
Subject to the foregoing and in reliance thereon, in our opinion the
Shares have been duly authorized by all necessary corporate action on the
part of the Company and, upon payment for and delivery of the Shares as
contemplated in the Registration Statement and the countersigning of any
certificates representing the Shares by a duly authorized signatory of the
registrar for the Common Stock, the Shares will be validly issued, fully paid
and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to our firm under the heading "Legal
Matters."
Very truly yours,
/s/ OTTEN, JOHNSON, ROBINSON,
NEFF & RAGONETTI, P.C. /s/
<PAGE>
EXHIBIT 10.1
STARTEK, INC.
STOCK OPTION PLAN
This Stock Option Plan ("Plan") is adopted effective as of February 13,
1997, by StarTek, Inc., a Delaware corporation (the "Company").
1. PURPOSE. The Company desires to establish the Plan for the
purpose of encouraging key employees, Directors (other than Non-Employee
Directors), consultants and other independent contractors who provide
important services to the Company or one of its Designated Subsidiaries to
continue with and promote the success of the Company by permitting them to
acquire a proprietary interest in the Company.
2. DEFINITIONS.
2.1 "Board" or "Board of Directors" means the board of
directors of the Company.
2.2 "Cause" means, as determined in the sole discretion of
the Board, a Participant's (a) commission of a felony; (b) dishonesty or
misrepresentation involving the Company or any Subsidiary; (c) serious
misconduct in the performance or non-performance of Participant's
responsibilities as an employee, officer, Director, or consultant or
independent contractor of the Company or any Subsidiary; (d) violation of a
material condition of employment or breach of contract; (e) unauthorized use
of trade secrets or confidential information of the Company or any
Subsidiary; or (f) aiding a competitor of the Company or any Subsidiary.
2.3 "Code" means the Internal Revenue Code of 1986, as it
exists now and as it may be amended from time to time.
2.4 "Committee" means the committee comprised of two or more
Non-Employee Directors appointed by the Board to administer the Plan.
2.5 "Common Stock" means the common stock of the Company,
$0.01 par value.
2.6 "Company" means StarTek, Inc., a Delaware corporation,
and any successor thereto.
2.7 "Designated Subsidiary" means a Subsidiary of the Company
that the Board designates as a Subsidiary whose key employees, consultants
and other independent contractors are eligible to become Participants in the
Plan.
2.8 "Director" means a member of the Board.
<PAGE>
2.9 "Exchange Act" means the Securities Exchange Act of 1934,
as it exists now or from time to time may hereafter be amended.
2.10 "Fair Market Value" means for the relevant day:
(a) If shares of Common Stock are listed or admitted to
unlisted trading privileges on any national or regional securities exchange,
the last reported sale price, regular way, on the composite tape of that
exchange on the day Fair Market Value is to be determined;
(b) If the Common Stock is not listed or admitted to
unlisted trading privileges as provided in paragraph (a), and if sales prices
for shares of Common Stock are reported by the National Association of
Securities Dealers, Inc. Automated Quotations, Inc. National Market System
("NASDAQ System"), then the last sale price for Common Stock reported as of
the close of business on the day Fair Market Value is to be determined, or if
no such sale takes place on that day, the average of the high bid and low
asked prices so reported; if Common Stock is not traded on that day, the next
preceding day on which such stock was traded; or
(c) If trading of the Common Stock is not reported by
the NASDAQ System or on a stock exchange, Fair Market Value will be
determined by the Committee in its discretion based upon the best available
data.
2.11 "ISO" means incentive stock options within the meaning of
Section 422 of the code.
2.12 "Non-Employee Director" means a Director who satisfies
the definitional requirements for a "Non-Employee Director" as set forth in
Rule 16b-3(b)(3)(i) promulgated under the Exchange Act, as it exists now or
from time to time may hereafter be amended.
2.13 "NSO" means non-qualified stock options, which are not
intended to qualify under Section 422 of the Code.
2.14 "Option" means the right of a Participant, whether
granted as an ISO or an NSO, to purchase a specified number of shares of
Common Stock, subject to the terms and conditions of the Plan and the Option
Agreement.
2.15 "Option Agreement" means a written agreement evidencing
an Option or SAR between the Company and a Participant.
2.16 "Option Date" means the date upon which an Option or SAR
is awarded to a Participant under the Plan.
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<PAGE>
2.17 "Option Price" means the price per share at which an
Option may be exercised.
2.18 "Participant" means an individual to whom an Option or
SAR has been granted under the Plan.
2.19 "Plan" means the StarTek, Inc. Stock Option Plan, as set
forth herein and as from time to time amended.
2.20 "SAR" means a stock appreciation right associated with
and issued in connection with an NSO.
2.21 "Securities Act" means the Securities Act of 1933, as it
exists now or from time to time may hereafter be amended.
2.22 "Subsidiary" means any corporation or other entity which
is a subsidiary of the Company as defined in Section 424(f) of the Code.
2.23 "Termination of Employment" means:
(a) With respect to an employee, when the employee's
employment relationship with the Company and all of its Subsidiaries is
terminated;
(b) With respect to consultants and independent
contractors, when any consulting or independent contractor agreement is
terminated, or when the consultant or independent contractor no longer
performs any services for the Company, as determined by the Committee, in its
sole discretion; and
(c) With respect to a Director who is not an employee,
when his membership on the Board terminates.
3. ELIGIBILITY AND PARTICIPATION. Subject to the provisions of
the Plan, the Committee shall determine from time to time those consultants,
independent contractors, key employees, officers or Directors (other than
Non-Employee Directors) of the Company or a Designated Subsidiary who shall
be designated as Participants and the number, if any, of Options or SARs to
be awarded to each such Participant; provided, however, that no ISOs shall be
awarded under the Plan after the expiration of the period of ten years from
the date this Plan is adopted by the Board. In addition, no ISOs may be
awarded to a Participant who is not an employee of the Company or a
Designated Subsidiary.
4. COMMON STOCK SUBJECT TO THE PLAN. Except as otherwise provided
in paragraph 10, the aggregate number of shares of Common Stock that may be
issued under Options under this Plan may not exceed 985,000 shares of Common
Stock. If any awards hereunder shall terminate or expire, as to any number of
shares,
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<PAGE>
new ISOs and NSOs may thereafter be awarded with respect to such shares.
5. INCENTIVE STOCK OPTIONS. The Committee may, in its
discretion, grant ISOs to any Participant under the Plan who is an employee
of the Company or a Designated Subsidiary. Each ISO shall be evidenced by an
Option Agreement between the Company and the Participant. Each Option
Agreement, in such form as is approved by the Committee, shall be subject to
the following express terms and conditions and to such other terms and
conditions, not inconsistent with the Plan, as the Committee may deem
appropriate.
(a) OPTION PERIOD. Each ISO will expire as of the earliest
of:
(i) the date on which it is forfeited under the provisions
of paragraph 8;
(ii) 10 years (or five years as specified in paragraph 5(e))
from the Option Date;
(iii) three months after the Participant's Termination of
Employment for any reason other than death; or
(iv) six months after the Participant's death.
(b) OPTION PRICE. The Option Price per share shall be
determined by the Committee at the time any ISO is granted, and, subject to
the provisions of paragraph 5(e), shall not be less than the Fair Market
Value of the Common Stock subject to the ISO on the Option Date.
(c) OTHER OPTION PROVISIONS. The form of ISO authorized by
the Plan may contain such other provisions as the Committee may, from time to
time, determine; provided, however, that such other provisions may not be
inconsistent with any requirements imposed on qualified stock options under
Section 422 of the Code.
(d) LIMITATIONS ON AWARDS. The aggregate Fair Market Value,
determined as of the Option Date, of Common Stock with respect to which ISOs
are exercisable by a Participant for the first time during any calendar year
under all ISO plans of the Company and any Subsidiary shall not exceed
$100,000.
(e) AWARDS TO CERTAIN STOCKHOLDERS. Notwithstanding
paragraphs 5(a) and 5(b) hereof, if an ISO is granted to a Participant who
owns stock representing more than 10% of the voting power of all classes of
stock of the Company or a Subsidiary, the exercise period specified in the
ISO agreement for which the ISO thereunder is granted shall not exceed five
years from the Option Date, and the Option Price shall be at least 110%
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<PAGE>
of the Fair Market Value (as of the Option Date) of the Common Stock subject
to the ISO.
6. NON-QUALIFIED STOCK OPTION. The Committee may, in its
discretion, grant NSOs to any Participant under the Plan. Each NSO shall be
evidenced by an Option Agreement between the Company and the Participant.
Each Option Agreement for an NSO, in such form as is approved by the
Committee, shall be subject to the following express terms and conditions:
(a) OPTION PERIOD. Each NSO will expire as of the earliest of:
(i) the date on which it is forfeited under the provisions
of paragraph 8;
(ii) the date three months after the Participant's
Termination of Employment for any reason other than
death; or
(iii) the date six months after the Participant's death.
(b) OPTION PRICE. At the time when the NSO is granted, the
Committee will fix the Option Price. The Option Price may be greater than,
less than, or equal to Fair Market Value on the Option Date, as determined in
the sole discretion of the Committee.
(c) OTHER OPTION PROVISIONS. The form of NSO authorized by
the Plan may contain such other provisions not inconsistent with the Plan as
the Committee may from time to time determine.
7. STOCK APPRECIATION RIGHTS. The Committee may, in its
direction, grant an SAR to any Participant under the Plan. Each SAR shall be
granted only in connection with an NSO and shall be evidenced by the Option
Agreement for the NSO between the Company and the Participant. Each SAR
awarded to Participants under the Plan shall be subject to the following
express terms and conditions and to such other terms and conditions, not
inconsistent with the Plan, as the Committee shall deem appropriate:
(a) TERMS OF SARS. Each SAR shall terminate on the same date as
the related NSO. The SAR shall be exercisable only if the Fair Market Value of
a share of Common Stock on the date of surrender exceeds the Option Price for
the related Option, and then shall be exercisable to the extent, and only to the
extent, that the related Option is exercisable. The SAR shall entitle the
Participant to whom it is granted the right to elect, so long as such SAR is
exercisable and subject to such limitations as the Committee shall have imposed,
to surrender any then exercisable portion of his related Option, in whole or in
part, and receive
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<PAGE>
from the Company in exchange, without any payment of cash (except for
applicable employee withholding taxes), that number of shares of Common Stock
having an aggregate Fair Market Value on the date of surrender equal to the
product of (i) the excess of the Fair Market Value of a share of Common Stock
on the date of surrender over the per share Option Price, and (ii) the number
of shares of Common Stock subject to such Option or portion thereof which is
surrendered. Any Option or portion thereof which is surrendered shall no
longer be exercisable. The Committee, in its sole discretion, may allow the
Company to settle all or part of the Company's obligation arising out of the
exercise of an SAR by the payment of cash equal to the aggregate Fair Market
Value of the shares of Common Stock which the Company would otherwise be
obligated to deliver.
(b) OTHER CONDITIONS. If a Participant is subject to
Section 16(a) and Section 16(b) of the Exchange Act, the Committee may at any
time add such additional conditions and limitations to such SAR which the
Committee, in its discretion, deems necessary or desirable in order to comply
with Section 16(a) or Section 16(b) of the Exchange Act and the rules and
regulations issued thereunder, or in order to obtain any exemption therefrom.
8. VESTING. A Participant may not exercise an Option or surrender
an SAR until it has become vested. The portion of an Option or SAR award that
is vested depends upon the period that has elapsed since the Option Date.
Unless the Committee establishes a different vesting schedule at the time when
an Option is granted or the SAR is awarded, all Options granted and SARs awarded
under this Plan shall vest according to the following schedule:
Period Elapsed Vested Percentage
- ---------------------------------- -----------------------
First Anniversary of Option Date 20%
Second Anniversary of Option Date 40%
Third Anniversary of Option Date 60%
Fourth Anniversary of Option Date 80%
Fifth Anniversary of Option Date 100%
Except as provided below, upon Termination of Employment, for any reason, a
Participant shall forfeit any Options and SARs that are not vested on the
date of Termination of his Employment. Unless the Committee in its sole
discretion specifically waives the application of this sentence, then
notwithstanding the vesting schedule contained herein or in the Participant's
Option Agreement, upon Termination of Employment of a Participant for Cause,
all Options and SARs granted or awarded to the Participant will be
immediately cancelled and forfeited by the Participant upon delivery to him
of notice of such termination.
9. EXERCISE OF OPTIONS. To exercise an Option in whole or in part,
a Participant (or, after his death, his executor or
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<PAGE>
administrator) must give written notice to the Committee, stating the number
of shares as to which he intends to exercise the Option. The Company will
issue the shares with respect to which the Option is exercised upon payment
in full of the Option Price. The Option Price may be paid (i) in cash, (ii)
in shares of Common Stock having an aggregate Fair Market Value, as
determined on the date of delivery, equal to the Option Price, or (iii) by
delivery of irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds necessary to pay for all Common
Stock acquired through such exercise and any tax withholding obligations
resulting from such exercise. The Option Price may be paid by surrender of
SARs equal to the Option Price.
10. CHANGES IN CAPITAL STRUCTURE. If there is any change in the
capital structure of the Company, the Board may, in its sole discretion, (i)
determine that the aggregate number of shares of Common Stock that may be
issued under Options under this Plan and the number and kind of shares
covered by and applicable Option Price with respect to any Options then
outstanding hereunder are not subject to adjustment under this paragraph 10
as a result of such change in capital structure or (ii) make any adjustments
necessary to prevent accretion, or to protect against dilution, in the number
and kind of shares authorized by the Plan and, with respect to outstanding
Options, in the number and kind of shares covered thereby and in the
applicable Option Price. The Board by resolution or resolutions shall set
forth its determination regarding an adjustment or adjustments, if any, under
this paragraph 10. For the purpose of this paragraph 10, a change in the
capital structure of the Company includes, without limitation, any change
resulting from a recapitalization, stock split, reverse stock split, stock
dividend, consolidation, rights offering, spin-off, reorganization, or
liquidation and any transaction in which shares of Common Stock are changed
into or exchanged for a different number or kind of shares of stock or other
securities of the Company or another corporation.
11. NON-TRANSFERABILITY OF OPTIONS AND SARS. The Options and SARs
granted under the Plan are not transferable, voluntarily or involuntarily,
other than by will or the laws of descent and distribution. During a
Participant's lifetime, his Options may be exercised only by him.
12. RIGHTS AS STOCKHOLDER. No Common Stock may be delivered upon
the exercise of any Option until full payment has been made and all income
tax withholding requirements thereon have been satisfied. A Participant has
no rights whatsoever as a stockholder with respect to any shares covered by
an Option until the date of the issuance of a stock certificate for the
shares. A Participant who has been granted SARs shall have no rights
whatsoever as a stockholder with respect to such SARs.
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<PAGE>
13. WITHHOLDING TAX. The Company or Designated Subsidiary, if
any, may take such steps as it may deem necessary or appropriate for the
withholding of any taxes which the Company or the Designated Subsidiary, if
any, is required by any law or regulation or any governmental authority,
whether federal, state or local, domestic or foreign, to withhold in
connection with any Option or SAR including, but not limited to, the
withholding of all or any portion of any payment or the withholding of
issuance of shares of Common Stock to be issued upon the exercise of any
Option or SAR until the Participant reimburses the Company or Designated
Subsidiary, if any, for the amount the Company or Designated Subsidiary, if
any, is required to withhold with respect to such taxes, or cancelling any
portion of such award in an amount sufficient to reimburse itself for the
amount it is required to so withhold.
14. NO RIGHT TO EMPLOYMENT. Participation in the Plan will not
give any Participant a right to be retained as an employee of the Company or
any Subsidiary, or any right or claim to any benefit under the Plan, unless
the right or claim has specifically accrued under the Plan.
15. AMENDMENT OF THE PLAN. The Board may from time to time alter,
amend, suspend or discontinue this Plan, including, where applicable, any
modifications or amendments as it shall deem advisable in order that ISOs
will be classified as incentive stock options under the Code, or in order to
conform to any regulation or to any change in any law or regulations
applicable thereto, including any changes required to comply with the
Exchange Act or any rules or regulations issued thereunder; provided,
however, that no such action shall, without the approval of holders affected
thereby, adversely affect the rights and obligations of such holders with
respect to Options at any time outstanding under this Plan; and provided
further that no such action shall, without the approval of the stockholders
of the Company, (i) increase the maximum number of shares of the Common Stock
that may be made subject to Options (unless necessary to effect the
adjustments required by paragraph 10, (ii) materially increase the benefits
accruing to Participants under this Plan, or (iii) materially modify the
requirements as to eligibility for participation in this Plan.
16. ADMINISTRATION. The Plan shall be administered by the
Committee. In addition to any other powers set forth in this Plan, the
Committee has the exclusive authority:
(a) to construe and interpret the Plan, and to remedy any
ambiguities or inconsistencies therein;
(b) to establish, amend and rescind appropriate rules and
regulations relating to the Plan;
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<PAGE>
(c) subject to the express provisions of the Plan, to
determine the individuals who will receive awards of Options or SARs, the
times when they will receive them, the number of shares to be subject to each
award and the Option Price, payment terms, payment method, and expiration
date applicable to each award;
(d) to contest on behalf of the Company or Participants, at
the expense of the Company, any ruling or decision on any matter relating to
the Plan or to any awards of ISOs, NSOs, or SARs;
(e) generally, to administer the Plan, and to take all such
steps and make all such determinations in connection with the Plan and the
awards of ISOs, NSOs, or SARs granted thereunder as it may deem necessary or
advisable;
(f) to determine the form in which payment of an SAR award
granted hereunder will be made (i.e., cash, Common Stock or a combination
thereof) or to approve a participant's election to receive cash in whole or
in part in settlement of the SAR award; and
(g) to determine the form in which tax withholding under
Section 13 of this Plan will be made.
17. TERMINATION OF PLAN. In the event of dissolution or
liquidation of the Company, or upon any reorganization, merger or
consolidation of the Company with one or more corporations where the Company
is the surviving corporation and the stockholders of the Company immediately
prior to such transaction do not own at least fifty percent (50%) of the
issued and outstanding Common Stock immediately after such transaction, or
upon any reorganization, merger or consolidation of the Company with one or
more corporations where the Company is not the surviving corporation, or upon
a sale of substantially all of the assets of the Company to another
corporation or entity or upon the sale of Common Stock to another person or
entity in one or a series of transactions with the result that such person or
entity owns more than fifty percent (50%) of the issued and outstanding
Common Stock immediately after such sale(s), the Plan and all Options and
SARs outstanding under the Plan shall terminate on the effective date of the
transaction (or, in the event of a tender offer resulting in the sale of
fifty percent (50%) or more of the outstanding Common Stock (a "Tender
Offer"), thirty (30) days after the final expiration of the Tender Offer.
Any Options and SARs theretofore granted and outstanding under the Plan shall
become immediately vested and exercisable in full at such time as the
approval of the transaction by the Board, or the final expiration of any
Tender Offer (notwithstanding any performance, vesting or other criteria
contained therein), and shall remain exercisable until the effective date of
such transaction or thirty (30) days after the final expiration of the Tender
Offer, whichever is applicable (unless the Option or SAR would otherwise
expire by its own terms
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<PAGE>
on an earlier date). The Company shall give each optionee written notice at
least five (5) days prior to the effective date of any termination of the
Plan as a result of a transaction described above in order to permit the
optionee to exercise his Options prior to the effective date of termination.
Any Option not exercised by the effective date of a transaction described
above shall terminate on such date.
18. APPLICATION OF SECTION 16. With respect to persons subject to
Section 16 of the 1934 Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under
the 1934 Act. To the extent any provision of this Plan or action by the
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee.
19. STOCK RESTRICTIONS. The Board may provide that shares of
Common Stock issuable upon the exercise of a Option be subject to various
restrictions, including restrictions which provide that the Company has a
right to prohibit sales of such shares of Common Stock, a right of first
refusal with respect to such shares of Common Stock or a right or obligation
to repurchase all or a portion of such shares of Common Stock, which
restrictions may survive a Participant's term of employment with the Company.
The acceleration of time or times at which the Option becomes exercisable
may be conditioned upon the Participant's agreement to such restrictions.
20. NONEXCLUSIVITY OF THIS PLAN. Neither the adoption of this
Plan by the Board nor the submission of this Plan to stockholders of the
Company for approval shall be construed as creating any limitations on the
power or authority of the Board to adopt such other or additional incentive
or other compensation arrangements of whatever nature as the Board may deem
necessary or desirable or preclude or limit the continuation of any other
plan, practice or arrangement for the payment of compensation or fringe
benefits to employees generally, or to any class or group of employees, which
the Company or any Designated Subsidiary, if any, has lawfully put into
effect, including, without limitation, any retirement, pension,savings and
stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
21. STOCKHOLDER APPROVAL. Continuance of the Plan shall be
subject to approval by the stockholders of the Company within 12 months
before or after the date the Plan is adopted by the Board.
22. CONDITIONS UPON ISSUANCE OF SHARES. An Option or SAR shall not
be exercisable, and a share of Common Stock shall not be issued pursuant to the
exercise of an Option or SAR until such time as the Plan has been approved by
the Stockholders of the Company and unless the exercise of such Option and the
issuance and delivery of such share pursuant thereto shall comply with all
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<PAGE>
relevant provisions of law, including, without limitation, the Securities
Act, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the shares of Common Stock
may then be listed, and shall be further subject to the approval of counsel
for the Company with respect to such compliance. As a condition to the
exercise of an Option or SAR, the Company may require the person exercising
such Option to represent and warrant at the time of any such exercise that
the Common Stock is being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
23. RULES OF CONSTRUCTION.
(a) GOVERNING LAW. The construction and operation of this
Plan are governed by the laws of the State of Delaware.
(b) UNDEFINED TERMS. Unless the context requires another
meaning, any term not specifically defined in this Plan has the meaning given
to it by the Code.
(c) HEADINGS. All headings in this Plan are for reference
only and are not to be utilized in construing the Plan.
(d) GENDER. Unless clearly appropriate, all nouns of
whatever gender refer indifferently to persons of any gender.
(e) SINGULAR AND PLURAL. Unless clearly inappropriate,
singular terms refer also to the plural and vice versa.
(f) SEVERABILITY. If any provision of this Plan is
determined to be illegal or invalid for any reason, the remaining provisions
shall continue in full force and effect and shall be construed and enforced
as if the illegal or invalid provision did not exist, unless the continuance
of the Plan in such circumstances is not consistent with its purposes.
24. EFFECTIVE DATE. This Plan is effective as of the later of the
date of its adoption by the Board, or the date it is approved by the
stockholders of the Company, pursuant to Section 21.
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<PAGE>
Exhibit 10.2
[Form of Stock Option Agreement]
STARTEK, INC.
OPTION AGREEMENT
Date of Grant: ______________, 19___
THIS OPTION AGREEMENT (this "AGREEMENT"), dated as of the date of grant
first stated above (the "DATE OF GRANT"), is delivered by Startek, Inc., a
Delaware corporation (the "COMPANY"), to __________________________ (the
"PARTICIPANT"), who is an employee of the Company or one of its Subsidiaries.
RECITALS
A. The Board of Directors of the Company (the "BOARD") has
adopted, with subsequent shareholder approval, the Startek, Inc. Stock Option
Plan (the "PLAN").
B. The Plan provides for the granting of stock options ("ISO's")
and nonqualified stock options ("NSO's") by a committee to be appointed by
the Board (the "COMMITTEE") to key employees of the Company or any subsidiary
of the Company to purchase, or to exercise certain rights with respect to,
shares of the common stock of the Company, par value $0.01 per share, in
accordance with the terms and provisions thereof; and
C. The Committee considers the Participant to be a person who is
eligible for a grant of stock options under the Plan, and has determined that
it would be in the best interest of the Company to grant to Participant the
stock options set forth herein, subject to the terms and conditions hereof.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS. Except as expressly indicated herein, defined
terms used in this Agreement shall have the meanings set forth in the Plan.
2. GRANT OF OPTION. Subject to the terms and conditions
hereinafter set forth, the Company, with the approval and at the direction of
the Committee, hereby grants to the Participant, as of the Date of Grant, an
option to purchase up to _______ shares of Common Stock at a price of
$_____________ per share, the Fair Market Value of the Common Stock as of the
Date of Grant. Such option is hereinafter referred to as the "OPTION" and
the shares of Common Stock purchasable upon exercise of the Option are
hereinafter sometimes referred to as the "OPTION SHARES". The Option is
intended by the parties hereto to be, and shall be treated as an [ISO or NSO].
<PAGE>
3. VESTING AND TERMINATION OF THE OPTION.
(a) VESTING OF OPTION. Subject to the provisions of the Plan
which provide for acceleration of exercisability of the Option in certain
circumstances as provided therein and such further limitations as are
provided in the Plan and this Agreement, the Option shall be exercisable as
to the Option Shares (subject to adjustment as provided in paragraph 10 of
the Plan) as follows:
On the ______ anniversary
of the Date of Grant and
thereafter: ______ Option Shares
On the ______ anniversary
of the Date of Grant and
thereafter: ______ Option Shares
On the ______ anniversary
of the Date of Grant and
thereafter: ______ Option Shares
On the ______ anniversary
of the Date of Grant and
thereafter: ______ Option Shares
On the ______ anniversary The balance of the
of the Date of Grant and Option Shares not
thereafter: theretofore vested.
Except as provided below, upon Termination of Employment [for any reason other
than death or disability] [for any reason], a Participant shall forfeit
any Options that are not vested on the date of Termination of his Employment.
[Notwithstanding the vesting schedule contained herein, upon Termination of
Employment of the Participant for Cause, all Options granted to the Participant
will be immediately cancelled and forfeited by the Participant upon delivery
to him of notice of such Termination of Employment.]
(b) TERMINATION OF OPTION. The Option granted under this
Agreement will expire as of the earliest of:
(i) the date on which it is forfeited under the provisions
of paragraph 3(a);
(ii) 10 years from the Option Date;
(iii) three months after the Participant's Termination of
Employment for any reason other than death; or
(iv) six months after the Participant's death.
-2-
<PAGE>
4. EXERCISE OF OPTIONS.
(a) NOTICE AND PAYMENT. To exercise an Option in whole or in
part, a Participant (or, after his death, his executor or administrator) must
give written notice to the Committee, stating the number of shares as to
which he intends to exercise the Option together with payment of the Option
Price. The Option Price (and any required withholding) may be paid (i) in
cash, (ii) in shares of Common Stock having an aggregate Fair Market Value,
as determined on the date of delivery, equal to the Option Price, or (iii) by
delivery of irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds necessary to pay for all Common
Stock acquired through such exercise and any tax withholding obligations
resulting from such exercise.
(b) DELIVERY OF CERTIFICATE. On the exercise date specified
in the Participant's notice or as soon thereafter as is practicable, the
Company shall cause to be delivered to the Participant, a certificate or
certificates for the Option Shares then being purchased (out of theretofore
unissued Common Stock or reacquired Common Stock, as the Company may elect)
upon full payment for such Option Shares. The obligation of the Company to
deliver Common Stock shall, however, be subject to the condition that if at
any time the Committee shall determine in its discretion that the listing,
registration or qualification of the Option or the Option Shares upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the Option or the issuance or purchase
of Common Stock thereunder, the Option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
(c) FAILURE TO PAY. If the Participant fails to pay for any
of the Option Shares specified in such notice and any required withholding
tax or fails to accept delivery of the Option Shares, the Participant's right
to purchase such Option Shares may be terminated by the Company. The date
specified in the Participant's notice as the date of exercise shall be deemed
the date of exercise of the Option, provided that payment in full for the
Option Shares to be purchased upon such exercise and any required tax
withholding shall have been received by such date.
5. NON-TRANSFERABILITY OF OPTION. During the Participant's
lifetime, the Option shall be exercisable only by the Participant or any
guardian or legal representative of the Participant, and the Option shall not
be assignable or transferable by the Participant except, in case of the death
of the Participant, by will or the laws of intestate succession. In
addition, the Option shall not be subject to attachment, execution or other
similar process. In the event of (i) any attempt by the Participant to
alienate, assign, pledge, hypothecate or otherwise dispose of the Option,
except as provided for herein, or (ii) the
-3-
<PAGE>
levy of any attachment, execution or similar process upon the rights or
interest hereby conferred, the Company may terminate the Option by notice to
the Participant and it shall thereupon become null and void.
6. TRANSFERABILITY OF OPTION SHARES. The Participant hereby
agrees that the Option Shares acquired upon exercise of the Option shall be
acquired for the Participant's own account for investment purposes only and
not with a view to any distribution or public offering thereof within the
meaning of the Act, or other applicable securities laws. If the Board so
determines, any stock certificates issued upon exercise of the Option shall
bear a legend to the effect that the Option Shares have been so acquired.
The Company shall not be required to bear any expenses of compliance with the
Act, other applicable securities laws, or the rules and regulations of any
national securities exchange or other regulatory authority in connection with
the registration, qualification or transfer, as the case may be, of the
Option or any Option Shares acquired upon exercise thereof. The foregoing
restrictions on the transfer of Option Shares shall not apply if (i) the
Company shall have been furnished with a satisfactory opinion of counsel to
the effect that such transfer will be in compliance with the Act and all
other applicable securities laws, or (ii) the Option Shares shall have been
duly registered in compliance with the Act and all other applicable
securities laws.
[Add for ISO's] [The Participant further agrees that, upon
any sale of Option Shares within two (2) years from the Date of Grant of
the Option, or within one year after transfer of such Option Shares to the
Participant's ownership, then the Participant shall immediately notify the
Company in writing of such disposition and the amount realized by the
Participant upon such disposition.]
7. EMPLOYMENT NOT AFFECTED. Neither the granting of the Option
nor its exercise shall be construed as granting to the Participant any right
with respect to continuance of employment with the Company or any Subsidiary.
Except as may otherwise be limited by a written agreement between the
Company or any Subsidiary and the Participant, the right of the Company or
any Subsidiary to terminate at will the Participant's employment with it at
any time (whether by dismissal, discharge, retirement or otherwise) is
specifically reserved by the Company or Subsidiary (whichever the case may
be), and acknowledged by the Participant.
8. AMENDMENT OF OPTION. The Option may be amended by the Board
or the Committee at any time (i) if the Board or the Committee determines, in
its sole discretion, that amendment is necessary or advisable in the light of
any addition to or change in the Code or in the regulations issued
thereunder, or any federal or state securities law or other law or
regulation, which change occurs after the Date of Grant and by its terms
applies to the Option or (ii) other than in the circumstances described in
clause (i), with the consent of the Participant.
-4-
<PAGE>
9. NOTICE. Any notice to the Company provided for in this
Agreement shall be addressed to the Company in care of its Secretary at its
executive offices at 111 Havana Street, Denver, Colorado 80010, and any
notice to the Participant shall be addressed to the Participant at the
current address shown on the payroll records of the Company. Any notice
shall be deemed to be duly given if and when properly addressed and posted by
registered or certified mail, postage prepaid.
10. INCORPORATION OF PLAN BY REFERENCE. The Option is granted
pursuant to the terms of the Plan, the terms of which are incorporated herein
by reference, and the Option shall in all respects be interpreted in
accordance with and subject to the terms and provisions of the Plan. The
Committee shall interpret and construe the Plan and this Agreement, and its
interpretations and determinations shall be conclusive and binding on the
parties hereto and any other person claiming an interest hereunder, with
respect to any issue arising hereunder or thereunder. If any terms of this
Agreement conflict with the terms of the Plan, the terms of the Plan shall
control.
11. GOVERNING LAW. The validity, construction, interpretation and
effect of this Agreement shall exclusively be governed by and determined in
accordance with the laws of the State of Delaware, except to the extent
preempted by federal law, which shall to the extent of such preemptive govern.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the Date of Grant specified above.
ATTEST: STARTEK, INC., a Delaware corporation
By:
- ------------------------- ----------------------------------
Secretary
Title:
--------------------------------
ACCEPTED AND AGREED TO:
--------------------------------------
, Participant
-----------------------
-5-
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Combined Financial Data" and to the use of our report dated
February 18, 1997, in Amendment No. 1 to the Registration Statement (Form S-1
333-20633) and related Prospectus of StarTek, Inc. for the registration of
4,216,667 shares of its common stock.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Denver, Colorado
March 6, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
combined financial statements as of December 31, 1995 and 1996 and for the years
then ended and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 451,456 2,742,313
<SECURITIES> 0 0
<RECEIVABLES> 13,459,651 11,342,120
<ALLOWANCES> 197,747 311,172
<INVENTORY> 1,357,843 2,535,091
<CURRENT-ASSETS> 15,959,859 16,448,484
<PP&E> 7,844,238 10,194,649
<DEPRECIATION> 2,229,568 (3,667,411)
<TOTAL-ASSETS> 21,580,156 22,978,722
<CURRENT-LIABILITIES> 15,162,166 13,552,752
<BONDS> 0 0
0 0
0 0
<COMMON> 432 432
<OTHER-SE> 3,797,467 7,102,356
<TOTAL-LIABILITY-AND-EQUITY> 21,580,156 22,978,722
<SALES> 0 0
<TOTAL-REVENUES> 41,509,363 71,583,861
<CGS> 0 0
<TOTAL-COSTS> 38,528,167 64,704,445
<OTHER-EXPENSES> 2,550,018 6,100,505
<LOSS-PROVISION> 43,267 297,716
<INTEREST-EXPENSE> 445,849 443,764
<INCOME-PRETAX> (57,938) 37,431
<INCOME-TAX> 0 111,890
<INCOME-CONTINUING> (57,938) (74,459)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (57,938) (74,459)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
