<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______TO______
Commission File Number 1-12793
STARTEK, INC.
-----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1370538
----------------------------- -----------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
111 Havana Street 80010
Denver, Colorado ----------
-------------------------------------- (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(303) 361-6000
-------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Not Applicable
-------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGE SINCE LAST REPORT)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock November 10, 1997
Common Stock, par value $.01 per share 13,828,571
<PAGE> 2
STARTEK, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
- ------------------------------
<S> <C>
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets--September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations--Three
months ended September 30, 1997 and 1996; Nine months ended
September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows--Nine
months ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1997 1996
-------- --------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ 27,439 $ 2,742
Short term investments available for sale ........... 5,371 --
Trade accounts receivable, less
allowance for doubtful accounts of
$382 and $311, respectively ......................... 9,354 11,031
Inventories ......................................... 3,105 2,535
Deferred tax asset .................................. 438 --
Prepaid income tax .................................. 119 --
Prepaid expenses and other .......................... 396 140
-------- --------
Total current assets ..................................... 46,222 16,448
Property, plant and equipment, net ....................... 6,933 6,528
Other assets ............................................. 3 3
-------- --------
Total assets ............................................. $ 53,158 $ 22,979
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit ...................................... -- $ 3,500
Accounts payable .................................... $ 7,201 6,962
Accrued liabilities ................................. 1,061 1,584
Current portion of capital lease obligations ........ 109 917
Current portion of long-term debt ................... -- 6
Other ............................................... 462 584
-------- --------
Total current liabilities ................................ 8,833 13,553
Capital lease obligations, less current portion .......... 133 1,504
Long-term debt, less current portion ..................... 200 548
Deferred income taxes .................................... 253 --
Other .................................................... 107 271
Stockholders' equity:
Common stock ........................................ 138 1
Additional paid-in capital .......................... 41,661 6,148
Cumulative translation adjustment ................... 44 129
Unrealized holding gain on investments .............. 11 --
Retained earnings ................................... 1,778 1,038
Note receivable-stockholder for the
exercise of stock options ........................... -- (213)
-------- --------
Total stockholders' equity ............................... 43,632 7,103
-------- --------
Total liabilities and stockholders' equity ............... $ 53,158 $ 22,979
======== ========
</TABLE>
See accompanying Notes.
3
<PAGE> 4
STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -----------------------------------------
Pro Forma
1997 1996 1997 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues ........................... $ 20,226 $ 15,479 $ 52,960 $ 52,960 $ 44,806
Cost of services ................... 16,306 12,198 41,579 41,579 35,974
--------- --------- --------- --------- ---------
Gross profit ....................... 3,920 3,281 11,381 11,381 8,832
Selling, general and
administrative expenses ....... 2,135 1,756 6,251 6,251 5,319
Management fee
expense ....................... -- 498 -- 3,126 1,397
--------- --------- --------- --------- ---------
Operating profit ................... 1,785 1,027 5,130 2,004 2,116
Net interest expense and other
(income) ...................... (535) 69 (353) (353) 302
--------- --------- --------- --------- ---------
Income before
income taxes .................. 2,320 958 5,483 2,357 1,814
Income tax expense ................. 865 112 2,045 650 112
--------- --------- --------- --------- ---------
Net income ......................... $ 1,455 $ 846 $ 3,438 $ 1,707 $ 1,702
========= ========= ========= ========= =========
Net income per share ............... $ 0.11 $ --
Pro forma net income per share ..... -- $ 0.28
Weighted average shares
outstanding ................... 13,828,571 12,256,410
</TABLE>
4
<PAGE> 5
STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities
Net income ................................................ $ 1,707 $ 1,702
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ........................ 1,226 938
Changes in operating assets and liabilities:
Accounts receivable ............................... 1,677 5,772
Inventories ....................................... (570) (813)
Prepaid income tax ................................ (119)
Deferred tax asset ................................ (438) --
Prepaid expenses and other assets ................. (255) 33
Accounts payable .................................. 240 (3,632)
Accrued and other liabilities ..................... (810) 509
Deferred income taxes ............................. 253 --
------------- -------------
Net cash provided by operating activities ................. 2,911 4,509
Cash flows from investing activities
Acquisition of short-term investments, net ................ (5,371) --
Purchases of property, plant and equipment, net ........... (1,647) (581)
Collections on notes receivable-stockholders .............. 213 28
------------- -------------
Net cash used in investing activities ..................... (6,805) (553)
Cash flows from financing activities
Net payments on line of credit borrowings ................. (3,500) (2,564)
Principal advances (payments) on borrowings ............... (354) (5)
Proceeds from borrowings and capital lease
obligations ............................................... -- 368
Principal payments on capital lease obligations ........... (2,179) (626)
Dividend to S corporation principal stockholders .......... (8,000) --
Principal payments on notes payable-stockholders .......... -- (28)
Principal payments on note payable-affiliate .............. -- (1,111)
Net proceeds of initial public offering of common stock ... 41,042 --
Contributed capital ....................................... 1,641 --
------------- -------------
Net cash provided by (used in) financing activities ....... 28,650 (3,966)
Effect of exchange rate changes on cash ................... (70) 11
Effect of unrealized holding gain on investments .......... 11 --
------------- -------------
Net increase in cash and cash equivalents ................. 24,697 1
Cash and cash equivalents at beginning of year ............ 2,742 451
------------- -------------
Cash and cash equivalents at end of period ................ $ 27,439 $ 452
============= =============
Supplemental disclosure of non-cash activity
Equipment acquired or refinanced under capital leases ..... -- $ 963
Common stock split effected by stock dividend ............. $ 107 --
</TABLE>
See accompanying Notes.
5
<PAGE> 6
STARTEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(unaudited)
NOTE (1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. The condensed consolidated financial
statements reflect all adjustments (consisting of only normal recurring
accruals) which, in the opinion of management, are necessary to present fairly
the financial position, results of operations and cash flows of StarTek, Inc.,
and subsidiaries as of September 30, 1997 and 1996 and for the periods then
ended. Operating results for the three and nine months periods ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997.
The unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and footnotes
thereto included in the Company's prospectus dated June 18, 1997 for the
Company's initial public offering.
NOTE (2) INITIAL PUBLIC OFFERING OF COMMON STOCK
On June 24, 1997 the Company completed an initial public offering of
its common stock. The Company sold 3,000,000 shares of common stock at an
offering price of $15.00 per share. Total proceeds after deducting $3,958 in
estimated costs associated with the offering were $41,042. Immediately prior to
the closing of the offering the Company completed a 320.1064-for-1 common stock
split effected by a stock dividend. All common stock amounts, equivalent share
amounts and per share amounts included in the accompanying financial statements
and related notes have been adjusted to give effect to the stock dividend.
NOTE (3) DIVIDEND TO S CORPORATION PRINCIPAL STOCKHOLDERS
Effective immediately prior to the June 24, 1997 closing of the initial
public offering, the Company declared an $8,000 dividend in an amount
approximately equal to the estimated additional paid-in capital and retained
earnings of the Company as of the closing date of the initial public offering,
pursuant to certain promissory notes. Such notes were paid June 30, 1997 from
the net proceeds of the initial public offering.
NOTE (4) 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 expenses, in addition to general compensation for
services rendered. Such management fees are reflected as management fee expense
as set forth below. Effective with the closing of the Company's initial public
offering in June 1997, these management fees, bonuses and other fees were
discontinued.
6
<PAGE> 7
STARTEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
(unaudited)
After the closing of the initial public offering, all compensation
payable to persons who had been S corporation stockholders of the Company (or an
affiliate of such stockholder) is in the form of advisory fees, salaries and
bonuses (which at current rates aggregate approximately $516 annually) and are
included in selling, general and administrative expenses. Such advisory fees and
salaries, together with payments under an operating lease terminated effective
December 31, 1996, are reflected as selling, general and administrative expense
as set forth below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Selling, general and administrative
expense ....................... $ 129 $ 135 $ 387 $ 406
Management fee expense ............... $ -- $ 498 $3,126 $1,397
</TABLE>
NOTE (5) PRO FORMA INFORMATION
The pro forma condensed consolidated statement of operations present
the effect on the historical consolidated financial statements of the
elimination of management fee expense paid to stockholders and their affiliates,
as these fees were discontinued upon the completion of the Company's initial
public offering, and the provision for related income taxes at an effective rate
of 37.3% as if the Company were taxed as a C corporation.
NOTE (6) WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares outstanding after giving effect to
322.1064 for one stock split
effected by a stock dividend 10,828,571 10,828,571 10,828,571 10,828,571
Shares deemed outstanding to closing
of initial public offering, representing
the number of shares (at an initial
public offering price of $15.00 per share)
sufficient to fund payment of $8,000 Note
Payable to Principal Stockholders -- 533,333 339,927 533,333
3,000,000 shares issued in connection with
initial public offering completed June 24,
1997, for days outstanding in the
respective periods 3,000,000 -- 1,087,912 --
---------- ---------- ---------- ----------
Weighted average shares outstanding 13,828,571 11,361,904 12,256,410 11,361,904
---------- ---------- ---------- ----------
</TABLE>
7
<PAGE> 8
STARTEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
(unaudited)
NOTE (7) INCOME TAXES
The $650 income tax expense for the nine months ended September 30, 1997
is composed of income tax expense on earnings from the June 1997 period when the
Company became taxable as a C corporation as adjusted for a foreign tax benefit
item, less a one-time credit to record a net deferred tax asset of $299 upon
termination of S corporation status. Income taxes for the three months ended
September 30, 1997 reflect a provision for federal, state, and foreign income
taxes at an effective rate of 37.3%.
NOTE (8) INVENTORIES
Total inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------ ------
<S> <C> <C>
Raw materials ...................... $2,814 $2,327
Finished goods ..................... 291 208
------ ------
$3,105 $2,535
====== ======
</TABLE>
NOTE (9) STOCK OPTIONS GRANTED
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
1997
--------
<S> <C>
Outstanding at beginning of period ..... --
Granted ................................ 614,500
Cancelled .............................. (7,000)
--------
Outstanding at end of period ........... 607,500
========
Exercisable at end of period ........... 20,000
========
</TABLE>
The exercise price for options outstanding as of September 30, 1997 was $15.00
per share.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated,
certain unaudited condensed consolidated statement of operations data expressed
as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -----------------------------------------
PRO FORMA
<S> <C> <C> <C> <C> <C>
1997 1996 1997 1997 1996
-------- -------- -------- -------- --------
Revenues .......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services .................. 80.6 78.8 78.5 78.5 80.3
-------- -------- -------- -------- --------
Gross profit ...................... 19.4 21.2 21.5 21.5 19.7
SG&A expenses ..................... 10.6 11.3 11.8 11.8 11.9
Management fee expense ............ -- 3.2 -- 5.9 3.1
-------- -------- -------- -------- --------
Operating profit (loss) ........... 8.8 6.6 9.7 3.8 4.7
Net interest expense and other .... (2.7) 0.4 (0.7) (0.7) 0.7
-------- -------- -------- -------- --------
Income (loss) before income
taxes ............................. 11.5 6.2 10.4 4.5 4.0
Income tax expense (credit) ....... 4.3 0.7 3.9 1.2 0.2
-------- -------- -------- -------- --------
Net income (loss) ................ 7.2 5.5 6.5 3.2 3.8
======== ======== ======== ======== ========
</TABLE>
The following table sets forth certain unaudited pro forma
condensed consolidated statement of operations data expressed in dollars and as
a percentage of revenues for the three and nine month periods ended September
30, 1996.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, (DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA) EXCEPT SHARE DATA)
----------------- -----------------
<S> <C> <C> <C> <C>
Revenues ......................... $ 15,479 100.0% $ 44,806 100.0%
Cost of services ................. 12,198 78.8 35,974 80.3
----------- ------- ----------- -------
Gross profit ..................... 3,281 21.2 8,832 19.7
SG&A expenses .................... 1,756 11.3 5,319 11.9
Management fee expense ........... -- -- -- --
----------- ------- ----------- -------
Operating profit ................. 1,525 9.9 3,513 7.8
Net interest expense and other ... 69 0.4 302 0.7
----------- ------- ----------- -------
Income before income taxes ....... 1,456 9.4 3,211 7.2
Income tax expense ............... 543 3.5 1,198 2.7
----------- ------- ----------- -------
Net income ....................... $ 913 5.9 $ 2,013 4.5
=========== ======= =========== =======
Pro forma net income per share ... $ 0.08 $ 0.18
Weighted average shares
outstanding ................. 11,361,904 11,361,904
</TABLE>
Pro forma adjustments are described in Note 5 to Condensed
Consolidated Financial Statements.
9
<PAGE> 10
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1996
Revenues. Revenues increased $4.7 million, or 30.7%, to $20.2 million
for the three months ended September 30, 1997 from $15.5 million for the three
months ended September 30, 1996. Revenues of $0.4 million for the three months
ended September 30, 1997 were attributable to new clients while existing clients
accounted for the remaining $4.3 million of this increase. Revenue from new
clients were partially offset by the effects of completion of projects for
existing and former clients, and fluctuating requirements with respect to
ongoing projects.
Cost of Services. Costs of services increased $4.1 million, or 33.7%,
to $16.3 million for the three months ended September 30, 1997 from $12.2
million for the three months ended September 30, 1996. As a percentage of
revenues, cost of services increased to 80.6% for the three months ended
September 30, 1997 from 78.8% for the three months ended September 30, 1996,
primarily due to increased work for a major client at lower relative margins and
decreased labor utilization.
Gross Profit. As a result of the foregoing factors, gross profit
increased $0.6 million, or 19.5%, to $3.9 million for the three months ended
September 30, 1997 from $3.3 million for the three months ended September 30,
1996. As a percentage of revenues, gross profit decreased to 19.4% for the three
months ended September 30, 1997 from 21.2% for the three months ended September
30, 1996.
Selling, General and Administrative Expenses. SG&A expenses increased
$0.4 million, or 21.7%, to $2.1 million for the three months ended September 30,
1997 from $1.8 million for the three months ended September 30, 1996, primarily
as a result of increased personnel costs incurred to service increasing
business. As a percentage of revenues, SG&A expenses decreased to 10.6% for the
three months ended September 30, 1997 from 11.3% for the three months ended
September 30, 1996, reflecting a lesser relative increase in SG&A expense as
compared to the increase in revenues.
Management Fee Expense. Management fee expense decreased $0.5 million
to zero for the three months ended September 30, 1997. Effective with the
closing of the Company's initial public offering in June 1997, management fees
were discontinued.
Operating Profit. As a result of the foregoing factors, operating
profit increased $0.8 million, or 73.8%, to $1.8 million for the three months
ended September 30, 1997 from $1.0 million for the three months ended September
30, 1996. As a percentage of revenues, operating profit increased to 8.8% for
the three months ended September 30, 1997 from 6.6% for the three months ended
September 30, 1996.
Net Interest Expense and Other (Income). Net interest expense and other
(income) was $0.5 million income for the three months ended September 30, 1997,
while it was $0.1 million expense in the three months ended September 30, 1996.
This increase in net interest earnings was primarily due to interest earnings
from the net proceeds of the Company's initial public offering and the
substantial absence of line-of-credit borrowing during the three months ended
September 30, 1997 as contrasted to the comparable period of 1996.
10
<PAGE> 11
Income Before Income Taxes. As a result of the foregoing factors,
income before income taxes increased $1.4 million, or 142.2%, to $2.3 million
for the three months ended September 30, 1997 from $1.0 million for the three
months ended September 30, 1996. As a percentage of revenues, income before
income taxes increased to 11.5% for the three months ended September 30, 1997
from 6.2% for the three months ended September 30, 1996.
Income Tax Expense. The Company operated as an S corporation for
federal and state income tax purposes until termination of S corporation status
on June 18, 1997 in connection with the Company's initial public offering.
Accordingly, the Company was not subject to federal or state income taxes
through June 17, 1997. A provision for federal , state, and foreign income taxes
as a C corporation of $0.9 million was made in the three months ended September
30, 1997, and a provision for foreign income taxes of $0.1 million was made in
the three months ended September 30, 1996.
Net Income. Based on the factors discussed above, net income increased
$0.6 million, or 72.0%, to $1.5 million for the three months ended September 30,
1997 from $0.8 million for the three months ended September 30, 1996. As a
percentage of revenues, net income increased to 7.2% for the three months ended
September 30, 1997 from 5.5% for the three months ended September 30, 1996.
Pro Forma Management Fee Expense; Pro Forma Operating Profit; Pro Forma
Income Before Income Taxes; Pro Forma Income Taxes and Pro Forma Net Income for
the three months ended September 30, 1996 compared to actual results for the
three months ended September 30, 1997. No pro forma presentation was applicable
to the three months ended September 30, 1997. Pro forma amounts for the three
months ended September 30, 1996 reflect the elimination of management fees and
bonuses to stockholders and their affiliates as these fees and bonuses were
discontinued upon the closing of the Company's initial public offering, 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 (i)
management fee expense is zero for the three months ended September 30, 1997 and
pro forma management fee expense is zero for the three months ended September
30, 1996; (ii) operating profit increased $0.3 million, or 17.0%, to $1.8
million for the three months ended September 30, 1997 from $1.5 million pro
forma operating profit for the three months ended September 30, 1996; (iii)
income before income taxes increased $0.9 million, or 59.3%, to $2.3 million for
the three months ended September 30, 1997 from $1.5 million pro forma income
before income taxes for the three months ended September 30, 1996; (iv) income
taxes increased $0.3 million, or 59.3%, to $0.9 million for the three months
ended September 30, 1997 from $0.5 million pro forma income tax expense for the
three months ended September 30, 1996; and (v) net income increased $0.5
million, or 59.4%, to $1.5 million for the three months ended September 30, 1997
from $0.9 million pro forma net income for the three months ended September 30,
1996.
11
<PAGE> 12
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues. Revenues increased $8.2 million, or 18.2%, to $53.0 million
for the nine months ended September 30, 1997 from $44.8 million for the nine
months ended September 30, 1996. Revenues of $1.4 million for the nine months
ended September 30, 1997 were attributable to new clients while existing clients
accounted for the remaining $6.7 million of this increase. Revenues from new
clients were partially offset by the effects of completion of projects for
existing and former clients and fluctuating requirements with respect to ongoing
projects. A portion of the revenues for the nine months ended September 30, 1996
were attributable to two large projects, which generated unusually high
revenues.
Cost of Services. Cost of services increased $5.6 million, or 15.6%, to
$41.6 million for the nine months ended September 30, 1997 from $36.0 million
for the nine months ended September 30, 1996. As a percentage of revenues, cost
of services decreased to 78.5% for the nine months ended September 30, 1997 from
80.3% for the nine months ended September 30, 1996. This change was primarily
due to the absence of start-up costs for the Denver facility and product recall
and rework costs incurred on a certain product distributed from the United
Kingdom facility during the nine months ended September 30,1997 together with
slightly improved labor utilization on a year-to-date basis, partially offset by
increased work for a major client at lower relative margins.
Gross Profit. As a result of the foregoing factors, gross profit
increased $2.5 million, or 28.9%, to $11.4 million for the nine months ended
September 30, 1997 from $8.8 million for the nine months ended September 30,
1996. As a percentage of revenues, gross profit increased to 21.5% for the nine
months ended September 30, 1997 from 19.7% for the nine months ended September
30, 1996.
Selling, General and Administrative Expenses. SG&A expenses increased
$0.9 million, or 17.5%, to $6.3 million for the nine months ended September 30,
1997 from $5.3 million for the nine months ended September 30, 1996, primarily
as a result of increased personnel costs incurred to service increasing
business. As a percentage of revenues, SG&A expenses decreased to $11.8% for the
nine months ended September 30, 1997 from 11.9% for the nine months ended
September 30, 1996, reflecting a lesser relative increase in SG&A expense as
compared to the increase in revenues.
Management Fee Expense. Management fee expense increased $1.7 million,
or 123.8%, to $3.1 million for the nine months ended September 30, 1997 from
$1.4 million for the nine months ended September 30, 1996. As a percentage of
revenues, management fee expense increased to 5.9% for the nine months ended
September 30, 1997 from 3.1% for the nine months ended September 30, 1996. The
Company paid management fees and bonuses of $3.1 million in the period from
January 1, 1997 through the closing of the Company's initial public offering in
June 1997, at which time these management fees and bonus arrangements were
discontinued. These management fee and bonus payments gave consideration to
operating profits and the effects of certain expense timing differences for book
and tax purposes. For the nine months ended September 30, 1996, management fee
expense was accrued based on estimated tax requirements of the recipient.
12
<PAGE> 13
Operating Profit. As a result of the foregoing factors, operating
profit decreased $0.1 million, or 5.3%, to $2.0 million for the nine months
ended September 30, 1997 from $2.1 million for the nine months ended September
30, 1996. As a percentage of revenues, operating profit decreased to 3.8% for
the nine months ended September 30, 1997 from 4.7% for the nine months ended
September 30, 1996.
Net Interest Expense and Other(Income). Net interest expense and other
(income) was $0.4 million income for the nine months ended September 30, 1997,
while it was $0.3 million expense for the nine months ended September 30, 1996.
This increase to net interest earnings was primarily due to interest earnings
from the net proceeds of the Company's initial public offering and the
substantial absence of line-of-credit borrowing during the three months ended
September 30, 1997 as contrasted to the comparable period of 1996.
Income Before Income Taxes. As a result of the foregoing factors,
income before income taxes increased $0.5 million, or 29.9%, to $2.4 million for
the nine months ended September 30, 1997 from $1.8 million for the nine months
ended September 30, 1996. As a percentage of revenues, income before income
taxes increased to 4.4% for the nine months ended September 30, 1997 from 4.0%
for the nine months ended September 30, 1996.
Income Tax Expense. The Company operated as an S corporation for
federal and state income tax purposes until termination of S corporation status
on June 18, 1997 in connection with the Company's initial public offering.
Accordingly, the Company was not subject to federal or state income taxes
through June 17, 1997. During the nine months ended September 30, 1997, a
provision for income taxes as a C corporation was made for the period June 18,
1997 through September 30, 1997 as adjusted for a foreign tax benefit item, less
a one-time credit to record a net deferred tax asset of $0.3 million upon
termination of S corporation status. A provision for foreign income taxes of
$0.1 million was made in the nine months ended September 30, 1996.
Net Income. Based on the factors discussed above, net income remained
relatively unchanged at $1.7 million for the nine months ended September 30,
1997 and 1996. As a percentage of revenues, net income decreased to 3.2% for the
nine months ended September 30, 1997 from 3.8% for the nine months ended
September 30, 1996.
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 and bonuses to
stockholders and their affiliates as these fees and bonuses were discontinued
upon the closing of the Company's initial public offering, 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 (i) pro forma management
fee expense is zero for the nine months ended September 30, 1997 and 1996; (ii)
pro forma operating profit increased $1.6 million, or 46.0%, to $5.1 million for
the nine months ended September 30, 1997 from $3.5 million for the nine months
ended September 30, 1996; (iii) pro forma income before income taxes increased
$2.3 million, or 70.8%, to $5.5 million for the nine months ended September 30,
1997 from $3.2 million for the nine months ended September 30, 1996; (iv) pro
forma income taxes increased $0.8 million, or 70.7%, to $2.0 million for the
nine months ended September 30, 1997 from $1.2 million for the nine months
September 30, 1996; and (v) pro forma net income increased $1.4 million, or
13
<PAGE> 14
70.7%, to $3.4 million for the nine months ended September 30, 1997 from $2.0
for the nine months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering in June 1997, the Company 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. In November 1997, the
Company replaced its previous $3.5 million line of credit with Norwest Business
Credit, Inc. with a $5.0 million revolving line of credit with Norwest Bank (the
"Bank"), which matures on April 30, 1999. Borrowings under the line of credit
bear interest at the Bank's prime rate. Under this line of credit, the Company
is required to maintain working capital of $17,500,000 and tangible net worth of
$25,000,000. Collateral for the line of credit is the Company's accounts
receivable.
The Company completed an initial public offering of common stock on
June 24, 1997. The net proceeds, after deducting underwriting discounts and
commissions and offering expenses, were approximately $41.0 million. From the
net proceeds, the Company repaid substantially all of it's outstanding
indebtedness, which included approximately $5.0 million of bank and mortgage
indebtedness, $1.8 million of capital lease obligations and $8.0 million of
notes payable to principal stockholders arising from an S corporation dividend
in an amount approximately equal to the additional paid-in capital and retained
earnings of the Company as of the closing date. The balance of the net proceeds
(approximately $26.2 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 and systems, and to
potentially make strategic acquisitions of complementary businesses.
The Company had cash, cash equivalents and short-term investments
available for sale of $32.8 million at September 30, 1997. The Company's working
capital was $37.4 million.
The Company agreed to finance telecommunications computer hardware and
software through a 36 month operating lease which became effective in April
1997. Monthly payments approximate $28,500.
Net cash provided by operating activities decreased to $2.9 million for
the nine months ended September 30, 1997 from $4.5 million for the same period
in the prior year. The principal causes of this decrease were (i) a reduction in
accrued and other liabilities as contrasted to an increase in the comparable
period of 1996 and (ii) a lesser reduction in accounts receivable in the period,
partially offset by an increase in accounts payable as contrasted to the
decrease in the comparable period of 1996.
14
<PAGE> 15
Net cash used in investing activities increased to $1.4 million for the
nine months ended September 30, 1997 from $0.6 million for the same period in
the prior year. The principal causes for this increase were (i) acquisition of
short-term investments, net, of the net proceeds of the Company's initial public
offering and (ii) increases in purchases of property and equipment.
Net cash provided from financing activities increased to $28.7 million
in the nine months ended September 30, 1997 from $(4.0) million used in
financing activities for the same period in the prior year. The principal causes
of this increase were the net proceeds from the Company's initial public
offering, contributed capital from principal stockholders and reduction in
principal payments on an affiliate note, partially offset by a dividend to the
principal stockholders and the repayment of substantially all of the Company's
indebtedness.
The Company believes that cash flow from operations and net proceeds to
the Company from its initial public offering, together with available funds
under the line of credit, 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 fund
the Company's activities in the short or long term, the Company will be required
to raise the additional funds through public or private financing. 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.
VARIABILITY OF QUARTERLY OPERATING RESULTS
Historically, the Company's revenues have been significantly lower in
the first and second quarters of each year due to the timing of its clients'
marketing programs and the introduction of new products, which are typically
geared toward the Christmas holiday seasons. Additionally, the Company has
experienced, and expects to experience in the future, quarterly variations in
operating results 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 client's businesses.
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.
FORWARD-LOOKING STATEMENTS
All statements contained in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" or elsewhere in this quarterly
15
<PAGE> 16
report, that are not statements of historical facts are forward-looking
statements that involve substantial risks and uncertainties. Forward-looking
statements include (i) the anticipated level of capital expenditures, (ii) the
Company's belief that existing cash, short-term investments and available
borrowing will be sufficient to finance the Company's operations; and (iii)
statements relating to the Company or its operations that are preceded by terms
such as "anticipates", "expects", "believes", and similar expressions.
In accordance with the Private Securities Litigation Reform Act of
1995, the following are important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements; these include, but are not limited to, general economic conditions
in the Company's markets, the loss of one or more of its significant clients,
and the loss or delay in implementation of a large project which could cause
quarterly variations in the Company's revenues and earnings. Readers are
encouraged to review the Risk Factors section of the Company's prospectus dated
June 18, 1997 for its initial public offering.
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities
The Company did not issue or sell any unregistered
securities during the quarter ended September 30,
1997.
(d) Use of Proceeds
The Company filed a Registration Statement
(Commission file no. 333-20633) for the public
offering of 3,666,667 shares of common stock with the
Securities and Exchange Commission, which became
effective June 18, 1997. The managing underwriters
were Donaldson, Lufkin & Jenrette Securities
Corporation and Morgan Stanley Dean Witter. The
shares were sold for $15.00 per share for an
aggregate amount of $55,000,005. Of the shares sold,
3,000,000 shares ($45,000,000 aggregate amount) were
sold by the Company and 666,667 shares ($10,000,005
aggregate amount) were sold by five selling
stockholders, each of whom owned in excess of ten
percent of the outstanding shares prior to the
offering.
Expenses incurred for the Company's account in
connection with the issuance and distribution of the
common stock registered were as follows:
<TABLE>
<S> <C>
Underwriting discounts and commissions $3,150,000
Expenses paid to or for underwriters 22,327
Other expenses ($212,668 accrued as
of September 30, 1997) 785,363 (1)
----------
Total $3,957,690
==========
</TABLE>
16
<PAGE> 17
(1) There were no direct or indirect payments to
directors, officers or persons owning ten percent or
more of the Company's securities, or their associates
or affiliates. However, out-of-pocket expenses (i.e.
travel, lodging, and meals) directly in connection
with the offering were reimbursed and are included in
other expenses. The Company agreed to pay the
expenses of the selling stockholders, other than
underwriting discounts and commissions.
The net offering proceeds to the Company were
$41,042,310.
From June 18, 1997 through September 30, 1997, the
Company used net offering proceeds as follows:
<TABLE>
<CAPTION>
<S> <C>
Repayment of indebtedness:
Bank and mortgage indebtedness $ 4,932,000
Capitalized lease obligations 1,767,000
Notes payable to Principal Stockholders 8,000,000
-----------
14,699,000
Capital expenditures 842,000
Working capital 25,501,000
-----------
$41,042,000
===========
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following documents are filed as an exhibit to
this report:
10.10 Loan Agreement, dated November 6, 1997,
between StarTek, Inc. (the "Borrower")
and Norwest Bank Colorado, National
Association (the "Bank") and 360 Day
Promissory Note dated November 6, 1997,
payable by the Borrower to the Bank.
10.11 Amendment dated September 30,1997 to HP
Purchase Agreement dated September
1,1995 by and between Hewlett-Packard Company,
Starpak, Inc. and Starpak International Ltd.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the three months ended September 30, 1997.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STARTEK, INC.
------------------------------
(Registrant)
Date: November 10, 1997 /s/ MICHAEL W. MORGAN
--------------------------- ------------------------------
Michael W. Morgan
President and Chief Executive
Officer
Date: November 10, 1997 /s/ DENNIS M. SWENSON
--------------------------- ------------------------------
Dennis M. Swenson
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
<PAGE> 19
EXHIBIT INDEX
Exhibit 10.10 Loan Agreement Dated 11/6/97
Exhibit 10.11 Amendment Dated 9/30/97
Exhibit 27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.10
LOAN AGREEMENT
THIS AGREEMENT, dated November 6, 1997, is between STARTEK, INC. (the
"Borrower") and NORWEST BANK COLORADO, NATIONAL ASSOCIATION, Denver, Colorado
(the "Bank"). The undersigned parties hereby agree as follows.
ARTICLE I - DEFINITIONS
SECTION 1.1 The following terms defined in this Article shall have the meanings
specified for all purposes of this Agreement.
* "Borrower" shall mean STARTEK, INC.
* "Loan" or "Loans", including but not limited to Loans described in Article II
below, shall mean all principal, interest and any other obligation in any
form, however created, arising or evidenced, by the Borrower to the Bank,
now existing or hereafter created.
* "Tangible Net Worth" shall mean the Borrower's consolidated net equity,
determined in accordance with generally accepted accounting principles; less
1) notes and accounts receivable from shareholders, officers and related
entities.
* "Working Capital" shall mean current assets less current liabilities
determined in accordance with generally accepted accounting principles.
ARTICLE II - THE LOAN
SECTION 2.1 Pursuant and concurrent to this Agreement, the Bank is making a new
Loan to the Borrower in the aggregate amount of $5,000,000.00 as more fully
described below.
* A $5,000,000.00 committed revolving line of credit expiring April 30, 1999,
to provide funds for general corporate purposes. This Agreement shall apply
to any and all renewals of this line of credit.
The full terms of the Loan is evidenced by separate Loan documents, including
but not limited to those referred to in Section 2.4 below.
SECTION 2.2 The Borrower shall have the right to repay Loans in part or in
whole at any time without penalty; however, any prepayment must be accompanied
by payment of all accrued interest then due.
SECTION 2.3 All payments made shall be made in immediately available funds in a
form acceptable to the Bank.
SECTION 2.4 The Bank's commitment to make the new line of credit shall be
subject to the delivery to the Bank, in form and substance satisfactory to the
Bank, of any documents required by the Bank which may include, but are not
limited to, promissory notes, security agreements, financing statements, and
other related documents necessary to confirm, continue or create the obligation
and/or any liens and security interests in favor of the Bank. The Loan shall
Page 1 of 5
<PAGE> 2
accrue interest at a rate equal to the Bank's published Prime Rate of interest,
as more fully described in the promissory note that evidences the Loan. The
pricing approved by the Bank for the Loan is based, in part, on the Borrower's
commitment to maintain $250,000.00 in non-interest bearing accounts at the Bank.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank as follows:
SECTION 3.1 The Borrower is validly existing and in good standing under the
laws of the State of Colorado. The Borrower is duly qualified to do business
wherever necessary to carry on its present operations.
SECTION 3.2 The making and performance of this Agreement is within its
corporate powers; has been duly authorized by all necessary corporate action;
does not require any stockholder consent; does not require the approval of any
federal or state regulatory authority; does not contravene any law, regulation
or agreement to which they are a party or by which their assets may be bound;
and will not conflict with any provision of the articles of incorporation,
bylaws or other governing documents.
SECTION 3.3 This Agreement is a legal, valid and binding obligation of the
Borrower enforceable in accordance with its terms.
SECTION 3.4 There is no pending or threatened action or proceedings before any
court or administrative agency which may materially adversely affect the
Borrower's financial condition or operations.
SECTION 3.5 The Borrower has good and marketable title to all properties or
assets (except those leased and pledged to the City of Aurora), and none of
such properties or assets pledged as security to Loans are subject to any
mortgage, pledge, loan security interest, encumbrance or any other security
agreement or arrangement of any type whatsoever unless the security interests,
liens and encumbrances are permitted in this Agreement.
SECTION 3.6 To the best of the Borrower's knowledge and information no
material claim for taxes, whether federal, state or local, are presently being
assessed against the Borrower with respect to any past due taxes, nor are there
any tax disputes being litigated or determined by governmental proceedings at
the present time that have not been reflected in the financial statements of
the Borrower previously furnished to the Bank.
SECTION 3.7 The Borrower or property of the Borrower is not currently the
subject of any threatened or ongoing litigation, judgment, decree, order,
citation, compliant, or notice of violation relating to or arising out of
environment laws or issues.
SECTION 3.8 As of the dates of this Agreement and the date of any subsequent
Page 2 of 5
<PAGE> 3
Loans, all representations and warranties to the Bank contained herein are
certified to be true and no Event of Default shall have occurred and be
continuing.
SECTION 3.9 All financial information previously supplied to the Bank in
conjunction with the Loans and required to be supplied under the terms of this
Agreement, including but not limited to financial statements, tax returns,
projections, borrowing base certificates and listings of accounts receivable,
equipment and/or inventory, are hereby certified to be true, accurate and
complete in every material respect.
ARTICLE IV - COVENANTS OF THE BORROWER
SECTION 4.1 So long as the Borrower may have Loans outstanding hereunder and
until performance of all other obligations of the Borrower, the Borrower shall:
* Permit or cause to permit the Bank at any reasonable time to have access
to the books and records of the Borrower, and to inspect or otherwise
check the properties of the Borrower, and to furnish to the Bank the
following financial information on a consolidated basis in a form and
substance acceptable to the bank:
* within 45 days after the end of each quarter, the Borrower's 10Q
report;
* within 90 days after the end of each fiscal year, the Borrower's 10K
report;
* within 30 days of each quarter's end, an accounts receivable aging;
* Maintain minimum Tangible Net Worth of $25,000,000;
* Maintain Working Capital of greater than $17,500,000;
* Use the Bank as its principal depository for its operating business
accounts; and maintain not less than $250,000.00 in non interest bearing
accounts;
* Maintain insurance with responsible companies on such of its properties,
in such amounts and against such risks as is reasonable and customarily
maintained by similar businesses, and provide the Bank with evidence of
such coverage;
* Comply in all material respects with all laws and regulations applicable
to its business and operations; and
* Promptly provide notice to the Bank of any occurrence of an Event of
Default.
SECTION 4.2 So long as the Borrower may have Loans outstanding hereunder and
until payment in full and performance of all other obligations of the Borrower,
the Borrower shall not, without the consent of the Bank, which consent shall
not be unreasonably withheld:
* Enter into any mergers, acquisitions or consolidations, or substantially
change the ownership structure of the Borrower;
* Sell, lease or otherwise dispose of all or any substantial part of its
assets or operation;
* Create, incur or permit to exist any lien, security interest or other
encumbrance upon any of its properties or assets except liens for taxes or
other items not yet overdue or being contested in good faith; or
* Make distributions of property, or pay dividends, wages or bonuses to any
of the Borrower's officers or shareholders, in such amounts as would cause
a failure to comply with any financial covenant in this Agreement.
Page 3 of 5
<PAGE> 4
ARTICLE V - EVENTS OF DEFAULT
SECTION 5.1 The occurrence of any of the following events shall be an "Event
of Default"
* Any payment of principal or interest shall not be made when due and not be
cured within ten business days thereafter;
* Any representation or warranty made by the Borrower in connection with the
execution and delivery of this Agreement, or in any certificate furnished
pursuant hereto, shall prove to be at any time incorrect in any material
respect;
* The Borrower shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement and such failure shall continue for
a period of seven days after written notice from the Bank;
* Any obligation of the Borrower for the payment of any Loan is not made at
maturity, whether by acceleration or otherwise, or is declared to be due
and payable prior to the stated maturity thereof by reason of default or
other violation of the terms thereof; or
* The Borrower ceases doing business.
SECTION 5.2 Upon the occurrence of an Event of Default, the obligation of the
Bank to make advances under any Loan commitment to the Borrower shall terminate
and the Bank may declare the principal balance, together with accrued interest
thereon, to be immediately due and payable, and the same shall forthwith become
immediately due and payable without presentment, protest, notice or demand of
any kind, all of which are hereby expressly waived by the Borrower and the
Guarantor. Upon any such Event of Default, the Bank may proceed with each and
every remedy provided for it in this Agreement, any Loan document, continuing
guaranty, security agreement or other instrument executed in connection with
the Loans, and may pursue any other remedy available to the Bank, whether in
law or equity, to enforce collection of all sums due and owing to the Bank, all
of such right and remedies being cumulative and not exclusive of all rights and
remedies which the Bank has or may have against the Borrower.
ARTICLE VI - MISCELLANEOUS
SECTION 6.1 No failure on the part of the Bank in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power preclude any other or further
exercise thereof or the exercise of any other right or power hereunder. No
modification or waiver of any provision of this Agreement nor consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be in writing and then such a waiver or consent shall be effective
only in the specific instance and for the purposes for which it was given. No
notice or demand on the Borrower in any case shall entitle it to any other or
further notice or demand in similar or other circumstances.
SECTION 6.2 No modification of this Agreement shall be effective unless the
same be in writing and mutually agreeable between the parties.
SECTION 6.3 The Borrower agrees to pay all costs incurred by the parties in
connection with preparation of this Agreement, the enforcement of any provision
of this Agreement, the collection of the Loans or the foreclosure or
realization upon any security therefor.
Page 4 of 5
<PAGE> 5
SECTION 6.4 The Borrower agrees to defend, indemnify, and hold harmless the
Bank for, from, and against and to reimburse the Bank with respect to any and
all claims, actions, costs and expenses whatsoever (including, without
limitation, attorneys fees and expenses and costs reasonably incurred), known
or unknown, asserted against or incurred by the Bank at any time by reason of
or arising out of or relating to any actual or alleged violation of any
existing or future environmental law or actual or threatened contamination
relating to the property or activities of the Borrower, whether or not such
contamination was in violation of any environmental statute. This indemnity
shall last indefinitely and is specifically intended to survive this Agreement.
SECTION 6.5 All notices or other communications required or permitted under
this Agreement shall be in writing and shall be deemed given when personally
delivered or mailed to the respective parties' addresses as set forth above.
SECTION 6.6 This Agreement and the rights and obligations of the parties
hereunder shall be construed and interpreted in accordance with the laws of the
State of Colorado.
STARTEK, INC. NORWEST BANK COLORADO,
NATIONAL ASSOCIATION
By: /s/ A. EMMET STEPHENSON JR. By: /s/ MICHAEL S. KATZ
---------------------------- --------------------------
Title: CHAIRMAN OF THE BOARD Title: A.V.P.
/s/ DENNIS M. SWENSON
----------------------------
EXECUTIVE VICE PRESIDENT
Page 5 of 5
<PAGE> 6
360 DAY PROMISSORY NOTE
<TABLE>
<CAPTION>
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
Sender's Address, City, State & Zip Code
1740 BROADWAY, DENVER, CO 80274
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR BANK ONLY FACE AMOUNT RATE NOTE DATE MATURITY DATE
Customer No. Loan No. (% per year)
0005376 9001 $5,000,000.00 ** % 11/06/1997 04/30/1999
- --------------------------------------------------------------------------------
Maker Home Phone Business Phone
StarTek, Inc.
- --------------------------------------------------------------------------------
Street Address, City, State, Zip Code
111 Havana Street Denver, CO 80010
- --------------------------------------------------------------------------------
Security
ACCOUNTS RECEIVABLE
- --------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
The captions in the boxes above, and the names, dates, amounts and other
information therein, are defined terms and are hereby incorporated in the note
provisions below.
Maker promises to pay to the order of Bank at Bank's address the Face
Amount with Interest on the unpaid balance of the Face Amount from the Note
Date at the Rate indicated above (based upon a year of 360 days and computed for
the actual number of days elapsed). *Principal and Interest shall be payable as
follows:
Interest shall be payable monthly on the last day of each month beginning
11/30/1997. The balance of principal plus accrued interest shall be
payable at maturity.
**The interest rate shall be at an annual rate equal to the Norwest Bank
Colorado, National Association Prime Rate, effective the same day of its
change. Prime Rate shall mean the interest rate charged by Norwest Bank
Colorado, National Association as announced or published by the Bank from
time to time as its Prime Rate, and may not be the lowest interest rate
charged by the Bank.
THIS NOTE EVIDENCES AN ARRANGEMENT PROVIDING FOR FUTURE ADVANCES THAT IN
AGGREGATE AMOUNT OUTSTANDING SHALL AT NO TIME EXCEED THE FACE AMOUNT.
Overdue principal and (to the extent legally enforceable) overdue interest,
whether caused by acceleration of maturity or otherwise, shall bear interest at
a rate four percentage points above the rate in effect at the time such
principal or interest becomes due.
At the option of the holder of this note (the "holder") the unpaid balance of
this note plus accrued interest and all other obligations of Maker to the
holder, direct or indirect, absolute or contingent, now existing or hereafter
arising, shall become immediately due and payable without notice or demand if
(a) any payment required by this note is not made when due, or (b) a default or
event of default occurs under any loan or security agreement or instrument
executed as security for or in connection with this note, or (c) the holder at
any time in good faith believes that the prospect of any payment required by
this note is impaired, whether or not such belief is caused by any act or
failure to act of any Maker or of any endorser, guarantor or accommodation party
of or on this note (hereunder collectively referred to as "any other signer").
Maker and any other signer (1) waive presentment, notice of dishonor and
protest, (2) assent to any extension of time with respect to any payment due
under this note, to any substitution or release of collateral and to the
addition or release of any party, and (3) agree that Bank may apply, as Bank
elects, any payment received after default to any portion of Maker's
obligations hereunder. No waiver of any payment or other right under this note
shall operate as a waiver of any other payment or right. Maker and any other
signer shall pay all reasonable costs of collection, including attorneys' fees,
paid or incurred by the holder in enforcing this note on default.
This note (a) is secured by the Security indicated above, if any, and (b)
shall be construed under and governed by the laws of Colorado. If there is
more than one Maker, all of the provisions of this note shall apply to each and
any of them.
THE ARBITRATION TERMS AND CONDITIONS ON THE BACK OF THIS PAGE ARE A PART OF
AND INCORPORATED INTO THIS NOTE.
Startek, Inc.
FOR BANK USE ONLY
- -------------------------- By: /s/ A. EMMET STEPHENSON, JR.
New Loan ------------------------------
Kim McDougal Title: CHAIRMAN OF THE BOARD
Michael S. Katz
DENNIS M. SWENSON
------------------------------
EXECUTIVE VICE PRESIDENT
<PAGE> 1
EXHIBIT 10.11
AMENDMENT TO
HP PURCHASE AGREEMENT
<TABLE>
<CAPTION>
HP AGREEMENT AMENDMENT SELLER: Starpak, Inc./Starpak International
<S> <C> <C>
NO: 195-464 NO: 3 PRODUCT: Marketing-Fulfillment Programs
</TABLE>
THIS AMENDMENT TO THE ABOVE REFERENCED HP PURCHASE AGREEMENT IS EXECUTED BY AND
BETWEEN THE SELLER NAMED BELOW AND HEWLETT-PACKARD COMPANY:
- --------------------------------------------------------------------------------
Revise the expiration of the Agreement from September 30, 1997 to November 30,
1997 and the final ship date from September 30, 1997 to November 30, 1997. Any
reference in the Agreement to the expiration date shall mean November 30, 1997
and the final ship date shall mean November, 1997.
- --------------------------------------------------------------------------------
APPROVED AND AGREED TO, EFFECTIVE: SEPTEMBER 30, 1997
STARPAK INC./STARPAK INTERNATIONAL HEWLETT-PACKARD
BY: /s/ MICHAEL MORGAN BY: /s/ LON CURTIS
--------------------------- --------------------------------
TYPED NAME: Michael Morgan TYPED NAME: Lon Curtis
----------------------- ------------------------
Worldwide Operations
TITLE: President/CFO TITLE: Procurement Manager
---------------------------- ----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 27,439
<SECURITIES> 5,371
<RECEIVABLES> 9,736
<ALLOWANCES> 382
<INVENTORY> 3,105
<CURRENT-ASSETS> 46,222
<PP&E> 11,997
<DEPRECIATION> 5,064
<TOTAL-ASSETS> 53,158
<CURRENT-LIABILITIES> 8,883
<BONDS> 333
0
0
<COMMON> 138
<OTHER-SE> 43,494
<TOTAL-LIABILITY-AND-EQUITY> 53,158
<SALES> 0
<TOTAL-REVENUES> 52,960
<CGS> 0
<TOTAL-COSTS> 41,579
<OTHER-EXPENSES> 8,551
<LOSS-PROVISION> 125
<INTEREST-EXPENSE> 348
<INCOME-PRETAX> 2,357
<INCOME-TAX> 650
<INCOME-CONTINUING> 1,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,707
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Proforma net income per share - primary $0.28
<F2>Proforma net income per share - fully diluted $0.28
</FN>
</TABLE>
