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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 84-1370538
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
111 HAVANA STREET
DENVER, COLORADO 80010
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(303) 361-6000
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
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WHICH REGISTERED COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ x ] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 27, 1998, 13,828,571 shares of common stock were outstanding and
held by approximately 1,179 holders. The aggregate market value of common shares
held by non-affiliates of the registrant on such date was approximately
$27,600,000, based upon the closing price of the Company's common shares as
quoted on the New York Stock Exchange composite tape on such date. Shares of
Common Stock held by each executive officer and director and by each person who
owned 5% or more of the outstanding Common Stock as of such date have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Part I and Part II incorporate certain information by reference from the
registrant's Prospectus dated June 18th, 1997, as filed with the Securities and
Exchange Commission, pursuant to Rule 424 (b) under the Securities Act of 1933,
as amended.
Part III incorporates certain information by reference from the registrant's
Proxy Statement for its 1998 annual meeting of stockholders. With the exception
of the pages of the Proxy Statement specifically incorporated herein by
reference, the Proxy Statement is not deemed to be filed as part of this Form
10-K.
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PART I
All statements contained in this 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 "may", "will", "should",
"anticipates", "expects", "believes", "plans", "future", "estimate", or
"continue", 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,
the loss or delayed implementation of a large project which could cause
quarterly variations in the Company's revenues and earnings, difficulties of
managing rapid growth, dependence on key personnel, dependence on key industries
and trend toward outsourcing, risks associated with the Company's contracts,
risks associated with rapidly changing technology, risks of business
interruption, risks associated with international operations and expansion,
dependence on labor force, and highly competitive markets. All forward-looking
statements herein are qualified in their entirety by the information set forth
in the "Risk Factors" portion of the registrant's Prospectus dated June 18,
1997, which is incorporated herein by reference.
ITEM 1. 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
process management services 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 business, 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'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 clients that outsource
noncore operations. Two of the Company's top three clients have utilized its
outsourced services for more than six years and the third 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 clients. The Company intends to capitalize on the increasing trend toward
outsourcing by focusing on potential clients in additional industries which
could benefit from the Company's expertise in developing and delivering
integrated, cost-effective outsourced services.
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. The Company has a new
facility under construction in Greeley, Colorado and has announced plans to open
a facility in a leased building in Laramie, Wyoming.
StarTek, Inc. was incorporated in the State of Delaware on December 30,
1996. The Company's principal executive offices are located at 111 Havana
Street, Denver, Colorado 80010 and its telephone number is (303) 361-6000.
StarTek's home page on the Internet can be located at www.startek.com. Prior to
the formation of the Company, StarTek USA, Inc. and StarTek Europe, Ltd.
(previously named StarPak, Inc. and StarPak International, Ltd., respectively)
conducted business as affiliates under common control.
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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. A call may also 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 process to reduce cost 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 facilities and services. Certain of the
Company's existing clients require evidence of 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.
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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
teleservices activities are inbound telephone calls, rather than outbound calls.
Specific services that StarTek provides to its clients include the following:
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. 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.
Product Distribution. The Company's 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 it's 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 unique 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 supplier management, product assembly and
packaging, product distribution, product order fulfillment, inbound product
order, customer care and technical support teleservices in several languages.
The Company currently provides supplier management, product assembly and
packaging and product distribution for two of its major clients through a
subcontract relationship with a company in Singapore. The subcontract
relationship operates on a purchase order basis.
See Note 13 to the Consolidated Financial Statements for revenue,
operating profit and identifiable assets attributable to geographic areas.
CLIENTS
StarTek provided services to approximately 75 clients during 1997.
StarTek's clients included companies engaged primarily in the computer software,
computer hardware, electronics, communications, transportation, financial
services and other technology-related industries. Approximately 56.3% and 25.4%
of the Company's revenues in 1997 were attributable to Microsoft and Hewlett
Packard, respectively.
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
clients 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.
Hewlett Packard began its outsourcing relationship with the Company in
1987. The Company currently performs the full range of its services for numerous
separate 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. Services are presently typically performed on a
purchase order basis. The master purchase agreement has expired and the Company
currently operates under separate agreements or purchase orders.
Microsoft began its outsourcing relationship with the Company in April
1996. The Company currently performs supplier management, product manufacturing,
and product distribution services for Microsoft. Services are performed on a
purchase order basis, subject to a supply, manufacturing and services agreement
(the "MSFT Agreement"). The MSFT Agreement provides that the engagement of the
Company's agreement renews automatically for one-year periods, subject to
termination, at any time, upon 90 days prior to written notice. The Company has
agreed to maintain ISO 9002 certification of its facility in Greeley, Colorado,
and a designated product manufacturing capacity. The Company currently maintains
capacity at this facility sufficient to satisfy its obligations under the MSFT
Agreement and the ongoing product manufacturing, assembly, packaging and
distribution needs of other clients.
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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 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. 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 develop a strategy to meet new client's outsourcing
goals promptly, as well as the ability to implement operations for such client
quickly and accurately.
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 computer telephony 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.
EMPLOYEES AND TRAINING
StarTek's success in recruiting, hiring, and training large numbers of
full-time, skilled employees and obtaining large numbers of hourly and temporary
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 employees who are eligible to receive the
full range of employee benefits, and provides employees with clear, visible
career paths. To meet the Company's service objectives, the Company also
utilizes temporary help. As of December 31, 1997 the Company had approximately
1,360 full-time equivalent employees. 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. However, the Company
operates in some locations where unemployment levels are currently at low levels
compared to historic norms. If low levels of unemployment persist in these
areas, the Company's ability to attract qualified employees could be affected.
The Company's operations in four localities, with a fifth locality being added
in Laramie, Wyoming, should reduce this exposure. The Company considers its
employee relations to be good.
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 process management 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.
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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. There are numerous competitors of all sizes that provide product order
teleservices and product fulfillment distribution services.
ITEM 2. PROPERTIES
FACILITIES
StarTek's facilities include a Company-owned 138,000-square-foot
building in Denver, Colorado (which also contains the Company's executive
offices), 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.
The Company has acquired land in Greeley, Colorado and is in the process of
constructing a new 35,000 square foot facility. The Company has announced plans
to open a 22,000 square foot facility in a leased building in Laramie, Wyoming.
The Company's facility in Denver, Colorado, which was initially occupied at the
end of 1995, is approximately one-half utilized and capacity can be expanded to
accommodate additional outsourced 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. Management
intends to maintain a certain amount of excess capacity to enable it to respond
to new or expanding client demands.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted for a vote of security holders during the
fourth quarter of 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET PRICE OF COMMON STOCK
The Company's Common Stock has been traded under the symbol "SRT" on the
New York Stock Exchange since July 19, 1997, the effective date of the Company's
initial public offering. The high and low prices of the Common Stock for 1997
are set forth below:
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1997 HIGH LOW
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Second Quarter (beginning June 19, 1997) .......... 16 3/8 14
Third Quarter...................................... 16 1/8 11 1/4
Fourth Quarter..................................... 14 3/8 10 5/8
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The closing sale price for the Common Stock on March 17, 1998 was $11 5/8.
HOLDERS OF COMMON STOCK
As of February 27, 1998, there were approximately 1,179 stockholders of
record of the Company's Common Stock and 13,828,571 shares of common stock
outstanding.
DIVIDEND POLICY
The Company presently 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 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.
Under its revolving line of credit, the Company may not pay dividends in an
amount which would cause a failure to meet its financial covenants with the
bank.
SALES OF UNREGISTERED SECURITIES
The Company did not issue or sell any unregistered securities during
the quarter ended December 31, 1997, except that the Company granted options to
purchase a total of 8,000 shares of Common Stock to three employees pursuant to
the Company's Stock Option Plan at an exercise price of $13.06 per share, the
market value on the date the options were granted. These options have a term of
ten years and vest at a rate of 20% per year.
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 19, 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
Expenses paid to or for underwriters ...................... 22
Other expenses ($216 accrued as of
December 31, 1997) .................................... 786 (1)
------
Total ..................................................... $3,958
======
</TABLE>
7
<PAGE> 9
(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 24, 1997 through December 31, 1997, the Company used net offering
proceeds as follows:
<TABLE>
<S> <C>
Repayment of indebtedness: (IN THOUSANDS)
Bank and mortgage indebtedness ........ $ 4,932
Capitalized lease obligations ......... 1,767
Notes payable to Principal Stockholders 8,000
-------
14,699
Capital expenditures ....................... 2,145
Working capital ............................ 24,198
-------
$41,042
=======
</TABLE>
8
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
PRO FORMA
1997(a) 1997 1996 1995 1994 1993
--------- -------- -------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues .......................... $ 89,150 $ 89,150 $ 71,584 $ 41,509 $ 26,341 $ 23,044
Cost of services .................. 71,986 71,986 57,238 33,230 21,355 18,039
-------- -------- -------- -------- -------- --------
Gross profit ...................... 17,164 17,164 14,346 8,279 4,986 5,005
Selling, general and administrative
expenses ..................... 8,703 8,703 7,764 5,341 4,489 3,479
Management fee expense ............ -- 3,126 6,172 2,600 612 1,702
-------- -------- -------- -------- -------- --------
Operating profit (loss) ........... 8,461 5,335 410 338 (115) (176)
Net interest income (expense) and
other ........................ 933 933 (372) (396) (216) (193)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes . 9,394 6,268 38 (58) (331) (369)
Income tax expense ................ 3,504 2,110 112 -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss) (a) ............. $ 5,890 $ 4,158 $ (74) $ (58) $ (331) $ (369)
======== ======== ======== ======== ======== ========
Net income per share (a)(b) ....... $ 0.47
Shares outstanding (b) ............ 12,653
SELECTED OPERATING DATA:
Capital expenditures .............. $ 3,191 $ 3,191 $ 1,333 $ 2,104 $ 670 $ 1,239
Depreciation and amortization ..... 1,829 1,829 1,438 873 588 456
BALANCE SHEET DATA (END OF PERIOD):
Working capital ................... $ 38,704 $ 2,895 $ 798 $ 434 $ 943
Total assets ...................... 58,172 22,979 21,580 12,352 7,712
Total debt ........................ 664 6,475 7,294 3,288 2,473
Total stockholders' equity ........ 46,006 7,103 3,798 3,006 2,624
</TABLE>
(a) The Company was an S corporation for federal and state income tax purposes
from July 1, 1992 through June 17, 1997, and accordingly, was not subject to
federal or state income taxes. The S corporation election was terminated on June
17, 1997 in contemplation of the Company's initial public offering. Since June
18, 1997, the Company has been a C corporation for federal and state income tax
purposes. 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% during the applicable S corporation period.
Management fee expense was discontinued with the initial public offering in June
1997. Unaudited pro forma financial data for 1996-1994 is set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Historical net loss ........................................ $ (74) $ (58) $ (331)
Add back management fee expense ............................ 6,172 2,600 612
Adjust provision for federal, state and foreign income taxes
to 37.3% ................................................ (2,204) (948) (105)
------- ------- -------
Pro forma net income ....................................... $ 3,894 $ 1,594 $ 176
======= ======= =======
</TABLE>
(b) Pro forma net income per common share is based on the following number of
shares of the Company's common stock:
<TABLE>
<S> <C>
Shares outstanding after giving effect to 322.1064-for-one stock split effected by a stock dividend ... 10,829
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 million
Note Payable to principal stockholders .......................................................... 254
3 million shares issued in connection with initial public offering completed June 24, 1997, for days
outstanding in the respective periods ........................................................... 1,570
------
Weighted average shares outstanding .................................................................. 12,653
======
</TABLE>
9
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements contained in this "Management's discussion and Analysis
of Financial Condition and Results of Operations" or elsewhere in this 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 "may", "will",
"should", "anticipates", "expects", "believes", "plans", "future", "estimate",
or "continue", 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,
the loss or delayed implementation of a large project which could cause
quarterly variations in the Company's revenues and earnings, difficulties of
managing rapid growth, dependence on key personnel, dependence on key industries
and trend toward outsourcing, risks associated with the Company's contracts,
risks associated with rapidly changing technology, risks of business
interruption, risks associated with international operations and expansion,
dependence on labor force, and highly competitive markets. All forward-looking
statements herein are qualified in their entirety by the information set forth
in the "Risk Factors" portion of the registrant's Prospectus dated June 18,
1997, which is incorporated herein by reference.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto included elsewhere in this
report.
OVERVIEW
The Company has grown profitably by developing integrated, value-added
outsourced services that enable its clients to provide their customers with
high-quality services at lower costs than the clients' 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 1997, the Company's revenues grew at a compound annual growth rate of
40.2%. For 1997, the Company's revenues increased approximately 24.5% to $89.2
million from $71.6 million for 1996. For 1997, pro forma net income increased
approximately 51.3% to $5.9 million from $3.9 million for 1996. Management
attributes this growth to the successful implementation of the Company's
strategy of developing long-term strategic relationships with large clients in
targeted industries.
StarTek generates its revenues by providing integrated, value-added
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-half utilized and capacity can be expanded to accommodate additional
outsourced services. Management also believes that it can expand the capacity of
its Greeley, Colorado and Hartlepool, England facilities. A new 35,000
square-foot facility is under construction in Greeley, Colorado. The Company has
announced plans to open a 22,000 square foot facility in a leased building in
Laramie, Wyoming. Management believes that its existing facilities are adequate
for its current operations, but that additional facility capacity will be
required to support continued growth. Management intends to maintain a certain
amount of excess capacity to be able to respond to new or expanding client
demands.
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 attributed to technology
support, sales and marketing, human resource management and other administrative
functions that are not allocable to
10
<PAGE> 12
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.
From July 1992, through June 17, 1997, the Company operated as an S
corporation and, accordingly, was not subject to federal or state income taxes.
As an S corporation, in addition to general compensation for services rendered,
the Company historically paid certain management fees, bonuses and other fees to
the principal stockholders and/or their affiliates in amounts on an annual basis
which were approximately equal to the annual earnings of the Company, and all
such amounts were reflected as management fee expense in the consolidated
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 substantially all 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 consolidated balance sheet. Effective with the
closing of the Company's initial public offering, these management fees and
bonus arrangements were discontinued. See Note 1 to the Consolidated Financial
Statements.
Compensation has continued to be payable to the principal stockholders
as general compensation for services rendered in the form of salaries, bonuses
or advisory fees and all such payments are reflected in SG&A expenses on the
consolidated statement of operations. At current rates, such payments aggregate
approximately $516,000 annually. See Note 1 to the Consolidated Financial
Statements.
The S corporation status of the Company terminated in June 1997 in
connection with closing the Company's initial public offering and, thereafter,
the Company has been 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 on the Company's
consolidated balance sheet.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
PRO FORMA
1997 1997 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues .............................. 100.0% 100.0% 100.0% 100.0%
Cost of services ...................... 80.7 80.7 80.0 80.1
------ ------ ------ ------
Gross profit .......................... 19.3 19.3 20.0 19.9
SG&A expenses ......................... 9.8 9.8 10.8 12.8
Management fee expense ................ -- 3.5 8.6 6.3
------ ------ ------ ------
Operating profit ...................... 9.5 6.0 0.6 0.8
Net interest income (expense) and other 1.0 1.0 (0.5) (1.0)
------ ------ ------ ------
Income (loss) before income taxes ..... 10.5 7.0 0.1 (0.2)
Income tax expense .................... 3.9 2.3 0.2 --
------ ------ ------ ------
Net income (loss) ..................... 6.6% 4.7% (0.1)% (0.2)%
====== ====== ====== ======
</TABLE>
11
<PAGE> 13
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 years ended 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
DOLLARS % DOLLARS %
------------ --------- ------------ ---------
(DOLLARS IN THOUSANDS, (DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA) EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Revenues .............................. $ 71,584 100.0% $ 41,509 100.0%
Cost of services ...................... 57,238 80.0 33,230 80.1
------------ --------- ------------ ---------
Gross profit .......................... 14,346 20.0 8,279 19.9
SG&A expenses ......................... 7,764 10.8 5,341 12.8
------------ --------- ------------ ---------
Operating profit (loss) ............... 6,582 9.2 2,938 7.1
Net interest income (expense) and other (372) (0.5) (396) (1.0)
------------ --------- ------------ ---------
Income before income taxes ............ 6,210 8.7 2,542 6.1
Income tax expense .................... 2,316 3.3 948 2.3
------------ --------- ------------ ---------
Net income (loss) ..................... $ 3,894 5.4% $ 1,594 3.8%
============ ========= ============ =========
Pro forma net income per share ........ $ 0.34
Weighted average shares outstanding ... 11,361,904
</TABLE>
Pro forma adjustments are described in Note 2 to the consolidated financial
statements.
1997 Compared to 1996
Revenues. Revenues increased $17.6 million, or 24.5%, to $89.2 million
for 1997 from $71.6 million for 1996. This increase was primarily from existing
clients. A portion of the revenues for 1996 were attributable to two large
projects, which generated unusually high revenues.
Cost of Services. Cost of services increased $14.7 million, or 25.8%,
to $71.9 million for 1997 from $57.2 million for 1996. As a percent of revenues,
cost of services increased 0.7%. Factors pertaining to this increase were
decreased labor utilization primarily from Greeley capacity constraints in
latter 1997, increased training costs and a greater penetration of business with
a large client at lower relative margins. These increased cost factors were
partially offset by the absence of start-up costs in Denver and product rework
costs as compared to 1996.
Gross Profit. As a result of the foregoing factors, gross profit
increased $2.8 million, or 19.6%, to $17.2 million for 1997 from $14.3 million
for 1996. As a percentage of revenues, gross profit decreased to 19.3% for 1997
from 20.0% for 1996.
Selling, General and Administrative Expenses. SG&A expenses increased
$0.9 million, or 12.0%, to $8.7 million for 1997 from $7.8 million for 1996,
primarily as a result of increased personnel costs incurred to service
increasing business. As a percentage of revenues, SG&A expenses decreased to
9.8% for 1997 from 10.8% for 1996, reflecting the spreading of fixed and
semi-variable costs over a larger revenue base.
Management Fee Expense. Management fee expense decreased $3.1 million,
or 49.3%, to $3.1 million for 1997 from $6.2 million for 1996. As a percentage
of revenues, management fee expense decreased to 3.5% for 1997 from 8.6% for
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. Management fee expense was determined by
the Board of Directors and related primarily to changes in operating profit of
the Company for 1996.
12
<PAGE> 14
Operating Profit. As a result of the foregoing factors, operating
profit increased $4.9 million, or 1200%, to $5.3 million for 1997 from $0.4
million for 1996. As a percentage of revenues, operating profit increased to
6.0% for 1997 from 0.6% for 1996.
Net Interest Expense (Income) and Other. Net interest expense (income)
and other was $0.9 million income for 1997, while it was $0.4 million expense in
1996. This increase in net interest earnings was primarily due to interest
earnings from the net proceeds of the Company's initial public offering in June
1997 and the substantial absence of line-of-credit borrowing during the third
and fourth quarters of 1997.
Income Before Income Taxes. As a result of the foregoing factors,
income before income taxes increased $6.3 million to $6.3 million for 1997 from
zero for 1996. As a percentage of revenues, income before income taxes increased
to 7.0% for 1997 from 0.1% for 1996.
Income Tax Expense. The Company operated as an S corporation for
federal and state income tax purposes until termination of S corporation status
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 1997, a provision for income taxes as a C corporation was made for the
period June 18, 1997 through December 31, 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 1996.
Net Income (Loss). Based on the factors discussed above, net income
increased $4.3 million, to $4.2 million for 1997 from $(0.1) million for 1996.
As a percentage of revenues, net income increased to 4.7% for the year ended
December 31, 1997 from (0.1)% for 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 paid to
stockholders and their affiliates as these fees and bonuses were discontinued
upon 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: (1) pro forma management fee
expense is zero for 1997 and 1996; (2) pro forma operating profit increased $1.9
million, or 28.5% to $8.5 million for 1997 from $6.6 million for 1996; (3) pro
forma income before income taxes increased $3.2 million, or 51.3%, to $9.4
million for 1997 from $6.2 million in 1996; (4) pro forma income taxes increased
$1.2 million, or 51.4%, to $3.5 million for 1997 from $2.3 million 1996; and (5)
pro forma net income increased $2.0 million, or 51.3% to $5.9 million for 1997
from $3.9 million for 1996.
1996 Compared to 1995
Revenues. Revenues increased $30.1 million, or 72.5%, to $71.6 million
for 1996 from $41.5 million for 1995. This increase was primarily attributable
to the addition of a significant new client in April 1996. 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 1996 from $33.2 million for 1995. As a percentage of
revenues, cost of services was relatively unchanged at 80.0% for 1996 from 80.1%
for 1995.
Gross Profit. As a result of the foregoing factors, gross profit
increased $6.0 million, or 73.3%, to $14.3 million for 1996 from $8.3 million
for 1995. As a percentage of revenues, gross profit was relatively unchanged at
20.0% for 1996 from 19.9% for 1995.
Selling, General and Administrative Expenses. SG&A expenses increased
$2.4 million, or 45.4%, to $7.8 million for 1996 from $5.3 million for 1995. As
a percentage of revenues, SG&A expenses decreased to 10.8% for 1996 from 12.8%
for 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 1996 from $2.6 million for 1995. As a percentage
of revenues, management fee expense increased to 8.6% for 1996 from 6.3% for
1995. Management fee expense was determined by the Board of Directors and
related primarily to changes in operating profit of the Company. Effective with
the closing of the initial public offering in June 1997, these management fee
and bonus arrangements were discontinued.
13
<PAGE> 15
Operating Profit. As a result of the foregoing factors, operating
profit increased $0.1 million, or 21.3%, to $0.4 million for 1996 from $0.3
million for 1995. As a percentage of revenues, operating profit decreased to
0.6% for 1996 from 0.8% for 1995.
Net Interest Expense (Income) and Other. Net interest expense (income)
and other remained relatively unchanged at $0.4 million expense for 1996 and
1995. As a percentage of revenues, net interest expense (income) and other
decreased to 0.5% expense for 1996 from 1.0% expense for 1995, reflecting lower
outstanding borrowings relative to revenues of the Company.
Income (Loss) Before Income Taxes. As a result of the foregoing
factors, income before income taxes increased $0.1 million to zero for 1996 from
$(0.1) million loss before income taxes for 1995. As a percentage of revenues,
income before income taxes increased to 0.1% for 1996 from (0.2)% for 1995.
Income Tax Expense. The Company 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.
Net Income (Loss). Based upon its S corporation status and the factors
discussed above, net loss remained relatively unchanged at $(0.1) million for
1996 and 1995. As a percentage of revenues, net loss for 1996 and 1995 remained
relatively unchanged at 0.1% and 0.2%, respectively.
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 $17.5 million and tangible net worth
of $25 million. The Company may not pay dividends in an amount which would cause
a failure to meet these financial covenants. Collateral for the line of credit
is the accounts receivable of the Company and subsidiaries.
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 its 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 approximating 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) are for working capital and other general
corporate purposes, including approximately $8.0 million for capital
expenditures to expand into new facilities and build-out its existing
facilities, and to potentially make strategic acquisitions of complementary
businesses. The Company has acquired land and is in the process of constructing
a new facility in Greeley, Colorado. The estimated cost to complete and finish
the facility is approximately $3.5 million, of which $2.9 million was under
contract with construction contractors and suppliers at December 31, 1997. In
connection with the new Greeley facility, the Company acquired land for $0.3
million and financed the purchase through a non-interest bearing ten-year
promissory note. The note shall decline on an equal basis, without payment, over
ten years so long as the Company does not sell or transfer the parcel or fail to
continuously operate thereon a customer service center. The Company has
announced plans to open a facility on leased property in Laramie, Wyoming. The
Company has contracted for $0.8 million of equipment in connection with the
Laramie facility.
The Company had cash, cash equivalents and short-term investments
available for sale of $34.3 million at December 31, 1997. The Company's working
capital was $38.7 million.
The Company agreed to finance telecommunications computer hardware and
software through a 36 month operating lease which became effective April 1997.
Monthly payments approximate $28,500.
Net cash provided by operating activities increased to $6.1 million for
1997 from $1.4 million for 1996. The principal causes of this $4.7 million
change were (i) an increase of $4.2 million in net income, (ii) an increase in
net accounts payable and accrued liabilities, (iii) the absence of a significant
change in inventories, offset by (iv) an increase in accounts receivable. 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.
14
<PAGE> 16
Net cash used in investing activities increased to $10.5 million for
1997 from $0.7 million for 1996. The principal causes for this increase were
purchases of short-term investments of $7.5 million and increased purchases of
property, plant and equipment. 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.
Net cash provided from financing activities increased to $28.6 million
in 1997 from $1.4 million for 1996. The principal causes of this increase were
(i) the $41.0 million net proceeds from the Company's initial public offering
and (ii) a reduction in principal payments on an affiliate note, partially
offset by (iii) a reduction in contributed capital from principal stockholders,
(iv) a dividend to the principal stockholders and (v) the repayment of
substantially all of the Company's indebtedness. 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.
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 expenditures 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.
QUARTERLY RESULTS
Note 15 to the Consolidated Financial Statements reflects unaudited
statement of operations data for the quarters in 1997 and 1996 on a historical
and pro forma basis. The unaudited historical 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.
The following table sets forth certain unaudited historical and pro
forma statement of operations data, expressed as a percentage of revenues.
<TABLE>
<CAPTION>
1997 QUARTERS ENDED 1996 QUARTERS ENDED
------------------------------------- ------------------------------------
MAR 31 JUN 30 SEPT 30 DEC 31 MAR 31 JUN 30 SEPT 30 DEC 31
------ ------ ------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Historical:
Revenues .............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit .......... 23.6 21.9 19.4 16.0 16.8 21.2 21.2 20.6
SG&A expenses ......... 13.0 12.1 10.6 6.8 11.2 13.2 11.3 9.1
Management fee expense 4.7 14.5 -- -- 1.3 5.0 3.2 17.8
Operating profit (loss) 5.9 (4.7) 8.8 9.2 4.3 3.0 6.7 (6.3)
Pro forma:
Revenues .............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit .......... 23.6 21.9 16.8 21.2 21.2 20.6
SG&A expenses ......... 13.0 12.1 11.2 13.2 11.3 9.1
Management fee expense -- -- -- -- -- --
Operating profit (loss) 10.6 9.8 5.6 8.0 9.9 11.5
</TABLE>
The Company's business is highly seasonal. Historically, the Company's
revenues have been significantly lower 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 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 clients' businesses. 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.
15
<PAGE> 17
For the quarterly periods in 1997 and 1996, revenues fluctuated
principally due to the seasonal pattern of certain of the businesses served by
the Company and the continuing effect of the net addition of new client
programs. Revenues in the first quarter of 1997 as compared to the fourth
quarter of 1996 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 that began business with the Company in
that quarter; this business continued in 1997.
For the quarterly periods in 1997 and 1996, gross profit fluctuations
as a percentage of revenues were significantly influenced by the mix of services
performed for clients. Gross profit as a percentage of revenues was lower than
expected in the first and second quarters of 1996, partially as a result of
product rework costs. 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. Gross profit as a percentage of revenues in the first quarter of 1997 as
compared to the fourth quarter of 1996 increased principally because of improved
labor utilization and the mix of services performed for clients. Gross profit as
a percentage of revenues in the second quarter of 1997, as compared to the first
quarter of 1997, declined primarily because of increased work for a major client
and other clients at lower relative margins. Gross profit as a percentage of
revenues in the third quarter of 1997, as compared to the second quarter of
1997, decreased primarily due to lower labor utilization and increased work for
a major client at lower relative margins. Gross profit as a percentage of
revenues in the fourth quarter of 1997, as compared to the third quarter of
1997, decreased primarily due to lower labor utilization primarily from Greeley
capacity constraints, increased training costs and a greater penetration of
business with a significant client at lower relative margins.
For the quarterly periods in 1997 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 from quarter to quarter.
The Company paid management fees and bonuses of $3.1 million in the
period 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 1997 management fees and bonus
arrangements gave consideration to operating profits and the effects of certain
expense timing differences for book and tax purposes. For the quarterly periods
in 1996, management fee expense fluctuated as a percentage of revenues generally
based on estimated tax requirements of the recipients of the management fees and
bonuses in the first three quarters of each year and, in the fourth quarter of
the year, on cumulative operating profits for the entire year less management
fee expense for the preceding three quarters.
Operating profit (loss) fluctuated within the quarterly periods of 1997
and 1996 based primarily on the factors noted above.
The unaudited pro forma quarterly information for the first two
quarters of 1997 and all of 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 with closing of the Company's initial
public offering and no further management fees will be payable thereafter by the
Company.
YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Some of the
Company's older computer programs fall into this category. As a result, those
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment and will have to modify or
replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project cost is currently estimated at approximately $100,000.
16
<PAGE> 18
The project is estimated to be completed not later than December 31,
1998, which is prior to any anticipated impact on its operating systems. The
Company believes, with modifications to existing software and conversions to new
software, the Year 2000 Issue will not pose significant operational problems for
its computer systems. However, if such modifications and conversions are not
made, or are not completed in a timely manner, the Year 2000 Issue could have a
material adverse impact on the operations of the Company.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The consolidated financial statements and supplemental data of the
Company required by this Item are set forth at the pages indicated at Item
14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10 THROUGH 13
The information required under Item 10 (Directors and Executive
Officers of the Registrant), Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management) and Item 13 (Certain
Relationships and Related Transactions) is included in the registrant's Proxy
Statement for its 1998 annual meeting, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Document List
1. Financial Statements
Response to this portion of Item 14 is submitted per the
Index to Financial Statements, Supplementary Data and
Financial Statement Schedules on page 18 of this report.
2. Supplementary Data and Financial Statement Schedules
Response to this portion of Item 14 is submitted per the
Index to Financial Statements, Supplementary Data and
Financial Statement Schedules on page 18 of this report.
3. An Index of Exhibits is on page 39 of this report.
(b) Reports on Form 8-K filed in the fourth quarter of 1997.
None.
17
<PAGE> 19
STARTEK, INC.
INDEX TO FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE NUMBER IN
FORM 10-K
--------------
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Auditors 19
Consolidated Balance Sheets,
December 31, 1997 and 1996 20
Consolidated Statements of Operations,
years ended December 31, 1997, 1996 and 1995 21
Consolidated Statements of Cash Flows,
years ended December 31, 1997, 1996 and 1995 22
Consolidated Statements of Stockholders' Equity,
years ended December 31, 1997, 1996 and 1995 23
Notes to Consolidated Financial Statements 24
SUPPLEMENTAL DATA:
Selected Financial Data 9
FINANCIAL STATEMENT SCHEDULES:
None. All schedules have been included in the Consolidated Financial Statements
or notes thereto.
</TABLE>
18
<PAGE> 20
REPORT OF INDEPENDENT AUDITORS
Board of Directors
StarTek, Inc.
We have audited the accompanying consolidated balance sheets of StarTek,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. 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
misstatements. 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 consolidated financial position of StarTek, Inc.
and subsidiaries at December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Denver, Colorado
February 20, 1998
19
<PAGE> 21
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 26,960 $ 2,742
Short-term investments available for sale ............... 7,356 --
Trade accounts receivable, less allowance for doubtful
accounts of $383 and $311 in 1997 and 1996,
respectively ....................................... 12,518 11,031
Inventories (Note 4) .................................... 2,539 2,535
Deferred income tax (Note 9) ............................ 440 --
Prepaid expenses and other .............................. 205 140
-------- --------
Total current assets ......................................... 50,018 16,448
Property, plant and equipment, net (Note 5) .................. 8,151 6,528
Other assets ................................................. 3 3
-------- --------
Total assets ................................................. $ 58,172 $ 22,979
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (Note 6) ................................. $ -- $ 3,500
Accounts payable ........................................ 9,387 6,962
Accrued liabilities ..................................... 1,292 1,584
Income taxes payable (Note 9) ........................... 106 --
Current portion of capital lease obligations ............ 82 917
Current portion of long-term debt ....................... 26 6
Other ................................................... 421 584
-------- --------
Total current liabilities .................................... 11,314 13,553
Capital lease obligations, less current portion (Note 7) ..... 121 1,504
Long-term debt, less current portion (Note 8) ................ 435 548
Deferred income tax (Note 9) ................................. 231 --
Other ........................................................ 65 271
Commitments (Notes 5 and 7)
Stockholders' equity (Notes 11 and 12):
Common stock ............................................ 138 1
Additional paid-in capital .............................. 41,661 6,148
Cumulative translation adjustment ....................... 70 129
Unrealized holding loss on available for sale investments (92) --
Retained earnings ....................................... 4,229 1,038
Note receivable-stockholder for the exercise of stock
options ............................................ -- (213)
-------- --------
Total stockholders' equity ................................... 46,006 7,103
-------- --------
Total liabilities and stockholders' equity ................... $ 58,172 $ 22,979
======== ========
</TABLE>
See accompanying notes.
20
<PAGE> 22
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
PRO FORMA
1997 (NOTE 2) 1997 1996 1995
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues .............................. $ 89,150 $ 89,150 $ 71,584 $ 41,509
Cost of services ...................... 71,986 71,986 57,238 33,230
----------- ----------- ----------- -----------
Gross profit .......................... 17,164 17,164 14,346 8,279
Selling, general and administrative
expenses ......................... 8,703 8,703 7,764 5,341
Management fee expense (Note 2) ....... -- 3,126 6,172 2,600
----------- ----------- ----------- -----------
Operating profit ...................... 8,461 5,335 410 338
Net interest income (expense) and other
(Note 10) ........................ 933 933 (372) (396)
----------- ----------- ----------- -----------
Income (loss) before income taxes ..... 9,394 6,268 38 (58)
Income tax expense (Notes 2 and 9) .... 3,504 2,110 112 --
----------- ----------- ----------- -----------
Net income (loss) ..................... $ 5,890 $ 4,158 $ (74) $ (58)
=========== =========== =========== ===========
Pro forma net income per share
(Note 2) ......................... $ 0.47
Shares outstanding (Note 2) ........... 12,652,680
</TABLE>
See accompanying notes.
21
<PAGE> 23
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .................................... $ 4,158 $ (74) $ (58)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ................... 1,829 1,438 873
Deferred income taxes ........................... (153) -- --
Changes in operating assets and liabilities:
Accounts receivable ........................ (1,487) 2,231 (6,225)
Inventories ................................ (4) (1,177) (471)
Prepaid expenses and other assets .......... (65) 87 (75)
Accounts payable ........................... 2,425 (2,744) 4,147
Accrued and other liabilities .............. (555) 1,657 283
-------- -------- --------
Net cash provided by (used in) operating activities .. 6,148 1,418 (1,526)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment, net ...... (3,191) (1,333) (2,104)
Purchase of investments .............................. (7,504)
Collections on notes receivable-stockholders ......... 213 663 110
Collections on notes receivable-affiliate ............ -- -- 668
-------- -------- --------
Net cash used in investing activities ................ (10,482) (670) (1,326)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from line of credit borrowings .......... (3,500) 49 1,452
Principal payments on borrowings ..................... (1,854) (7) (2)
Proceeds from borrowings and capital lease obligations 1,500 819 362
Principal payments on capital lease obligations ...... (2,218) (847) (590)
Principal payments on notes payable-stockholders ..... -- (738) --
Dividend to S corporation principal stockholders ..... (8,000) -- --
Proceeds from (principal payments on) note payable-
affiliate ....................................... -- (1,112) 1,112
Issuance of common stock ............................. -- -- 107
Net proceeds from initial public offering of common
stock ........................................... 41,042 -- --
Contributed capital .................................. 1,641 3,240 867
Repurchase of common stock ........................... -- -- (129)
-------- -------- --------
Net cash provided by financing activities ............ 28,611 1,404 3,179
Effect of exchange rate changes on cash .............. (59) 139 5
-------- -------- --------
Net increase in cash and cash equivalents ............ 24,218 2,291 332
Cash and cash equivalents at beginning of year ....... 2,742 451 119
-------- -------- --------
Cash and cash equivalents at end of year ............. $ 26,960 $ 2,742 $ 451
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ............................... $ 368 $ 535 $ 366
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Equipment acquired or refinanced under capital leases -- $ 1,017 $ 1,672
Note received in exchange for the purchase of common
stock from options exercised .................... -- -- $ 213
Land acquired under long-term debt ................... $ 261 -- --
Unrealized losses, net of deferred taxes of $56 ...... $ 92 -- --
</TABLE>
See accompanying notes.
22
<PAGE> 24
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
UNREALIZED
HOLDING LOSS ON
COMMON STOCK ADDITIONAL CUMULATIVE AVAILABLE
----------------------------- PAID-IN TRANSLATION FOR SALE
SHARES AMOUNT CAPITAL ADJUSTMENT INVESTMENTS
----------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 .................. 42,537 $ 1 $ 1,850 $ (15) $ --
Issuance of stock for cash ........... 820 -- 89 -- --
Issuance of stock for options
exercised ........................... 1,728 -- 231 -- --
Note receivable-stockholder .......... -- -- -- -- --
Repurchase of stock .................. (1,885) -- (129) -- --
Contributed capital .................. -- -- 867 -- --
Translation gain ..................... -- -- -- 5 --
Net loss ............................. -- -- -- -- --
----------- ------ -------- ------ ------
Balance, December 31, 1995 ................ 43,200 1 2,908 (10) --
Contributed capital .................. -- -- 3,240 -- --
Translation gain ..................... -- -- -- 139 --
Net loss ............................. -- -- -- -- --
----------- ------ -------- ------ ------
Balance, December 31, 1996 ................ 43,200 1 6,148 129 --
Payment of note receivable-stockholder -- -- -- -- --
Contribution of StarTek Europe, Ltd .. (9,582) -- -- -- --
Contributed capital .................. -- -- 1,641 -- --
322.1064-for-one common stock split
effected by stock dividend,
immediately prior to closing of
initial public offering (Note 11) 10,794,953 107 (107) -- --
Dividend to principal stockholders
(Note 11) ....................... -- -- (7,033) -- --
Issuance of common stock pursuant to
initial public offering, net of
stock issuance costs of $3,958 .. 3,000,000 30 41,012 -- --
Unrealized investment holding loss ... -- -- -- -- (92)
Translation loss ..................... -- -- -- (59) --
Net income ........................... -- -- -- -- --
----------- ------ -------- ------ ------
Balance, December 31, 1997 ............... 13,828,571 $ 138 $ 41,661 $ 70 $ (92)
=========== ====== ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
TOTAL
NOTE STOCK-
RETAINED RECEIVABLE- HOLDERS'
EARNINGS STOCKHOLDER EQUITY
------- ------ --------
<S> <C> <C> <C>
Balance, January 1, 1995 .................. $ 1,170 $ -- $ 3,006
Issuance of stock for cash ........... -- -- 89
Issuance of stock for options
exercised ........................... -- -- 231
Note receivable-stockholder .......... -- (213) (213)
Repurchase of stock .................. -- -- (129)
Contributed capital .................. -- -- 867
Translation gain ..................... -- -- 5
Net loss ............................. (58) -- (58)
------- ------ --------
Balance, December 31, 1995 ................ 1,112 (213) 3,798
Contributed capital .................. -- -- 3,240
Translation gain ..................... -- -- 139
Net loss ............................. (74) -- (74)
------- ------ --------
Balance, December 31, 1996 ................ 1,038 (213) 7,103
Payment of note receivable-stockholder -- 213 213
Contribution of StarTek Europe, Ltd .. -- -- --
Contributed capital .................. -- -- 1,641
322.1064-for-one common stock split
effected by stock dividend,
immediately prior to closing of
initial public offering (Note 11) -- -- --
Dividend to principal stockholders
(Note 11) ....................... (967) -- (8,000)
Issuance of common stock pursuant to
initial public offering, net of
stock issuance costs of $3,958 .. -- -- 41,042
Unrealized investment holding loss ... -- -- (92)
Translation loss ..................... -- -- (59)
Net income ........................... 4,158 -- 4,158
------- ------ --------
Balance, December 31, 1997 ............... $ 4,229 $ -- $ 46,006
======= ====== ========
</TABLE>
See accompanying notes.
23
<PAGE> 25
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
StarTek, Inc. (the "Company" or "StarTek") was incorporated in Delaware
on December 30, 1996. Prior to the formation of the Company, StarTek USA, Inc.
and StarTek Europe, Ltd. (previously named StarPak, Inc. and StarPak
International, Ltd., respectively, and whose stockholder groups were
substantially identical) conducted business as affiliates under common control.
Effective January 1, 1997, the stockholders of StarTek USA, Inc. exchanged all
of the outstanding shares of capital stock of StarTek USA, Inc. for shares of
common stock of the Company, and StarTek USA, Inc. became a wholly-owned
subsidiary of the Company. Effective January 24, 1997, the stockholders of
StarTek Europe, Ltd. contributed all of its outstanding shares of capital stock
to the Company and StarTek Europe, Ltd. became a wholly-owned subsidiary of the
Company. Because the shareholder groups of StarTek USA, Inc. and StarTek Europe,
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.
Financial statements for periods prior to January 1, 1997 reflect the
combined accounts of StarTek USA, Inc. and StarTek Europe, Ltd. After January 1,
1997, the accompanying consolidated financial statements include the accounts of
StarTek, Inc. and its wholly-owned subsidiaries, StarTek USA, Inc. and StarTek
Europe, Ltd. All significant intercompany transactions have been eliminated.
Business Operations
The Company is an international provider of integrated, value added
outsourced services primarily for Fortune 500 companies in targeted industries.
The Company offers a wide spectrum of services through 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.
Capital Stock
Immediately prior to the closing of the Company's initial public
offering in June 1997, the Company declared a 322.1064-for-one stock split of
the Company's common stock. All references in the notes to the consolidated
financial statements to shares and related prices in per share calculations, per
share amounts and stock option plan data have been restated to reflect the
split.
Foreign Currency Translation
Translation gains and losses, net of applicable deferred income taxes,
are accumulated as a separate component of stockholders' equity. Foreign
currency transaction gains and losses are included in determining net income
(loss). Such gains and losses were not material for any period presented.
New Accounting Standards
In the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128), which
supersedes Accounting Principles Board Opinion No. 15. Under FAS 128, basic
earnings per common share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock. For the periods
presented, the additional shares assuming dilution has no impact on earnings per
share because the average price per share of common stock during the period was
less than the exercise price of the options.
24
<PAGE> 26
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income, which is effective in 1998 for the
Company. The statement establishes new rules for the reporting and display of
comprehensive income. Comprehensive income is defined essentially as all changes
in stockholders' equity, exclusive of transactions with owners.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, Disclosures About Segments of an Enterprise and Related Information,
which is effective for 1998 for the Company. The Statement changes the way
companies report segment information in annual financial statements by requiring
the "management approach" for reporting financial and descriptive information
about operating segments. The impact of the adoption of Statement No. 131 is not
known at this time. Information presented under Statement No. 131 must be
restated to 1997 and 1996.
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 recognized as services are generally performed under client
purchase orders, which services may include product order teleservices, supplier
management, product assembly and packaging, product distribution, product order
fulfillment, and customer care technical support teleservices.
Training
Costs of training pertaining to start-up and ongoing projects are
expensed as incurred.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, short-term
investments available for sale, accounts receivable and payable, notes
receivable, debt and capital lease obligations. The carrying values of cash and
cash equivalents, and accounts receivable and payable approximate fair value.
Short-term investments for sale are reported at fair value. Management believes
the difference between the fair values and carrying values of debt and capital
lease obligations would not be materially different because 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.
Short-Term Investments Available for Sale
Available-for-sale investments consist of debt securities which are
reported at fair value, with the unrealized gains and losses, net of tax,
reported in a separate component of stockholders' equity. There have been no
unrealized gains and losses or declines in value judged to be other than
temporary on available-for-sale investments. The cost of investments sold is
based on the specific identification method. Interest on investments classified
as available-for-sale is included in interest income.
25
<PAGE> 27
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 are computed using the
straight-line method based on the following estimated useful lives:
<TABLE>
<CAPTION>
Estimated Useful Life
---------------------
<S> <C>
Buildings ................................................ 30 years
Equipment, and equipment acquired under capital leases ... 3 to 5 years
Furniture and fixtures ................................... 7 years
</TABLE>
Income Taxes
Effective July 1, 1992, StarTek USA, Inc. elected Subchapter S status
for income tax purposes, and StarTek Europe, Ltd. elected Subchapter S status at
inception. On June 17, 1997, Subchapter S status was terminated and the Company
has thereafter been taxable as a C corporation. During the Subchapter S status
period, income and expenses of the Company were reportable on the tax returns of
the stockholders, and no provision was made for federal and state income taxes.
The Company is subject to foreign income taxes on certain of its operations.
Management Fee Expense
Historically, in addition to general compensation for services
rendered, 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. Such management fees have been 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.
After the closing of the initial public offering in June 1997, all
compensation payable to persons who are now stockholders of the Company (or an
affiliate of such stockholder) are 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 expense. Such advisory fees and
salaries, together with payments under the operating lease described in Note 7,
are reflected as set forth below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
----------- -------------- -------------
<S> <C> <C> <C>
Selling, general and administrative
expense ........................... $ 512 $ 564 $ 560
Management fee expense ................. $ 3,126 $ 6,172 $ 2,600
</TABLE>
26
<PAGE> 28
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PRO FORMA INFORMATION (UNAUDITED)
Pro Forma Consolidated Statement of Operations
The pro forma consolidated statement of operations for the year ended
December 31, 1997 presents 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
initial public offering in June 1997 and the provision of related income taxes
for the entire year as if the Company were taxed as a C corporation.
Income Taxes
In connection with the closing of the initial public offering in June
1997, the Company's S corporation status terminated. The pro forma consolidated
statement of operations reflects a provision for federal, state and foreign
income taxes at an effective rate of 37.3% for the entire year 1997.
Pro Forma Net Income Per Common Share
Pro forma net income per common share is based on the following number
of shares of StarTek common stock:
<TABLE>
<S> <C>
Shares outstanding after giving effect to 322.1064-for-one stock split effected by a stock dividend ......... 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 ................................................................. 254,246
3,000,000 shares issued in connection with initial public offering completed June 24, 1997, for days
outstanding in the respective periods .................................................................. 1,569,863
----------
Weighted average shares outstanding ......................................................................... 12,652,680
==========
</TABLE>
Diluted pro forma net income per share is not presented because exercisable
options did not have a dilutive effect in 1997.
3. INVESTMENTS
The following is a summary of available-for-sale investments at
December 31, 1997:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Corporate bonds ...................................... $2,205 $ 5 $ (45) $2,165
Other debt securities................................. 5,299 -- (108) 5,191
------ ------ ------ ------
Total ................................................ $7,504 $ 5 $ (153) $7,356
====== ====== ====== ======
</TABLE>
27
<PAGE> 29
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of available-for-sale debt
securities at December 31, 1997, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------ ----------
<S> <C> <C>
Due in one year or less $ 945 $ 948
Due after five years ..................... 1,260 1,217
------ ------
2,205 2,165
Other debt securities .................... 5,299 5,191
------ ------
Total .................................... $7,504 $7,356
====== ======
</TABLE>
4. 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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
------ ------
<S> <C> <C>
Raw materials.............................. $2,171 $2,327
Finished goods............................. 368 208
------ ------
$2,539 $2,535
====== ======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Land ......................................... $ 636 $ 374
Buildings .................................... 1,771 1,553
Equipment .................................... 10,262 7,340
Furniture and fixtures ....................... 978 928
-------- --------
13,647 10,195
Less accumulated depreciation and
amortization ............................ (5,496) (3,667)
======== ========
Property, plant and equipment, net............ $ 8,151 $ 6,528
======== ========
</TABLE>
28
<PAGE> 30
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
The Company has acquired land and is in the process of constructing a
new facility in Greeley, Colorado. The estimated cost to complete and finish the
facility is approximately $3.5 million, of which $2.9 million was under contract
with construction contractors and suppliers at December 31, 1997.
6. LINE OF CREDIT
At December 31, 1997, the Company had a revolving line of credit
agreement with a bank whereby the bank agreed to loan the Company up to $5,000.
No amount was outstanding under the line at December 31, 1997. Interest is
payable monthly and accrues at the bank's prime rate (8.5 % at December 31,
1997). This revolving line of credit will mature on April 30, 1999.
The Company has pledged as security all of its receivables under the
revolving line of credit agreement. The Company must maintain working capital of
$17.5 million and tangible net worth of $25 million and maintain not less than
$250 in non-interest bearing accounts with the bank. The Company may not pay
dividends in an amount which would cause a failure to meet these financial
covenants.
At December 31, 1996, the Company had $3,500 outstanding under a line
of credit with a bank. The line of credit was repaid from the proceeds of the
Company's initial public offering in June 1997.
7. LEASES
Prior to 1997, the Company had an operating lease for office space with
a partnership in which major stockholders of the Company were the general
partner and limited partner. Payments under the lease for the years ended
December 31, 1996 and 1995 were $70 each year. The lease was canceled effective
December 31, 1996.
During 1997, the Company paid the majority of its capital lease
obligations from the proceeds of its initial public offering. The Company's
property held under capital leases consists of the following, which is included
in property, plant and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
------- -------
<S> <C> <C>
Equipment ...................................... $ 261 $ 4,650
Less accumulated amortization................... (165) (1,930)
------- -------
$ 96 $ 2,720
======= =======
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense.
As of December 31, 1997, future minimum rental commitments, by year and
in the aggregate, for the capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
------- ---------
<S> <C> <C>
1998 .............................................. $ 100 $ 390
1999 .............................................. 57 380
2000 .............................................. 44 149
2001 .............................................. 40 20
----- -----
Total minimum lease payments ...................... 241 $ 939
=====
Amounts representing interest ..................... (38)
-----
Present value of net minimum lease payments........ $ 203
=====
</TABLE>
Rental expense, including equipment rentals, for 1997, 1996 and 1995 was
$271, $382 and $295, respectively.
29
<PAGE> 31
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
----- -----
<S> <C> <C>
Mortgage loan .................................... $ -- $ 354
Economic development loan ........................ 200 200
Promissory note with waiver provisions............ 261 --
----- -----
461 554
Less current portion ............................. (26) (6)
----- -----
$ 435 $ 548
===== =====
</TABLE>
During 1995, the Company purchased land and an existing building for
approximately $1,500. The purchase was financed through the Company's revolving
line of credit and a mortgage loan in the amount of $362. In January 1997, the
outstanding balance of $354 was refinanced from proceeds of a $1,500 mortgage
loan at the lender's base rate plus 2%. The remaining balance on the $1,500 loan
was repaid from proceeds of the Company's initial public offering.
In December 1996, the Company received a $200 economic development loan
which bears interest at 6% per annum and is collateralized by certain equipment.
In December 1997, the Company acquired land for $261 and financed the
purchase through a non-interest bearing ten-year promissory note. The note shall
decline on an equal basis, without payment, over ten years so long as the
Company does not sell or transfer the parcel or fail to continuously operate
thereon a customer support service center.
Future scheduled annual principal payments of long-term debt as of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................... $ 26
1999................................................... 86
2000................................................... 86
2001................................................... 106
2002................................................... 26
Thereafter............................................. 131
----
$461
====
</TABLE>
9. INCOME TAXES
The Company was taxed as an S corporation for federal and state income
tax purposes from July 1, 1992 through June 17, 1997, when S corporation status
was terminated in contemplation of the Company's initial public offering. Since
June 18, 1997, the Company has been taxable as a C corporation and income taxes
have been accrued since that date. The Company is subject to foreign income
taxes on certain of its operations. Pretax income from the taxable period June
18, 1997 through December 31, 1997 was $6,818, of which $6,143 and $675 were
attributable to domestic and foreign operations, respectively.
30
<PAGE> 32
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes for the period
June 18, 1997 through December 31, 1997 are as follows:
<TABLE>
<S> <C>
Current:
Federal ........... $ 2,211
Foreign ........... 9
State ............. 99
-------
Total current .......... 2,319
Deferred:
Federal ........... (181)
State ............. (28)
-------
Total deferred ......... (209)
-------
Total income tax expense $ 2,110
=======
</TABLE>
Deferred tax assets and liabilities are comprised of the following at
December 31, 1997:
<TABLE>
<S> <C>
Deferred income tax assets:
Bad debt allowance ............................ $ 143
Vacation accrual .............................. 92
Other ......................................... 205
-----
Total deferred tax assets ..................... 440
Long-term deferred income tax liability:
Tax depreciation in excess of book depreciation (231)
-----
Net deferred tax assets ....................... $ 209
=====
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory
tax rates to income tax expense for the period June 18, 1997 through December
31, 1997 is as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------- ------
<S> <C> <C>
Tax at U.S. statutory rates ...... $ 2,318 34.0%
State income taxes, net
of federal tax benefit ......... 225 3.3
One-time credit to record deferred
tax asset upon termination of
S corporation status ........... (299) (4.4)
Other, net ....................... (134) (2.0)
------- ------
$ 2,110 30.9%
======= ======
</TABLE>
Total income tax payments during the period June 18, 1997 through December 31,
1997 were $2,263.
31
<PAGE> 33
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. NET INTEREST INCOME (EXPENSE) AND OTHER
Net interest income (expense) and other consists of the following
items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Interest expense ..... $ (373) $ (443) $ (446)
Interest income ...... 1,229 18 3
Other income and
expense ......... 77 53 47
------- ------- -------
Total income (expense) $ 933 $ (372) $ (396)
======= ======= =======
</TABLE>
11. STOCKHOLDERS' EQUITY
Immediately prior to the closing of the Company's initial public
offering in June 1997, the Company declared a 322.1064-for-one stock split of
the Company's common stock. All references in the notes to the consolidated
financial statements to shares and related prices in per share calculations, per
share amounts and stock option plan data have been restated to reflect the
split.
Immediately prior to closing the offering, the Company also declared an
$8,000 dividend approximating the 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. The promissory notes payable to the Principal Stockholders were paid from
net proceeds of the Company's initial public offering.
The capital stock and additional paid-in capital of StarTek as of
December 31, 1997 were as follows:
<TABLE>
<S> <C>
Preferred stock-undesignated; 15,000,000 shares, $.01 par
value, authorized; no shares outstanding ................. $ --
Common stock; 95,000,000 shares, $.01 par value, authorized;
13,828,571 shares outstanding ............................ 138
Additional paid-in capital .................................... 41,661
-------
$41,799
=======
</TABLE>
The consolidated common stock and additional paid-in capital on a
company-by-company basis as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL
------ ------
<S> <C> <C>
StarTek USA, Inc - 5,000,000 shares, $.01 par value, authorized;
10,828,571 shares outstanding ....................................... $ 1 $5,639
StarTek Europe, Ltd - 5,000,000 shares, $.01 par value,
authorized; 3,086,424 shares outstanding ............................ -- 509
------ ------
$ 1 $6,148
====== ======
</TABLE>
32
<PAGE> 34
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS
1987 Stock Option Plan
Effective July 24, 1987, the stockholders of StarTek USA, 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 under the Plan 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 StarTek USA, 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.
During 1995, StarTek USA, Inc.'s Board of Directors accelerated the
vesting on all outstanding options under the Plan to allow the holders to
exercise any granted option. Subsequently, all outstanding options were
exercised. In aggregate, the option holders paid $18 in cash and delivered a
note of $213 bearing interest at 4.63% to StarTek USA, Inc. in exchange for
shares of common stock. This note was secured by 288,607 shares of StarTek USA,
Inc. common stock. On January 22, 1997, the note and all accrued interest
thereon was repaid in full.
Exercise prices for options outstanding under the Plan as of December
31, 1994 and exercised during 1995 ranged from $0.07 to $0.99 and had a weighted
average price of $0.42. Options for 2,124,936 shares of common stock were
available for grant at the beginning and end of 1996 and 1995.
The Plan was terminated effective January 24, 1997.
1997 Stock Option Plan
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 Option Plan provides for Options to be granted for
a maximum of 985,000 shares of common stock, which are to be awarded by
determination of 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 Options' grant date and
expire at the earlier of (i) ten years (or five years for participants owning
greater than 10% of the voting stock) from the Options' grant date, (ii) three
months after the termination of employment of the participant as outlined by the
Option Plan, (iii) the date six months after the participant's death, or (iv)
immediately upon termination for "cause."
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 latter of their election as a director or the closing of
the initial public offering of the Company's common stock. Additionally, each
participant will 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 of one year after the
director's death.
33
<PAGE> 35
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS (CONTINUED)
A summary of the Company's stock option activity under the various
plans and related information follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Outstanding-beginning of year -- -- 556,600
Granted ..................... 618,500 -- --
Exercised ................... -- -- 556,600
Canceled .................... (7,000) -- --
-------- --------- --------
Outstanding at end of year .. 611,500 -- --
======== ========= ========
Exercisable at end of year .. 20,000 -- --
======== ========= ========
</TABLE>
Exercise prices for options issued and outstanding at December 31, 1997
were $15.00, except for 8,000 options which were priced at $13.06, and have a
remaining contractual life of approximately 9.5 years. Options for 393,500 and
70,000 shares of common stock were available for grant at December 31, 1997
under the Option Plan and Director Option Plan, respectively.
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. 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. Pro forma information regarding net income and net
income per share is required by Statement 123, Accounting For Stock Based
Compensation, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model assuming a 6% risk-free interest rate, a seven year life
for the options, a 30% expected volatility and no dividends. The weighted
average grant date fair market value of options issued was approximately $7 per
share in 1997. Had this method been used in the determination of pro forma net
income for 1997, pro forma net income would have decreased by $586 and pro forma
net income per share would have decreased by $0.05.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's option, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
13. 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.
34
<PAGE> 36
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. GEOGRAPHIC AREA INFORMATION (CONTINUED)
Information regarding geographical areas is as follows:
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE ELIMINATIONS TOTAL
------- ------- ------------ -------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenues ................... $37,376 $ 4,133 -- $41,509
======= ======= ======= =======
Operating profit ........... $ 174 $ 164 -- $ 338
======= ======= ======= =======
Identifiable assets ........ $19,356 $ 3,090 $ (866) $21,580
======= ======= ======= =======
YEAR ENDED DECEMBER 31, 1996
Revenues ................... $59,563 $12,021 -- $71,584
======= ======= ======= =======
Operating profit ........... $ 377 $ 33 -- $ 410
======= ======= ======= =======
Identifiable assets ........ $21,236 $ 3,459 $(1,716) $22,979
======= ======= ======= =======
YEAR ENDED DECEMBER 31, 1997
Revenues ................... $79,011 $10,139 -- $89,150
======= ======= ======= =======
Operating profit ........... $ 4,587 $ 748 -- $ 5,335
======= ======= ======= =======
Identifiable assets ........ $55,072 $ 4,123 $(1,023) $58,172
======= ======= ======= =======
</TABLE>
14. SIGNIFICANT CLIENTS
Two clients accounted for 56.3% and 25.4% of revenues for the year
ended December 31, 1997. Two clients accounted for 38.4% and 33.4% of revenues
for the year ended December 31, 1996. Two clients accounted for 46.3% and 10.9%
of revenues for the year ended December 31, 1995.
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, 1997.
35
<PAGE> 37
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997 QUARTERS ENDED
------------------------------------------------------
MAR 31 JUN 30 SEPT 30 DEC 31
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Historical:
Revenues ................................... $ 16,667 $ 16,067 $ 20,226 $ 36,190
Gross profit ............................... 3,935 3,526 3,920 5,783
SG&A expense ............................... 2,164 1,952 2,135 2,452
Management fee expense ..................... 793 2,333 -- --
Operating profit (loss) .................... 978 (760) 1,785 3,332
Net income (loss) .......................... 894 (642) 1,454 2,452
Net income per share ....................... 0.11 0.18
Shares outstanding ......................... 13,829 13,829
Pro Forma(a):
Revenues ................................... $ 16,667 $ 16,067
Gross profit ............................... 3,935 3,526
SG&A expense ............................... 2,164 1,952
Management fee expense ..................... -- --
Operating profit ........................... 1,771 1,574
Net income ................................. 1,058 925
Net income per share ....................... 0.09 0.08
Shares outstanding ......................... 11,362 11,552
Weighted Average Shares Outstanding:
Shares outstanding after giving effect to
322.1064 for one stock split effected by
a stock dividend ......................... 10,829 10,829 10,829 10,829
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 ........ 533 492 -- --
3,000 shares issued in connection with
initial public offering in June 1997, for
days outstanding in the respective
periods .................................. -- 231 3,000 3,000
-------- -------- -------- --------
Weighted average shares outstanding ........ 11,362 11,552 13,829 13,829
======== ======== ======== ========
</TABLE>
36
<PAGE> 38
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. QUARTERLY DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1996 QUARTERS ENDED
-----------------------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Historical:
Revenues ................................ $ 15,219 $ 14,108 $ 15,479 $ 26,778
Gross profit ............................ 2,564 2,987 3,281 5,514
SG&A expense ............................ 1,706 1,857 1,756 2,445
Management fee expense .................. 199 700 498 4,775
Operating profit (loss) ................. 659 430 1,027 (1,706)
Net income (loss) ....................... 533 322 958 (1,888)
Pro Forma(a):
Revenues ................................ $ 15,219 $ 14,108 $ 15,479 $ 26,778
Gross profit ............................ 2,564 2,987 3,281 5,514
SG&A expense ............................ 1,706 1,857 1,756 2,445
Management fee expense .................. -- -- -- --
Operating profit ........................ 858 1,130 1,525 3,069
Net income .............................. 459 641 913 1,881
Net income per share .................... 0.04 0.06 0.08 0.17
Shares outstanding ...................... 11,362 11,362 11,362 11,362
Weighted Average Shares Outstanding:
Shares outstanding after giving effect to
322.1064-for-one stock split effected by
a stock dividend ...................... 10,829 10,829 10,829 10,829
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 ................ 533 533 533 533
-------- -------- -------- --------
Weighted average shares outstanding ..... 11,362 11,362 11,362 11,362
======== ======== ======== ========
</TABLE>
(a) For 1996 and until the June 1997 initial public offering, the Company was an
S corporation and, accordingly, was not subject to federal or state income
taxes. Subsequent to the initial public offering, the Company has been subject
to income taxation as a C corporation. Pro forma net income for quarters through
June 30, 1997 (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%. Management fee expense was discontinued with the initial public
offering in June 1997.
37
<PAGE> 39
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
STARTEK, INC.
- -------------------------------------
(Registrant)
By: /s/ Dennis M. Swenson
- -------------------------------------
Dennis M. Swenson
Executive Vice President, Chief
Financial Officer, Secretary and Treasurer
Date: March 31, 1998
- -------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Michael W. Morgan
- -------------------------------------
Michael W. Morgan
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 31, 1998
- -------------------------------------
/s/ Dennis M. Swenson
- -------------------------------------
Dennis M. Swenson
Executive Vice President and Chief
Financial Officer (Principal Financial and Accounting Officer)
Date: March 31, 1998
- -------------------------------------
/s/ E. Preston Sumner, Jr.
- -------------------------------------
E. Preston Sumner, Jr.
Executive Vice President and Chief Operating Officer
Date: March 31, 1998
- -------------------------------------
/s/ A. Emmet Stephenson, Jr.
- -------------------------------------
A. Emmet Stephenson, Jr.
Chairman of the Board
Date: March 31, 1998
- -------------------------------------
/s/ Thomas O. Ryder
- -------------------------------------
Thomas O. Ryder
Date: March 31, 1998
- -------------------------------------
/s/ Ed Zschau
- -------------------------------------
Ed Zschau
Director
Date: March 31, 1998
- -------------------------------------
38
<PAGE> 40
STARTEK, INC.
INDEX OF EXHIBITS
<TABLE>
EXHIBITS
- ------------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company (incorporated by reference from Form S-1
Registration Statement filed with the Securities and Exchange Commission on January 29, 1997).
3.2 Restated Bylaws of the Company (incorporated by reference from Form S-1 Registration Statement
filed with the Securities and Exchange Commission on January 29, 1997).
4.1 Specimen Common Stock certificate (incorporated by reference from Amendment No. 1 to Form S-1
Registration Statement filed with the Securities and Exchange Commission on March 7, 1997).
10.1 StarTek, Inc. Stock Option Plan (incorporated by reference from Amendment No. 1 to Form S-1
Registration Statement filed with the Securities and Exchange Commission on March 7, 1997).
10.2 Form of Stock Option Agreement (incorporated by reference from Amendment No. 1 to Form S-1
Registration Statement filed with the Securities and Exchange Commission on March 7, 1997).
10.3 StarTek, Inc. Director Stock Option Plan (incorporated by reference from Form S-1
Registration Statement filed with the Securities and Exchange Commission on January 29, 1997).
10.4 Lease by and between East Mercia Developments Limited and StarTek Europe, Ltd. and
StarTek USA Inc. (formerly named StarPak International, Ltd. and StarPak, Inc., respectively)
(incorporated by reference from Form S-1 Registration Statement filed with the Securities and
Exchange Commission on January 29, 1997).
10.5 Promissory Note of StarTek USA, Inc. (formerly named StarPak, Inc.) dated December 29, 1995
in the principal amount of $1,111,844.17 payable to the order of General Communications, Inc.
(incorporated by reference from Form S-1 Registration Statement filed with the Securities
and Exchange Commission on January 29, 1997).
10.6 HP Purchase Agreement dated September 1, 1995 by and between Hewlett-Packard Company,
StarTek USA, Inc. and StarTek Europe, Ltd. (formerly named StarPak, Inc. and StarPak
International, Ltd., respectively) (incorporated by reference from Amendment No. 3 to Form S-1
Registration Statement filed with the Securities and Exchange Commission on March 26, 1997).
10.7 Microsoft Supply, Manufacturing and Services Agreement dated March 28, 1996 by and
between Microsoft Corporation and StarTek USA, Inc. (formerly named StarPak, Inc.).
(Incorporated by reference from Amendment No. 3 to Form S-1 Registration Statement filed with
the Securities and Exchange Commission on March 26, 1997.)
10.8 Equipment Lease (Schedule No. 01) between Varilease Corporation, as Lessor, and StarTek USA, Inc.
(formerly StarPak, Inc.), as Lessee, dated March 7, 1997 (incorporated by reference from Amendment
No. 4 to Form S-1 Registration Statement filed with the Securities and Exchange Commission on
May 23, 1997).
10.9 Equipment Lease (Schedule No. 2) between Varilease Corporation, as Lessor, and StarTek USA, Inc.
(formerly StarPak, Inc.), as Lessee, dated April 15th, 1997 (incorporated by reference from
Amendment No. 4 to Form S-1 Registration Statement filed with the Securities and Exchange
Commission on May 23, 1997).
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 (incorporated by reference from Form 10-Q
Quarterly Report filed with the Securities and Exchange Commission on November 13, 1997).
10.11 Amendment dated September 30, 1997 to HP Purchase Agreement dated September 1, 1995
by and between Hewlett-Packard Company, StarTek USA, Inc. and StarTek Europe, Ltd.
(formerly named StarPak, Inc. and StarPak International, Ltd., respectively) (incorporated by
reference from Form 10-Q Quarterly Report filed with the Securities and Exchange Commission
on November 13, 1997).
*10.12 Standard Form of Agreement Between Owner (StarTek USA, Inc.) and Contractor (Landmark Builders
of Greeley, Inc.) dated December 1, 1997.
*10.13 HP Master Agreement Technical Support Services dated January 7, 1998 by and between Hewlett Packard
Company and StarTek USA, Inc.
*21.1 Subsidiaries of the Registrant.
*27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Filed with this report.
<PAGE> 1
EXHIBIT 10.12
THE AMERICAN INSTITUTE OF ARCHITECTS
[LOGO]
- --------------------------------------------------------------------------------
AIA Document A101
STANDARD FORM OF AGREEMENT BETWEEN
OWNER AND CONTRACTOR
where the basis of payment is
STIPULATED SUM
1987 EDITION
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH
AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION.
The 1987 Edition of AIA Document A201, General Conditions of the Contract
for Construction, is adopted in this document by reference. Do not use with
other general conditions unless this document is modified.
This document has been approved and endorsed by The Associated General
Contractors of America.
- --------------------------------------------------------------------------------
AGREEMENT
made as of the 1st day of December in the year of Nineteen Hundred and Ninety
Seven.
BETWEEN the Owner:
(Name and address) StarTek USA, Inc.
111 Havana Street
Denver, CO 80010
and the Contractor:
(Name and address) Landmark Builders of Greeley, Inc.
3812 Carson Street
Evans, CO 80620
The Project is:
(Name and address) A New Office Building
1250 H Street
Greeley, CO 80631
The Architect is:
(Name and address) Roberts Architects
809 9th Street
Greeley, CO 80631
The Owner and Contractor agree as set forth below.
- --------------------------------------------------------------------------------
Copyright 1915, 1918, 1925, 1937, 1951, 1958, 1961, 1963, 1967, 1974, 1977,
(C)1987 by The American Institute of Architects, 1735 New York Avenue,
N.W., Washington, D.C. 20006. Reproduction of the material herein or
substantial quotation of its provisions without written permission of
the AIA violates the copyright laws of the United States and will be
subject to legal prosecution.
- --------------------------------------------------------------------------------
AIA DOCUMENT A101 - OWNER-CONTRACTOR AGREEMENT - TWELFTH EDITION -
AIA(R) - (C)1987
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W.,
WASHINGTON, D.C. 20006
A101-1987 1
WARNING: UNLICENSED PHOTOCOPYING VIOLATES U.S. COPYRIGHT LAWS AND IS SUBJECT TO
LEGAL PROSECUTION.
<PAGE> 2
ARTICLE 1
THE CONTRACT DOCUMENTS
The Contract Documents consist of this Agreement, Conditions of the Contract
(General, Supplementary and other Conditions), Drawings, Specifications, addenda
issued prior to execution of this Agreement, other documents listed in this
Agreement and Modifications issued after execution of this Agreement; these form
the Contract, and are as fully a part of the Contract as if attached to this
Agreement or repeated herein. The Contract represents the entire and integrated
agreement between the parties hereto and supersedes prior negotiations,
representations or agreements, either written or oral. An enumeration of the
Contract Documents, other than Modifications, appears in Article 9. The words
"Owner" shall be substituted for the word "Architect" wherever it appears in
this agreement.
ARTICLE 2
THE WORK OF THIS CONTRACT
The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract Documents
to be the responsibility of others, or as follows:
Per Proposal Dated November 25, 1997
Per Floor Plan Dated November 17, 1997
Per Elevation Plan Dated November 6, 1997
Per Site Plan Dated November 17, 1997
ARTICLE 3
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
3.1 The date of commencement is the date from which the Contract Time of
Paragraph 3.2 is measured, and shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this Agreement
or, if applicable, state that the date will be fixed in a notice to proceed.)
Unless the date of commencement is established by a notice to proceed issued by
the Owner, the Contractor shall notify the Owner in writing not less than five
days before commencing the Work to permit the timely filing of mortgages,
mechanic's liens and other security interests.
3.2 The Contractor shall achieve Substantial Completion of the entire Work not
later than
(Insert the calendar date or number of calendar days after the date of
commencement. Also insert any requirements for earlier Substantial Completion of
certain portions of the Work, if not stated elsewhere in the Contract
Documents.)
The Contract Sum will be reduced by $20,000 if substantial completion is not
achieved by April 25, 1998, and the contract sum shall be reduced an additional
$30,000 if substantial completion is not achieved as of May 2, 1998. If
substantial completion in not achieved by May 9, 1998, the contract sum shall be
reduced an additional $25,000 for a total of $75,000. If Substantial Completion
is not achieved as a result of strikes exceeding 10 days, the aforementioned
dates will have added to them the number of strike delay days in excess of 10.
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time.)
<PAGE> 3
ARTICLE 4
CONTRACT SUM
4.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum of One Million Eight hundred
eighty five thousand seven hundred thirty-two Dollars ($1,885,732.00), subject
to additions and deductions as provided in the Contract Documents.
4.2 The Contract Sum is based upon the following alternates, if any, which are
described in the Contract Documents and are hereby accepted by the Owner:
(State the numbers or other identification of accepted alternates. If decisions
on other alternates are to be made by the Owner subsequent to the execution of
this Agreement, attach a schedule of such other alternates showing the amount
for each and the date until which that amount is valid.)
4.3 Unit prices, if any, are as follows:
Adjustments to the Contract Sum will be calculated by multiplying the direct
costs of changes by 1.125.
3
<PAGE> 4
ARTICLE 5
PROGRESS PAYMENTS
5.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner shall
make progress payments on account of the Contract Sum to the Contractor as
provided below and elsewhere in the Contract Documents.
5.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of the month, or as follows:
Progress Payments as follows:
Progress Payment Request - 25th day of each month
5.3 Provided an Application for Payment is received by the Architect not later
than the twenty fifth (25th) day of a month, the Owner shall make payment to
the Contractor not later than the tenth (10th) day of the following month. If an
Application for Payment is received by the Architect after the application date
fixed above, payment shall be made by the Owner not later than fifteen days
after the Architect receives the Application for Payment.
5.4 Each Application for Payment shall be based upon the schedule of values
submitted by the Contractor in accordance with the Contract Documents. The
schedule of values shall allocate the entire Contract Sum among the various
portions of the Work and be prepared in such form and supported by such data to
substantiate its accuracy as the Architect may require. This schedule, unless
objected to by the Architect, shall be used as a basis for reviewing the
Contractor's Applications for Payment.
5.5 Applications for Payments shall indicate the percentage of completion of
each portion of the Work as of the end of the period covered by the Application
for Payment.
5.6 Subject to the provisions of the Contract Documents, the amount of each
progress payment shall be computed as follows:
5.6.1 Take that portion of the Contract Sum properly allocable to completed
Work as determined by multiplying the percentage completion of each portion of
the Work by the share of the total Contract Sum allocated to that portion of
the Work in the schedule of values, less retainage of ten percent (10%). Pending
final determination of cost to the Owner of changes in the Work, amounts not in
the dispute may be included as provided in Subparagraph 7.3.7 of the General
Conditions even though the Contract Sum has not yet been adjusted by Change
Order;
5.6.2 Add that portion of the Contract Sum properly allocable to materials and
equipment delivered and suitably stored at the site for subsequent
incorporation in the completed construction (or, if approved in advance by the
Owner, suitably stored off the site at a location agreed upon in writing), less
retainage of ten percent (10%);
5.6.3 Subtract the aggregate of previous payments made by the Owner; and
5.6.4 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of the General
Conditions.
5.7 The progress payment amount determined in accordance with Paragraph 5.6
shall be further modified under the following circumstances:
5.7.1 Add, upon Substantial Completion of the Work, a sum sufficient to
increase the total payments to Ninety Five percent (95%) of the Contract Sum,
less such amounts as the Architect shall determine for incomplete Work and
unsettled claims; and
5.7.2 Add, if final completion of the Work is thereafter materially delayed
through no fault of the Contractor, any additional amounts payable in
accordance with Subparagraph 9.10.3 of the General Conditions.
5.8 Reduction or limitation of retainage, if any, shall be as follows:
(If it is intended, prior to Substantial Completion of the entire Work, to
reduce or limit the retainage resulting from the percentages inserted in
Subparagraphs 5.6.1 and 5.6.2 above, and this is not explained elsewhere in the
Contract Documents, insert here provisions for such reduction or limitation.)
4
<PAGE> 5
ARTICLE 6
FINAL PAYMENT
Final payment, constituting the entire unpaid balance of the Contract Sum,
shall be made by the Owner to the Contractor when (1) the Contract has been
fully performed by the Contractor except for the contractor's responsibility to
correct nonconforming Work as provided in Subparagraph 12.2.2 of the General
Conditions and to satisfy other requirements, if any, which necessarily survive
final payment; and (2) a final Certificate for Payment has been issued by the
Architect; such final payment shall be made by the Owner not more than 30 days
after the issuance of the Architect's final Certificate for Payment, or as
follows:
Final payment is due upon the City of Greeley issuing a Certificate of
occupancy and approval of the project by the owner.
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that provision
as amended or supplemented by other provisions of the Contract Documents.
7.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof, at the
legal rate prevailing from time to time at the place where the Project is
located.
(Insert rate of interest agreed upon, if any.)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect or modifications, and also regarding requirements such as
written disclosures or waivers.)
7.3 Other provisions:
ARTICLE 8
TERMINATION OR SUSPENSION
8.1 The Contract may be terminated by the Owner or the Contractor as provided
in Article 14 of the General Conditions.
8.2 The Work may be suspended by the Owner as provided in Article 14 of the
General Conditions.
5
<PAGE> 6
ARTICLE 9
ENUMERATION OF CONTRACT DOCUMENTS
9.1 The Contract Documents, except for Modifications issued after
execution of this Agreement, are enumerated as follows:
9.1.1 The Agreement is this executed Standard Form of Agreement Between
Owner and Contractor, AIA Document A101, 1987 Edition.
9.1.2 The General Conditions are the General Conditions of the Contract for
Construction, AIA Document A201, 1987 Edition.
9.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated November 25, 1997, and are as follows:
DOCUMENT TITLE PAGES
Site Plan Dated November 17, 1997
Floor Plan Dated November 17, 1997
Elevation Plan Dated November 6, 1997
9.1.4 The Specifications are those contained in the Project Manual dated as
in Subparagraph 9.1.3, and are as follows:
(Either list the Specifications here or refer to an exhibit attached to this
Agreement.)
SECTION TITLE PAGES
Per proposal dated November 25, 1997
6
<PAGE> 7
9.1.5 The Drawings are as follows and are dated November 17, 1997 unless a
different date is shown below:
(Either list the Drawings here or refer to an exhibit attached to this
Agreement.)
NUMBER TITLE DATE
Proposal dated November 25, 1997
Elevation Plan dated November 6, 1997
9.1.6 The addenda, if any, are as follows:
NUMBER DATE PAGES
None
Portions of addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 9.
- ------------------------------------------------------------------------------
AIA DOCUMENT A101 o OWNER-CONTRACTOR AGREEMENToTWELFTH EDITIONoAIA(R)o(C)1987
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON,
D.C. 20006
WARNING UNLICENSED PHOTOCOPYING VIOLATES U.S. COPYRIGHT LAWS AND IS SUBJECT TO
LEGAL PROSECUTION.
A101-1987 7
<PAGE> 8
9.1.7 Other documents, if any, forming part of the Contract Documents are as
follows:
(List here any additional documents which are intended to form part of the
Contract Documents. The General Conditions provide that bidding requirements
such as advertisement or invitation to bid, instructions to Bidders, sample
forms and the Contractor's bid are not part of the Contract Documents unless
enumerated in this Agreement. They should be listed here only if intended to
be part of the Contract Documents.)
None
This Agreement is entered into as of the day and year first written above and
is executed in at least three original copies of which one is to be delivered
to the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
OWNER -- STARTEK USA, INC. CONTRACTOR -- LANDMARK BUILDERS OF GREELEY INC.
By: /s/ E. PRESTON SUMNER, JR. By: /s/ DENNIS WERNSMAN
-------------------------- --------------------------
(Signature) (Signature)
E. PRESTON SUMNER, JR.,
EXECUTIVE VICE PRESIDENT DENNIS WERNSMAN, PRESIDENT
- ----------------------------- -----------------------------
(Printed name and title) (Printed name and title)
[AIA] CAUTION: YOU SHOULD SIGN AN ORIGINAL AIA DOCUMENT WHICH HAS THIS
CAUTION PRINTED IN RED. AN ORIGINAL ASSURES THAT CHANGES
WILL NOT BE OBSCURED AS MAY OCCUR WHEN DOCUMENTS ARE
REPRODUCED.
- ------------------------------------------------------------------------------
AIA DOCUMENT A101 o OWNER-CONTRACTOR AGREEMENT o TWELFTH EDITION o AIA(R) o (C)
1987 THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W.,
WASHINGTON, D.C. 20006
WARNING UNLICENSED PHOTOCOPYING VIOLATES U.S. COPYRIGHT LAWS AND IS SUBJECT TO
LEGAL PROSECUTION.
A101-1987 8
<PAGE> 1
EXHIBIT 10.13
MASTER AGREEMENT
TECHNICAL SUPPORT SERVICES
This Master Agreement is entered into by and between Hewlett-Packard Company
("HP"), located at 11311 Chinden Boulevard, Boise, ID 83714 and StarTek USA,
Inc. ("Seller"), located at 111 Havana Street, Denver, CO 80010.
The Terms and Conditions herein constitute the Master Agreement for all call
center activity between HP and the Seller. To the extent that the terms and
conditions of a Program Specification Document are intended to supersede the
terms and conditions contained in this Master Agreement, the Program
Specification Document must expressly and clearly state which terms and
conditions in this Master Agreement are being superseded.
1. NOTICES
Any notices sent by the Seller pursuant to this Master Agreement are
to be sent to the HP address specified in this Agreement to the
attention of the contract manager.
2. CHOICE OF LAW
This Agreement shall be interpreted and governed in all respects by
the laws of the State of Idaho.
3. TERM
3.1. This shall be a twelve (12) month Agreement for the period of
December 1, 1997 to November 30, 1998, inclusive. Either
party may, at any time, terminate this Agreement in writing
upon sixty (60) days prior notice. If no such notice is
given, this Agreement will expire on the first (1st)
anniversary of the commencement date. HP shall be liable only
for payment in accordance with the provisions of this
Agreement for work performed prior to the effective date of
termination.
3.2. 60 days prior to the expiration date of this Agreement, HP and
the Seller will each provide notification to the other party
of their intent regarding continuation of the relationship.
This intent may include: renewal of the terms and conditions
contained in this document, re-negotiation of the terms and
conditions of the relationship, or termination of the
relationship.
3.3. If the expiration date of this Agreement is reached and HP and
the Seller are in the process of renegotiating the terms and
conditions of the relationship, the terms of this agreement
may be extended on a month-to-month basis contingent upon the
mutual written agreement of HP and the Seller.
4. DEFINITIONS
4.1. Definitions in addition to the terms defined in the Agreement:
4.1.1. "US PSD Support" - Hewlett-Packard's Products Support
Division in Boise, Idaho and Loveland, Colorado.
4.1.2. "CSC" - Hewlett-Packard's Customer Support Center in
Boise, Idaho and Loveland, Colorado.
4.1.3. "Customers" - end-users of Hewlett-Packard products
or services. Additionally, customers may be
Hewlett-Packard resellers, Hewlett-Packard employees,
HP OEMs (Original Equipment Manufacturers), HP TPMs
(Third Party Maintainers) and Hewlett-Packard sales
force representatives who are contacting Seller for
services specified in this agreement or in Program
Specific Documents.
4.1.4. "Program Specification Document" - Attachments to
this agreement that specify scope of work and pricing
for individual projects delivered by Seller.
4.1.5. "The Work" - The services performed by the Seller as
described in this Agreement and its attachments shall
hereinafter be referred to as "the work".
Agreement for Technical Support 3/27/98 Hewlett-Packard/StarTek
Services Addendum C page 1 of 10
<PAGE> 2
4.1.6. "CIMS" - the Customer Information Management System
call tracking system owned by HP and used by Seller.
4.1.7. "SEARCH 97" - a knowledge base tool owned by HP and
used by Seller.
4.1.8. "Technician" or "Agent"- interchangeable terms
referring to a Seller employee whose primary
responsibility is answering Customer inquiries on HP
products or services.
4.1.9. "Talk-time" - the amount of time a Technician spends
talking to customers. This is measured on a per call
or per day basis.
4.1.10. "After call work time" or "Wrap up time"
interchangeable terms referring to the amount of time
spent by a Technician capturing call information
after the customer / Technician conversation has
ended.
4.1.11. "Transaction Time" - the sum of "talk time" plus
"wrap up time".
4.1.12. "Availability" - the amount of time when a Technician
is logged on to the phone system and is ready to
accept a call from a customer but there are no calls
from customers waiting to be handled.
4.1.13. "Idle" - the amount of time when an agent is logged
on to the phone system but is not ready to accept an
incoming call from a customer.
4.1.14. "Scheduled On-line time" - the amount of time a
Technician is scheduled to be on the phone ready to
take calls from customers.
4.1.15. "Off-line time" - the amount of time a Technician is
not scheduled to be on the phone ready to take calls
from customers.
4.1.16. "Silent Monitor" - a quality call measure performed
by listening to live agent calls as they happen.
This may be performed at any time but will occur at
least on a monthly basis.
4.1.17. "Current HP Products" - those HP products where
support is provided to the end user without charge.
4.1.18. "Fee Based Product" - those HP products where
supported is provided to end users for a fee.
4.1.19. "Minutes per Day" - total minutes for the month
divided by the number of days service was provided
during the month.
5. SERVICES PROVIDED
5.1. SERVICE DESCRIPTION
This Agreement covers the answering and processing of
telephone calls and facsimile requests from HP customers.
These processes shall all take place in a Seller owned
facility. A detailed listing of responsibilities is included
in the attached Program Specification Documents.
5.2. PRODUCTS
Seller will provide Services for all products listed on
Exhibits attached to the Program Specification Document. An
Exhibit for each Product and or Product family, for which
Seller will provide Services, may be attached to the Program
Document. The Exhibit may include but is not limited to: the
performance commitments, service level, hours of operation,
call tracking, training requirements and reporting
requirements and any other product specific services agreed
upon by the parties. Additional Products may be added to this
Agreement by Exhibit, at any time with mutual written consent
of parties.
5.3. CALL TRANSFERS AND CALL REFERRALS
The Seller may be required to transfer or refer the Customer
to other HP locations. These may include, but are not limited
to, transfers to the Customer Support Center, HP product
repair facilities, HP driver distribution facilities, HP
dealer locator services, and HP bulletin board services,
Service Parts ID (SPI), Direct Marketing Organization (DMO),
and Order Fulfillment Center (OFC). Details of call transfers
or referrals will be spelled out in the Program Specification
Documents.
6. RELATIONSHIP OF THE PARTIES
Agreement for Technical Support 3/27/98 Hewlett-Packard/StarTek
Services Addendum C page 2 of 10
<PAGE> 3
6.1. The relationship of the parties to this Agreement is that of
owner and contracting firm.
6.2. Seller shall neither assign any rights nor delegate any duties
under this Agreement without the prior written consent of HP.
This prohibition extends to all assignments and delegations
that may be prohibited by agreement. Seller shall not
subcontract any of the work without the prior consent of HP.
If HP consents to the use of a subcontractor, such
subcontractor shall be bound by the terms and conditions of
this Agreement as an agent of the Seller.
6.3. The Seller shall be solely responsible for any and all
employment related taxes, insurance premiums, or other
employment benefits related to the Seller's performance of
services under this Agreement, and shall hold HP harmless on
account thereof.
7. TRANSPARENCY OF SELLER TO HP CUSTOMERS
The Seller will provide support in a manner in which the origin of the
support is transparent to HP Customers. Generally, Customers are not
to know whether they are speaking with HP or with the Seller acting on
behalf of HP.
7.1. Generically, technicians will answer the phone "Thank you for
calling Hewlett-Packard Support, my name is 'technician
name'". More specific salutations are included in the
attached Program Specification Documents.
7.2. In the event that a customer specifically asks the seller
technician of their employment status, the response shall be
"I am an employee of StarTek USA, Inc. who has contracted with
Hewlett-Packard to provide certain services".
8. HP BUSINESS FORECASTS
All business volume forecasts provided by HP pursuant to this
Agreement are only estimates, and shall not be construed to be
commitments to a certain level of business, and may be revised by HP
as business requirements change. All Forecasts are confidential.
9. PRICING
9.1. REVIEW PERIOD The price for project start-up costs,
facsimile services and teleservices is in U.S. dollars,
unless otherwise stated, and shall remain in effect during the
term of this Agreement. Price changes must be agreed to in
writing by both HP and Seller.
9.2. PAYMENT HP shall pay Seller fees for services detailed in
this Agreement in accordance with the fee schedules in the
Program Specification Documents. Seller shall bill HP at the
end of each calendar month, based upon actual costs incurred
during that month, and HP shall pay such invoices net 37 days
after receipt of an appropriate invoice from Seller.
10. PERSONNEL REQUIREMENTS AND SELLER EMPLOYEE CONDUCT
10.1. LIST OF PERSONNEL
10.1.1. Prior to the start of work, and subsequently as
personnel are added, Seller shall submit to HP a list
of Seller's personnel who will perform any portion of
the work. This list shall state the names of each
Seller employee assigned. Prior to granting new
personnel access to HP confidential information or
proprietary HP computer systems, Seller will ensure
that each Seller employee assigned is made aware of
and understands the Confidential Disclosure Agreement
between HP and the Seller and its applicability to
the Seller's employees.
10.2. SUPERVISION
All persons engaged in the work described in this Agreement
shall be subject to the direction, supervision, and control of
the Seller. Seller shall enforce strict discipline and good
order among Seller's employees and agents at all times during
the performance of this work. Seller shall assure that all
persons involved in the work are appropriately skilled for
that portion of the work assigned to them.
10.3. SELLER'S EMPLOYEE OBLIGATIONS
Agreement for Technical Support 3/27/98 Hewlett-Packard/StarTek
Services Addendum C page 3 of 10
<PAGE> 4
When Seller employees are visiting an HP location, all
employees of the Seller are obliged and required to follow all
written/verbal HP plant, safety and security rules in place
while on the premises of HP.
10.4. SELLER EMPLOYEE CONDUCT
Seller employees who work directly with HP customers will be
required to understand and abide by certain sections of the HP
Standards of Business Conduct when interacting with HP
Customers on behalf of HP. The pertinent sections of the HP
Standards of Business Conduct are attached to this agreement
as Addendum B.
10.5. SELLER ACCESS TO HP PROPRIETARY DATABASES AND DOCUMENTATION
The Seller will, during the undertaking of the processes
defined in this agreement, have access to HP confidential and
proprietary databases and documentation which are necessary
for the successful completion of such processes. Seller's
obligations regarding treatment of this data are detailed in
the Electronic Communication Confidential Disclosure Agreement
(Addendum A).
11. INSPECTION AND AUDIT
11.1. HP shall have the right to physically inspect at will the
teleservices processes being performed by the Seller. HP
shall also have the right to perform audits to ensure that
customer service, quality, process, and business controls are
maintained. HP may perform this inspection either by
monitoring the seller's performance in person, at the seller's
place of business, or by remote silent monitoring of seller's
employees' incoming telephone calls from HP customers. HP's
inspection may be for any purpose reasonably related to this
Agreement including, without limitation, to assure Seller's
compliance with HP's quality requirements.
11.2. HP may periodically place simulated calls to the Seller as a
means of auditing the quality of the service provided by the
Seller.
11.3. HP may conduct periodic Customer surveys to determine the
quality of the service provided by the Seller.
11.4. In order to verify the financial stability of the Seller's
corporation, the Seller will provide HP with annual audited
financial results each year the technical support relationship
remains in effect.
11.5. HP may periodically audit StarTek USA, Inc.. These audits
will focus on both process and HP call volume issues. HP will
provide StarTek USA, Inc. 15 days advance notice prior to an
audit.
12. PHONE CALL RECORDING NOTIFICATION
12.1. If the initial phone call terminates within the Seller's phone
switch, the Seller's VRU must contain clear notification to
Customers that phone calls may be recorded. This notification
must occur immediately after the initial VRU salutation. This
notification and the timing thereof must comply with all
applicable laws, rules and regulations.
12.2. Sample VRU scripting:
"Thank you for calling Hewlett-Packard Technical Support. To
ensure high quality service, your call may be monitored or
recorded." Specific VRU scripting will be specified in the
attached Program Specification Documents.
13. HP EQUIPMENT
HP may provide equipment to Seller for the purposes of fulfilling the
requirements of this agreement. This equipment will remain the sole
property of Hewlett-Packard and shall only be provided to the Seller
on an "on loan" basis. In the event that HP does provide equipment or
other materials for use by Seller, the HP equipment shall:
13.1. Be clearly marked or tagged as property of HP.
13.2. Be subject to inspection by HP at any time.
13.3. Be used only in servicing HP customer needs.
Agreement for Technical Support 3/27/98 Hewlett-Packard/StarTek
Services Addendum C page 4 of 10
<PAGE> 5
13.4. Be reasonably separated from other materials, tools, or
property of Seller or held by Seller.
13.5. Not be modified in any manner by Seller unless so directed by
HP.
13.6. Have periodic maintenance performed by Seller.
13.7. Be kept free of liens and encumbrances which may arise due to
actions of Seller.
13.8. Be returned, in good working condition, to HP promptly upon
HP's request or upon termination of this agreement.
13.9. The Seller will maintain an inventory list of HP owned
equipment and will audit the inventory of HP equipment
biannually. Results of the biannual inventory audit will be
reported to HP.
14. DISASTER RECOVERY
14.1. The Seller will have disaster recovery plans in effect at all
times and provide disaster recovery plans to HP upon request.
These will address the Seller's disaster avoidance plan and
contingency plans in the event phone service, computer
activity, or facility power is interrupted.
14.2. The Seller will notify HP immediately after identifying any
occurrence which has interrupted or will interrupt the ability
of the Seller perform the services described in this agreement
or the attached program specification documents.
15. INDEMNIFICATION
15.1. RESPONSIBILITIES OF PARTIES
a) Seller shall defend, indemnify and hold harmless HP from
and against any and all claims, losses, demands,
reasonable attorney fees, damages, liabilities, costs,
expenses, obligations, causes of action or suits;
b) For damage or injury (including death) to any person
(including employees) or damage to or loss of any
property;
o arising out of or resulting from any negligent or
criminal act or omission by the Seller or its
employees or agents;
o arising out of or relating to a failure by the Seller
to comply with any applicable federal, state or local
law, regulation, order, judgment or decree;
o arising out of or resulting from breach by the Seller
of obligations under this Agreement;
o arising out of any act by the Seller not authorized
by this Agreement.
15.2. NOTIFICATION
Seller shall promptly notify HP in writing if Seller becomes
aware of any matter as to which the above indemnification
obligation relates.
15.3. DEFENSE OF CLAIMS
HP shall promptly notify the Seller of the existence of any
claim, demand, or other matter requiring a defense to which
the Seller's obligations under this section would apply. HP
shall give the Seller a reasonable opportunity to defend the
claim, demand or matter at the Seller's own expense and with
counsel selected by the Seller and satisfactory to HP;
provided that HP shall at all times also have the right to
fully participate in the defense at its own expense. HP shall
provide Seller with reasonable assistance and information
necessary to respond to and defend such claim, comment, demand
or other matter. Any such claim, demand or other matter shall
not be settled or compromised without the consent of HP - such
consent will not be unreasonably withheld; If the Seller
shall, within a reasonable time after the receipt of the
notice, fail to defend, HP shall have the right, but not the
obligation, to undertake the defense, and to compromise or
settle, exercising reasonable business judgment, the claim,
demand or other matter on behalf, for the account and at the
risk of the Seller. If the claim is one
Agreement for Technical Support 3/27/98 Hewlett-Packard/StarTek
Services Addendum C page 5 of 10
<PAGE> 6
that cannot by its nature be defended solely by the Seller
(including, without limitation, any federal or state
proceeding), HP shall make available, or cause to be made
available, all information and assistance that the Seller may
reasonably request as reasonably related to the defense of the
claim.
15.4. LIMITATION OF LIABILITY.
Seller's liability to HP customers herein shall in no event
exceed the liability that HP would have to its customers if HP
were providing the services to be performed by Seller
hereunder. NEITHER SELLER NOR HP SHALL BE LIABLE TO THE OTHER
FOR INCIDENTIAL, CONSEQUENTIAL, EXEMPLARY, INDIRECT OR SPECIAL
DAMAGES OF ANY KIND, INCLUDING WITHOUT LIMITATION, LOSS OF
PROFITS, SAVINGS, OR REVENUES WHETHER OR NOT ADVISED OF THE
POSSIBILITY OF SUCH LOSS, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY ARISING OUT OF THIS AGREEMENT.
16. EXCLUSIVITY
16.1. To ensure HP proprietary information, Seller will not perform
technical support activities for products of companies that
are direct competitors of the HP products covered in the
Program Specification Document at the same site. If Seller is
approached by a company whose competitors status with HP is
unclear, Seller will notify HP and HP will make the
determination of that company's competitor status.
16.2. While this Agreement is in effect, Seller Technicians will
perform service exclusively for HP. If the business under
this Agreement is insufficient to keep all Technicians
assigned hereto busy, such Agents shall be reassigned to
another HP project or programs pursuant to another program
specification document between HP or other division of HP and
Seller.
17. INFORMATION OWNERSHIP AND USE
17.1. During the term of this Agreement HP will supply significant
documentation to the Seller. Additionally, documentation and
information will be created, both by HP and the Seller. This
documentation and information will reside in various forms,
including: Search 97 database, HP developed support notes,
Seller developed support notes, call tracking systems, product
manuals, etc.
17.1.1. HP will retain ownership of all information provided
by HP.
17.1.2. HP will assume ownership of all information created
by the Seller as a result of the activity described
in this Agreement.
17.1.3. The Seller may not use HP documentation or
information for any activity outside those activities
intended by this Agreement.
17.1.4. Seller will provide HP with unlimited access to all
information held at the Seller's location that
directly relates to the Work or to HP.
17.2. All information provided by HP or collected by the Seller will
be considered confidential and will be handled by the Seller
as HP Confidential Information, otherwise described in section
18 of this Agreement.
17.3. HP reserves the right to review and approve or disapprove any
documentation created by the Seller for use in this project.
18. CONFIDENTIAL INFORMATION
18.1. CONFIDENTIAL DISCLOSURE AGREEMENT
A Confidential Disclosure Agreement must be in place and/or
updated and signed by the appropriate company representatives
when confidential information is shared and identified. The
consistent terms of any Confidential Disclosure Agreement are
hereby incorporated by reference in this Agreement.
18.2. DEFINITION OF CONFIDENTIAL INFORMATION
Seller shall not disclose to any person or entity, except as
necessary to perform work under this Agreement, any
confidential information of HP, whether written or oral, which
Agreement for Technical Support 3/27/98 Hewlett-Packard/StarTek
Services Addendum C page 6 of 10
<PAGE> 7
Seller may obtain from HP or otherwise, discover. As used in
this article, the term "confidential information" shall
include, without limitation:
a) All information or data concerning or related to HP
products (including the discovery, invention, research,
improvement, development, manufacture, or sale of HP
products) or business operations (including sales costs,
profits, pricing methods, organizations, employee or
customer lists and processes, whether oral , written or in
computer readable format);
b) All forecasts for production, support, or service
requirements submitted by HP pursuant to this Agreement,
whether oral, written, or communicated in computer-readable
format; and
c) All HP software or other property of a confidential
nature, including without limitation, any and all software
tools and databases provided. Such software and any and
all copies thereof shall remain the sole property of HP.
18.3. RELATIONSHIP EXISTENCE
HP's expectation is that this relationship will remain
confidential. The existence of this relationship or terms of
this Agreement will not be disclosed without prior written
approval from an HP division general manager or HP vice
president except as may be required by the United States
Securities Laws or other laws, in which case Seller will
maximize HP's confidentiality which may be available under the
law.
18.4. SEPARATION OF BUSINESS
HP business and information related to HP business will be
physically and logically separated from other Seller business
and information. The Seller will provide proof of this
separation to HP.
18.5. ACCESS
Seller shall maintain all confidential information in strict
confidence. Seller shall take all reasonable steps to ensure
that no unauthorized person or entity has access to
confidential information, and that all authorized persons
having access to confidential information refrain from any
unauthorized disclosure. Seller may only use the confidential
information for the purposes set forth herein and for no other
purpose, and may only make copies of any software provided if
expressly authorized by HP in writing and in any case only as
reasonable necessary by Seller to perform its obligations
hereunder.
18.6. EXCLUSIONS
These provisions related to confidential information shall not
apply to any information that
a) Is rightfully known to Seller prior to disclosure by HP;
b) Is rightfully obtained by Seller from any third party
without any obligation of confidentiality;
c) Is made available by HP to the public without
restrictions;
d) Is disclosed by Seller with the prior written approval of
HP; or
e) Is independently developed by Seller.
18.7. DOCUMENTATION
HP shall provide any proprietary or non-proprietary
documentation to Seller regarding the products and parts
deemed necessary by HP to give customer service for such
products and parts. All documentation provided by HP or
created by the Seller as a result of this Agreement shall be
treated by the Seller as HP confidential information.
18.8. SURVIVAL OF SECTION
This section "Confidential Information" of this Agreement
shall survive the termination of this Agreement, and remain in
force perpetually unless HP agrees otherwise in writing.
19. CONTINGENCIES
19.1. DELAYING CAUSES
Seller shall not be liable for any delay in performance under
this Agreement caused by an act of God or any other cause
beyond Seller's control and without Seller's fault or
Agreement for Technical Support 3/27/98 Hewlett-Packard/StarTek
Services Addendum C page 7 of 10
<PAGE> 8
negligence (collectively "delaying cause"). Seller shall, in
the event of a delaying cause, immediately give notice to HP
of that cause.
19.2. HP'S RIGHTS
In the event of a delaying cause, HP may elect in its sole
discretion to suspend the Agreement in whole or in part for
the duration of the delaying cause; or terminate this
Agreement or any part thereof.
20. DEFAULT
20.1. HP'S RECOURSE
If the Seller fails to perform or breaches any material
provision of this Agreement, HP may provide written notice to
the Seller of such failure to perform or breach, and Seller
must provide a written response within ten (10) days from HP's
written notice, and cure the failure to perform or breach
within thirty (30) days from the receipt of such written
notice or HP may terminate the whole or any part of this
Agreement. Further, if voluntary bankruptcy proceedings are
instituted against Seller and not discharged within sixty (60)
days, HP may, except as otherwise prohibited by United States
Bankruptcy laws, terminate the whole or any part of this
Agreement.
20.2. PROCUREMENT OF SERVICES
In the event that HP terminates this Agreement in whole or in
part, as provided in this section on Default, HP may procure,
upon such terms and in such manner as HP deems appropriate,
services similar to the services as to which this Agreement is
terminated. Seller shall reimburse HP upon demand for all
startup costs incurred by HP in purchasing such similar
services.
20.3. RIGHTS OF LAW
The rights and remedies granted to HP pursuant to this
Agreement are in addition to, and shall not be deemed to limit
or affect, any other rights or remedies available at law or in
equity.
21. PROGRAM CONTACTS
21.1. Written correspondence regarding this Master Agreement should
be addressed as follows:
If to HP:
Hewlett-Packard Company
Customer Support Center
Attn: Heidi Van Stone
11311 Chinden Blvd. MS 516
Boise, ID 83714
If to Seller:
StarTek USA, Inc.
Attn: Preston Sumner
111 Havana Street
Denver, CO 80010
Or:
Bill Pringle
237 22nd Street
Greeley, CO 80631
21.2. Electronic mail correspondence regarding this Master Agreement
should be addressed as follows:
Agreement for Technical Support 3/27/98 Hewlett-Packard/StarTek
Services Addendum C page 8 of 10
<PAGE> 9
If to HP:
[email protected]
If to Seller:
[email protected]
[email protected]
21.3. Telephone contacts regarding this Agreement are:
HP
Heidi Van Stone (208) 333-6456
---------------------
FAX number (208) 333-3692
--------------------------
Seller
------
Preston Sumner (303) 739-4991
----------------------
FAX number (303) 739-4584
--------------------------
Bill Pringle (970) 339-7251
------------------------
FAX number (970) 339-7171
--------------------------
21.4. Contacts regarding specific work performed by the Seller shall
be called out in the Program Specification Documents.
22. USE OF THE HEWLETT-PACKARD NAME AND TRADEMARKS
22.1. The Fulfillment Contractor Trademark Agreement between StarTek
USA, Inc. (formally known as StarPak) dated May 6, 1991,
governs the use of HP trademarks by StarTek USA, Inc..
22.2. HP grants to Seller a personal non-exclusive license to use
the trademarks identified below in conjunction with the
services performed pursuant to this Agreement provided that
Seller and Seller's agents meet the HP quality requirements
set out in this Agreement or otherwise set by HP. In
connection with the use of these trademarks, Seller shall not
represent that Seller has any ownership in the Trademarks,
Seller will not attempt to register the mark in any form, and
the parties acknowledge that the use of the Trademarks shall
be only for the benefit of HP. HP may terminate this license
immediately if Seller does not meet the HP quality
requirements or if this agreement is terminated. Seller shall
indemnify HP from any cost, claims or damages arising from the
intentional acts of Seller or its agents relating to the use
of the Trademark in any manner except as permitted by this
Agreement.
22.3. Trademarks authorized for use by Seller: "HP",
"Hewlett-Packard".
23. PRECEDENCE
23.1. The provisions of this Agreement and the attached exhibits and
addenda hereto take precedence over the Seller's additional or
different terms and conditions, to which notice of objection
is hereby given.
23.2. This Agreement comprises the entire understanding between the
parties and supersedes any previous or contemporaneous
communications, representations, or contracts, whether oral or
written. No change or modification of any of the terms and
conditions herein shall be valid or binding on either party
unless in writing and signed by an authorized representative
of each party.
23.3. In the event of any conflict between the provisions of this
Agreement and any addenda or attachments, the order of
precedence is as follows:
23.3.1. This Agreement and any modifications to this
Agreement ;
23.3.2. The applicable addenda to this Agreement and any
modifications to the addenda;
Agreement for Technical Support 3/27/98 Hewlett-Packard/StarTek
Services Addendum C page 9 of 10
<PAGE> 10
23.3.3. Any Program Specification Documents for specific
work.
24. ADDENDA ATTACHED
All addenda to this Agreement shall be deemed a part of this Agreement
and incorporated herein. Terms which are defined in this Agreement,
and used in any addendum, have the same meaning in the addendum as in
the Agreement.
The following addenda are hereby made a part of this Agreement:
Addendum A -- Confidential Disclosure Agreement
Addendum B -- HP Standards Of Business Conduct
Addendum C -- HP Information Assets Access Agreement
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their duly authorized representatives.
<TABLE>
<S> <C>
Hewlett-Packard Company StarTek USA, Inc.
By: Lyle Hurst By: Preston Sumner
Title: General Manager Title: Chief Operating Officer
Signature: /s/ Lyle Hurst Signature: /s/ Preston Sumner
----------------------------------------- ---------------------------------
Date Signed: 1/7/98 Date Signed: 12/12/97
----------------------------------------- ---------------------------------
</TABLE>
Agreement for Technical Support 3/27/98 Hewlett-Packard/StarTek
Services Addendum C page 10 of 10
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
NAME OF STATE OF SUBSIDIARIES
SUBSIDIARIES INCORPORATION ARE DOING BUSINESS
- ---------------- ------------------- --------------------------------
StarTek USA, Inc.
(formerly named
StarPak, Inc.) Colorado StarTek Teleservices, Inc.
StarTek Technical Services, Inc.
StarTek Internet, Inc.
StarTek, Inc.
StarTek Europe,
Ltd. (formerly
named StarTek
International,
Ltd.) Colorado StarPak, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 26,960
<SECURITIES> 7,356
<RECEIVABLES> 13,051
<ALLOWANCES> 383
<INVENTORY> 2,539
<CURRENT-ASSETS> 50,018
<PP&E> 13,647
<DEPRECIATION> 5,496
<TOTAL-ASSETS> 58,172
<CURRENT-LIABILITIES> 11,314
<BONDS> 556
0
0
<COMMON> 138
<OTHER-SE> 42,868
<TOTAL-LIABILITY-AND-EQUITY> 58,172
<SALES> 0
<TOTAL-REVENUES> 89,150
<CGS> 0
<TOTAL-COSTS> 71,986
<OTHER-EXPENSES> 10,398
<LOSS-PROVISION> 125
<INTEREST-EXPENSE> 373
<INCOME-PRETAX> 6,268
<INCOME-TAX> 2,110
<INCOME-CONTINUING> 4,158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,158<F1>
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F3>
<FN>
<F1>PRO FORMA NET INCOME IS $5,890 (REFLECTS ELIMINATION OF MANAGEMENT FEE
EXPENSE AND PROVIDES INCOME TAXES AT 37.3% EFFECTIVE RATE).
<F2>PRO FORMA NET INCOME PER SHARE - PRIMARY $0.47.
<F3>PRO FORMA NET INCOME PER SHARE - FULLY DILUTED $0.47.
</FN>
</TABLE>
