<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1999.
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________.
Commission File Number 1-12793
-------
<TABLE>
<S> <C>
STARTEK, INC.
----------------------------------------------------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1370538
--------------------------------------------------------------- ---------------------------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
111 HAVANA STREET
DENVER, COLORADO 80010
----------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(303) 361-6000
----------------------------------------------------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
----------------------------------------------------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
</TABLE>
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value--13,828,571 shares as of May 15, 1999
<PAGE> 2
STARTEK, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
December 31, 1998 and March 31, 1999 3
Condensed Consolidated Statements of Operations -
Three months ended March 31, 1998 and 1999 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1998 1999
------------------------- -------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,593 $ 19,396
Investments available for sale 16,829 21,775
Trade accounts receivable, less allowance for
doubtful accounts of $441 and $561, respectively 20,476 12,582
Inventories 2,772 1,152
Deferred tax assets 1,135 1,225
Prepaid expenses and other 165 212
------------------------- -------------------------
Total current assets 60,970 56,342
Property, plant and equipment, net 19,171 19,708
Other assets 60 60
------------------------- ------------------------
Total assets $ 80,201 $ 76,110
========================= =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,433 $ 10,626
Accrued liabilities 2,092 2,663
Income taxes payable 1,944 1,670
Current portion of capital lease obligations 46 37
Current portion of long term debt 906 920
Other 213 275
------------------------- -------------------------
Total current liabilities 22,634 16,191
Capital lease obligations, less current portion 77 67
Long-term debt, less current portion 3,196 2,954
Deferred income taxes 144 345
Other 17 22
Stockholders' equity:
Common stock 138 138
Additional paid-in capital 41,661 41,661
Cumulative translation adjustment 167 102
Unrealized loss on investments available for sale (606) (570)
Retained earnings 12,773 15,200
------------------------- -------------------------
Total stockholders' equity 54,133 56,531
------------------------- -------------------------
Total liabilities and stockholders' equity $ 80,201 $ 76,110
========================= =========================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------------------
1998 1999
----------------- -----------------
<S> <C> <C>
Revenues $ 24,321 $ 40,850
Cost of services 19,757 33,164
----------------- -----------------
Gross profit 4,564 7,686
Selling, general and administrative
expenses 2,732 4,429
----------------- -----------------
Operating profit 1,832 3,257
Net interest income and other 542 602
----------------- -----------------
Income before income taxes 2,374 3,859
Income tax expense 862 1,432
----------------- -----------------
Net income $ 1,512 $ 2,427
================= =================
Basic and diluted net income per share $ 0.11 $ 0.18
Weighted average shares outstanding 13,828,571 13,828,571
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
------------------------------------
1998 1999
----------------- ---------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,512 $ 2,427
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 550 916
Deferred income taxes 69 111
(Gain) loss on sale of assets (7) 3
Changes in operating assets and liabilities:
Accounts receivable 3,139 7,894
Inventories 439 1,620
Prepaid expenses and other assets (46) (47)
Accounts payable (654) (6,807)
Income taxes payable 622 (274)
Accrued and other liabilities (261) 749
----------------- ---------------
Net cash provided by operating activities 5,363 6,592
Cash Flows From Investing Activities
Purchase of property, plant and equipment (2,899) (1,547)
Proceeds from disposition of property, plant and equipment -- 2
Purchases of investments available for sale (4,277) (7,878)
Proceeds from disposition of investments available for sale -- 2,985
----------------- ---------------
Net cash used in investing activities (7,176) (6,438)
Cash Flows From Financing Activities
Principal payments on borrowings -- (228)
Principal payments on capital lease obligations (28) (19)
----------------- ---------------
Net cash used in financing activities (28) (247)
Effect of exchange rate changes on cash 6 (104)
----------------- ---------------
Net decrease in cash and cash equivalents (1,835) (197)
Cash and cash equivalents at beginning of period 26,960 19,593
================= ===============
Cash and cash equivalents at end of period $ 25,125 $ 19,396
================= ===============
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 32 $ 68
Income taxes paid $ 1,050 $ 1,550
Supplemental Disclosure of Non-Cash Activity
Net unrealized gain on investments available for sale $ 33 $ 36
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
STARTEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
The balance sheet as of December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in StarTek, Inc.'s annual
report on Form 10-K for the year ended December 31, 1998.
2. EARNINGS PER SHARE
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 shares of common stock 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.
3. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income, which was 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. Comprehensive
income was $1,551, and $2,398 for the three months ended March 31, 1998 and
1999, respectively.
4. SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures About Segments of an Enterprise and Related Information, which
was effective in 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 adoption of Statement No. 131 did not change the
Company's segment information disclosure and, as such, no restatement of the
prior period's segment information was necessary.
6
<PAGE> 7
STARTEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(unaudited)
5. INVESTMENTS AVAILABLE FOR SALE
The following is a summary of investments available for sale as of December
31, 1998:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate bonds $ 8,987 $ 80 $ (239) $ 8,828
Foreign government bonds 2,915 150 (308) 2,757
Bond mutual funds 4,005 1 (132) 3,874
Other debt securities 286 -- (138) 148
Equity securities 1,598 -- (376) 1,222
-----------------------------------------------------------
Total $ 17,791 $ 231 $ (1,193) $ 16,829
===========================================================
</TABLE>
The following is a summary of investments available for sale as of March
31, 1999:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate bonds $ 13,167 $ 54 $ (206) $ 13,015
Foreign government bonds 4,418 168 (227) 4,359
Bond mutual funds 3,020 6 (81) 2,945
Other debt securities 286 -- (132) 154
Equity securities 1,790 5 (493) 1,302
-----------------------------------------------------------
Total $ 22,681 $ 233 $ (1,139) $ 21,775
===========================================================
</TABLE>
The amortized cost and estimated fair value of investments available for
sale as of March 31, 1999, by contractual maturity, are:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
---------------- ------------------
<S> <C> <C>
Corporate bonds, foreign government bonds,
and other debt securities maturing within:
One year $ 2,513 $ 2,506
Two to five years 10,385 10,378
Due after five years 4,973 4,644
---------------- ------------------
17,871 17,528
Bond mutual funds 3,020 2,945
Equity securities 1,790 1,302
---------------- ------------------
Total $ 22,681 $ 21,775
================ ==================
</TABLE>
Bond mutual funds are primarily invested in investment grade bonds of U.S.
and foreign issuers denominated in U.S. and foreign currencies, and interests in
floating or variable rate senior collateralized loans to corporations,
partnerships, and other entities in a variety of industries and geographic
regions.
Investments available for sale are reported at fair value, with the gross
unrealized gains and losses, net of tax reported in a separate component of
stockholders' equity.
7
<PAGE> 8
STARTEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(unaudited)
6. 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. At the close of an accounting
period, packaged and assembled products (together with other associated costs)
are reflected as finished goods inventories pending shipment. The Company
generally has the right to be reimbursed from its clients for unused
inventories. Client-owned inventories are not reflected in the Company's balance
sheet. Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
----------------------------------------
<S> <C> <C>
Purchased components and
fabricated assemblies $ 2,313 $ 1,069
Finished goods 459 83
========================================
$ 2,772 $ 1,152
========================================
</TABLE>
7. PRINCIPAL CLIENTS
Two clients accounted for approximately 62.1% and 21.1% of the Company's
revenues during the three months ended March 31, 1998. One client accounted for
approximately 75.7% of the Company's revenues during the three months ended
March 31, 1999. The loss of a principal client could have a material adverse
effect on the Company's business, operating results and financial condition.
8
<PAGE> 9
ITEM 2. 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 Form 10-Q
that are not statements of historical facts are forward-looking statements (as
defined in the Private Securities Litigation Reform Act of 1995) that involve
substantial risks and uncertainties. Forward-looking statements are preceded by
terms such as "may", "will", "should", "anticipates", "expects", "believes",
"plans", "future", "estimate", "continue", and similar expressions. 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 the Company's principal client(s), the loss or
delayed implementation of a large project which could cause quarterly variation
in the Company's revenues and earnings, difficulties of managing rapid growth,
dependence on key personnel, dependence on key industries and the 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, the year 2000 issue, and highly competitive markets. These factors
include risks and uncertainties beyond the Company's ability to control; and, in
many cases, the Company and its management cannot predict the risks and
uncertainties that could cause actual results to differ materially from those
indicated by use of forward-looking statements. All forward-looking statements
herein are qualified in their entirety by the information set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"--"Factors That May Affect Future Results" section of StarTek, Inc.'s
annual report on Form 10-K for the year ended December 31, 1998.
The following table sets forth, for the periods indicated, certain unaudited
condensed consolidated statement of operations data expressed as a percentage of
revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------------
1998 1999
---------- ----------
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of services 81.2 81.2
---------- ----------
Gross profit 18.8 18.8
Selling, general and administrative
expenses 11.2 10.8
---------- ----------
Operating profit 7.6 8.0
Net interest income and other 2.2 1.5
---------- ----------
Income before income taxes 9.8 9.5
Income tax expense 3.6 3.5
========== ==========
Net income 6.2% 6.0%
========== ==========
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues. Revenues increased $16.6 million, or 68.0%, from $24.3 million
during the three months ended March 31, 1998 to $40.9 million during the three
months ended March 31, 1999. This increase was primarily from existing and new
clients, partially offset by decreases in the volume of services provided to
other existing clients.
Cost of Services. Cost of services increased $13.4 million, or 67.9%, from
$19.8 million during the three months ended March 31, 1998 to $33.2 million
during the three months ended March 31, 1999. As a percentage of revenues, cost
of services was 81.2% during the three months ended March 31, 1998 and 1999.
This percentage amount did not change from period to period as a substantial
portion of the Company's revenue growth continues to be derived from its
principal client base. The terms of the Company's arrangements with such clients
has not changed substantially during this time.
Gross Profit. Due to the foregoing factors, gross profit increased $3.1
million, or 68.4%, from $4.6 million during the three months ended March 31,
1998 to $7.7 million during the three months ended March 31, 1999. As a
percentage of revenues, gross profit was 18.8% during the three months ended
March 31, 1998 and 1999.
9
<PAGE> 10
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.7 million, or 62.1%, from $2.7 million
during the three months ended March 31, 1998 to $4.4 million during the three
months ended March 31, 1999, primarily as a result of increased personnel costs
incurred to service increasing business. As a percentage of revenues, selling,
general and administrative expenses decreased from 11.2% during the three months
ended March 31, 1998 to 10.8% during the three months ended March 31, 1999,
reflecting a lesser relative increase in selling, general and administrative
expenses as compared to the increase in revenues.
Operating Profit. As a result of the foregoing factors, operating profit
increased from $1.8 million during the three months ended March 31, 1998 to $3.3
million during the three months ended March 31, 1999. As a percentage of
revenues, operating profit increased from 7.6% during the three months ended
March 31, 1998 to 8.0% during the three months ended March 31, 1999.
Net Interest Income and Other. Net interest income and other was $0.5
million during the three months ended March 31, 1998 and $0.6 million during the
three months ended March 31, 1999. This increase was primarily a result of an
increase in interest income derived from cash equivalents and investments
available for sale balances during the three months ended March 31, 1999,
partially offset by interest expense incurred as a result of the Company's
various debt arrangements it entered into during the second half of 1998.
Income Before Income Taxes. As a result of the foregoing factors, income
before income taxes increased $1.5 million, or 62.6%, from $2.4 million during
the three months ended March 31, 1998 to $3.9 million during the three months
ended March 31, 1999. As a percentage of revenues, income before income taxes
decreased from 9.8% during the three months ended March 31, 1998 to 9.5% during
the three months ended March 31, 1999.
Income Tax Expense. Income tax expense during the three months ended March
31, 1998 and 1999, reflects a provision for federal, state and foreign income
taxes at an effective rate of 36.3% and 37.1%, respectively.
Net Income. Based on the factors discussed above, net income increased $0.9
million, or 60.5%, from $1.5 million during the three months ended March 31,
1998 to $2.4 million during the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
In June 1997, the Company completed an initial public offering of its
common stock, which yielded net proceeds to the Company of approximately $41.0
million. The Company applied such proceeds to repay substantially all of its
then outstanding debt, and for working capital and other general corporate
purposes, including capital expenditures to expand its operating capacity. Since
fully applying the net proceeds it received from the June 1997 initial public
offering, the Company has primarily financed its operations, liquidity
requirements, capital expenditures, and capacity expansion through cash flows
from operations and, to a lesser degree, through various forms of debt financing
and leasing arrangements. The Company renewed its $5.0 million line of credit
with Norwest Bank Colorado, N.A. (the "Bank"), which, pursuant to the terms of
the renewed line of credit, matures on April 30, 2001. 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 $25.0 million. The Company may not pay dividends in an amount which
would cause a failure to meet these financial covenants. As of March 31, 1999,
and the date of this Form 10-Q, the Company was in compliance with these
financial covenants. Collateral for the line of credit is the accounts
receivable of certain of the Company's wholly-owned subsidiaries. As of March
31, 1999, no amount was outstanding under the $5.0 million line of credit.
On February 16, 1999, the Company entered into a lease agreement for
building space in Grand Junction, Colorado to be used for a call center, general
office use and other services as appropriate for the general purposes of the
Company (the "Grand Junction Facility"). The revised term of the lease agreement
commences on May 1, 1999 and unless earlier terminated or extended, continues
until April 30, 2009. Pursuant to the terms of the lease agreement, the Company
was granted, among other things, (i) a right of first refusal to purchase the
property, of which the leased space is a part, during the revised lease term,
and (ii) a right to terminate the lease agreement anytime after the end of the
fifth year by giving the landlord 180 day prior written notice to terminate.
Assuming the lease agreement is not terminated, future minimum rental
commitments in aggregate, excluding certain taxes and utilities as defined,
total approximately $1.1 million and are payable on a monthly basis from May
1999 through April 2009.
On February 18, 1999 and in connection with the Grand Junction Facility,
the Company ordered certain call center computer hardware and software with an
aggregate purchase price of approximately $0.8 million. Completion of
installation of this call center equipment occurred in May 1999, when the Grand
Junction Facility also became operational.
10
<PAGE> 11
As of March 31, 1999, the Company had cash, cash equivalents, and
investments available for sale of $41.2 million, working capital of $40.2
million and net worth of $56.5 million. The Company's investments available for
sale generally consisted of corporate bonds, foreign government bonds
denominated in U.S. dollars, bond mutual funds, other debt securities, various
real estate investment trusts, and equity mutual funds. Such investments held by
the Company could be materially and adversely affected by; (i) various domestic
and foreign economic conditions, such as recessions, increasing interest rates,
adverse foreign currency exchange fluctuations, foreign and domestic inflation,
and other factors; and (ii) the inability of certain corporations to repay their
debts, including interest amounts, to the Company. See "Quantitative and
Qualitative Disclosure About Market Risk" set forth herein for further
discussions regarding the Company's cash, cash equivalents, and investments
available for sale.
Net cash provided by operating activities increased from $5.4 million
during the three months ended March 31, 1998 to $6.6 million during the three
months ended March 31, 1999. This increase was primarily a result of increases
in net income and accrued and other liabilities, and decreases in accounts
receivable and inventories. The positive effects of the foregoing were partially
offset by an increase in prepaid expenses and other assets and decreases in
accounts payable, income taxes payable, and other various tax related items.
Net cash used in investing activities was $7.2 million during the three
months ended March 31, 1998 and $6.4 million during the three months ended March
31, 1999. This decrease was primarily due to a decrease in purchases of
property, plant and equipment, partially offset by an increase in net purchases
of investments available for sale.
Net cash used in financing activities was $28,000 during the three months
ended March 31, 1998 and $0.3 million during the three months ended March 31,
1999. This increase was primarily due to an increase in principal payments on
borrowings, partially offset by a decrease in principal payments on capital
lease obligations.
The effect of currency exchange rate changes on the translation of the
Company's United Kingdom operations was not substantial during the three months
ended March 31, 1998 and 1999. The terms of the Company's agreements with its
clients and its foreign subcontracts are typically in U.S. dollars except for
certain of its agreements related to its United Kingdom operations. In the past,
the Company's exposure to foreign currency exchange risks has been minimal in
connection with its day to day operations in the United Kingdom. However, as the
international portion of the Company's business grows, more revenues and
expenses may be denominated in foreign currency, and this will increase the
Company's exposure to fluctuations in currency exchange rates. See "Quantitative
and Qualitative Disclosure About Market Risk" set forth herein for a further
discussion of the Company's exposure to foreign currency exchange risks in
connection with certain of its investments available for sale.
The Company believes its current cash, cash equivalents and investments
available for sale balances, anticipated cash flows from future operations, and
the $5.0 million of currently available financing under its $5.0 million line of
credit, will be sufficient to support its operations, capital expenditures, and
various repayment obligations under its debt and lease agreements for the
foreseeable future. However, liquidity and capital requirements depend on many
factors, including, but not limited to, the Company's ability to retain or
successfully and timely replace its principal client(s) and the rate at which
the Company expands its business, whether internally or through acquisitions and
strategic alliances. To the extent 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 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 favorable
to the Company.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of domestic
and foreign inflation on its operations, the Company does not believe that
inflation has had, or is likely in the foreseeable future to have, a material
adverse effect on its results of operations or financial condition.
11
<PAGE> 12
RELIANCE ON PRINCIPAL CLIENT RELATIONSHIPS
A substantial portion of the Company's revenues is generated from its
principal client(s) and the loss of its principal client(s) could have a
material adverse effect on the Company's business, results of operations and
financial condition. The Company's two largest clients during the three months
ended March 31, 1998 were Microsoft Corporation ("Microsoft") and
Hewlett-Packard Company ("Hewlett-Packard"). The Company provides various
outsourced services to various divisions of Microsoft, which began its
outsourcing relationship with StarTek in April 1996, and which accounted for
approximately 62.1% of the Company's revenues during the three months ended
March 31, 1998. The Company provides various outsourced services to various
divisions of Hewlett-Packard, each of which the Company considers separate
clients since each division acts through a relatively autonomous decision maker.
Hewlett-Packard's various divisions accounted for approximately 21.1% of the
Company's revenues during the three months ended March 31, 1998. The Company
began its outsourcing relationship with Hewlett-Packard in 1987. The Company's
largest client during the three months ended March 31, 1999 was Microsoft.
Microsoft accounted for approximately 75.7% of the Company's revenues during the
three months ended March 31, 1999. There can be no assurance the Company will be
able to retain its principal client(s) or, if it were to lose its principal
client(s), it would be able to timely replace its principal client(s) with
clients which generate a comparable amount of revenues.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's business is highly seasonal and is, at times, conducted in
support of product launches for new and existing clients. Historically, the
Company's revenues have been substantially lower in the first and second
quarters due to the timing of its clients' marketing programs and product
launches, which are typically geared toward the holiday buying season.
Additionally, the Company has experienced, and expects to continue to
experience, 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 existing and future client product launches; (ii) the expiration or
termination of existing client projects; (iii) the timing and amount of costs
incurred to expand capacity in order to provide for further revenue growth from
current and future clients; (iv) the seasonal nature of certain clients'
businesses; (v) the cyclical nature of certain high technology clients'
businesses; and (vi) changes in the Company's principal client base.
Revenues for the three months ended December 31, 1998 and March 31, 1999
were approximately $60.4 million and $40.9 million, respectively. Typically, the
Company's revenues have been lower in the first quarter due to the seasonal
nature of its principal clients' and other clients' businesses.
Gross profit as a percent of revenues remained relatively constant from the
three months ended December 31, 1998 to the three months ended March 31, 1999.
The decrease in selling, general and administrative expenses from the three
months ended December 31, 1998 to the three months ended March 31, 1999 was
primarily due to a decrease in certain variable operating expenses, which was
associated with a decrease in seasonal revenues described above. As a percentage
of revenues, selling, general and administrative expenses for the three months
ended December 31, 1998 and March 31, 1999 were 8.6% and 10.8%, respectively.
This percentage increase was partially due to higher overall revenues during the
three months ended December 31, 1998 as a result of the seasonality of the
Company's principal clients' and other clients' businesses. This percentage
increase was also partially due to generally fixed expenses incurred during the
three months ended March 31, 1999 associated with three new facilities which
were occupied and operational at various times during 1998, and which provided
the Company with approximately 362,000 square feet of additional capacity.
12
<PAGE> 13
YEAR 2000 COMPLIANCE
The year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Some of the
Company's older computer programs and technologies fall into this category. As a
result, those programs have time-sensitive applications that recognize a date
using "00" as the year 1900 rather than the year 2000. This could cause system
failures or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in other normal business activities.
The Company formally created a year 2000 project team (the "Y2K Team")
during the first quarter of 1998. The Y2K Team reports directly to the Company's
executive committee and periodically provides the executive committee status
updates of its year 2000 compliance efforts. To date, the Y2K Team has, among
other things, completed its initial assessment of the Company's year 2000
compliance issues, identified non year 2000 compliant computer equipment and
software, communicated with applicable third party vendors of the Company in
order to gather information on year 2000 matters beyond the Company's internal
information technologies, scheduled and partially completed year 2000 testing of
the Company's applicable information systems, and has begun to develop the
Company's year 2000 contingency plan. The Company plans for the Y2K Team to test
its year 2000 contingency plan during the third quarter of 1999. The total cost
of the Company's year 2000 compliance efforts is estimated to be approximately
$100,000.
The Company anticipates that the Y2K Team will complete its year 2000
compliance efforts during the third quarter of 1999, which is prior to any
anticipated material adverse effect the year 2000 issue may have on the
Company's business, financial condition and results of operations. Additionally,
StarTek uses certain of its clients' software applications in performing its
outsourced services. Such client-owned software used by StarTek, if not year
2000 compliant, could cause significant interruptions and delays in the
Company's services, revenues, and cash receipts. Management is unaware of any
specific year 2000 issues related to client-owned software used in StarTek's day
to day operations. The Company believes, based on its current year 2000
compliance planning, the year 2000 issue will not pose material adverse problems
to its business. However, if the Company's, its third party vendors',
subcontractors', and/or clients' year 2000 compliance efforts are not
successful, or not completed in a timely manner, the year 2000 issue could have
a material adverse effect on the operations of the Company.
The anticipated cost and timing to complete the year 2000 compliance
efforts mentioned above are based on estimates which have been derived using
numerous assumptions of future events, including the continued availability of
certain resources and other factors. However, there can be no assurance 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 completely identify and correct all relevant
information systems, the ability to coordinate successfully with its third party
vendors, subcontractors and clients in order to attempt to insure year 2000
issues beyond the Company's internal information systems are also successfully
and timely addressed, and other uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discusses the Company's exposure to market risk related to
changes in interest rates and other general market risks, equity market prices,
and foreign currency exchange rates. Primarily all of the Company's investment
decisions are directed by its Chairman of the Board. This discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual
results could vary materially as a result of a number of factors, including but
not limited to, changes in interest rates and other general market risks, equity
market prices, foreign currency exchange rates, and those set forth in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"--"Factors That May Affect Future Results" section of the Company's
annual report on Form 10-K for the year ended December 31, 1998.
Interest Rate Sensitivity and Other General Market Risks
Cash and cash equivalents. As of March 31, 1999, the Company had cash and
cash equivalents of approximately $19.4 million, which consisted of (i)
approximately $19.3 million invested in various money market funds, overnight
investments, and various commercial paper securities at a combined weighted
average interest rate of approximately 5.2%, and (ii) approximately $0.1 million
in various non-interest bearing accounts. StarTek considers cash equivalents to
be short-term, highly liquid investments that are readily convertible to known
amounts of cash and so near their maturity that they present insignificant risk
of changes in value because of changes in interest rates. The Company does not
expect any material loss with respect to its cash and cash equivalents as a
result of interest rate changes, and the estimated fair value of its cash and
cash equivalents approximates original cost.
13
<PAGE> 14
Investments Available for Sale. As of March 31, 1999, the Company had
investments available for sale of $21.8 million. These investments available for
sale generally consisted of corporate bonds, foreign government bonds
denominated in U.S. dollars, bond mutual funds, other debt securities, various
real estate investment trusts, and equity mutual funds. Corporate bonds, foreign
government bonds denominated in U.S. dollars, bond mutual funds, and other debt
securities held in the Company's investment portfolio are subject to interest
rate risk and will fall in value if market interest rates increase.
The fair market value of, and the estimated cash flows from, the Company's
investments in corporate bonds are substantially dependent upon the
creditworthiness of certain corporations that are expected to repay their debts,
including interest, as they become due, to the Company. If such corporations'
financial condition and liquidity adversely changes, the Company's investments
in their debts can be expected to be materially and adversely affected.
The Company's investments in foreign government bonds denominated in U.S.
dollars entail special risks of global investing; these include, but are not
limited to, (i) currency exchange fluctuations which could adversely affect the
ability of foreign governments to repay their debts in U.S. dollars, (ii)
foreign government regulations, and (iii) the potential for political and
economic instability. The fair market value of such investments in foreign
government bonds (denominated in U.S. dollars) can be expected to be more
volatile than that of U.S. government bonds. These risks are intensified for the
Company's investments in debt of foreign governments located in countries
generally considered to be emerging markets.
The table below provides information about maturity dates and corresponding
weighted average interest rates with regard to certain of StarTek's investments
available for sale as of March 31, 1999.
<TABLE>
EXPECTED MATURITY DATE
WEIGHTED AVERAGE --COST--
INTEREST RATES (DOLLARS IN THOUSANDS)
-------------------------------------------------------------------------------------
1 Year 2 Years 3 Years 4 Years 5 Years Thereafter Total FAIR VALUE
------ ------- ------- ------- ------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate bonds 9.1% $ 2,513 -- -- -- -- -- $ 2,513 $ 2,506
Corporate bonds 6.9% -- $ 5,306 -- -- -- -- 5,306 5,330
Foreign government bonds 6.3% -- 1,980 -- -- -- -- 1,980 1,974
Corporate bonds 7.3% -- -- $ 1,889 -- -- -- 1,889 1,910
Corporate bonds 7.0% -- -- -- $ 392 -- -- 392 394
Corporate bonds 4.3% -- -- -- -- $ 818 -- 818 770
Corporate bonds 6.4% -- -- -- -- -- $ 2,249 2,249 2,105
Foreign government bonds 9.1% -- -- -- -- -- 2,438 2,438 2,385
Other 7.0% -- -- -- -- -- 286 286 154
------------------------------------------------------------------ -----------
Total 7.3% $ 2,513 $ 7,286 $ 1,889 $ 392 $ 818 $ 4,973 $ 17,871 $ 17,528
================================================================== ===========
</TABLE>
Management believes the Company currently has the ability to hold these
investments until maturity, and therefore, if held to maturity, the Company
would not expect the future proceeds from these investments to be affected, to
any significant degree, by the effect of a sudden change in market interest
rates. Declines in interest rates over time will, however, reduce the Company's
interest income derived from future investments.
As of March 31, 1999 and as part of its investments available for sale
portfolio, the Company also was invested in (i) various bond mutual funds which,
in the aggregate, had an original cost and fair market value of approximately
$3.0 million and $2.9 million, respectively, and (ii) various real estate
investment trusts and equity mutual funds which, in the aggregate, had an
original cost and fair market value of approximately $1.8 million and $1.3
million, respectively.
14
<PAGE> 15
Such bond mutual funds, as of March 31, 1999 (i) had a weighted average
interest rate of approximately 6.0%, and a weighted average maturity of
approximately 3 years; (ii) are primarily invested in investment grade bonds of
U.S. and foreign issuers denominated in U.S. and foreign currencies, and
interests in floating or variable rate senior collateralized loans to
corporations, partnerships, and other entities in a variety of industries and
geographic regions; (iii) include certain foreign currency risk hedging
instruments which are intended to reduce fair market value fluctuations; (iv)
are subject to interest rate risk and will fall in value if market interest
rates increase; and (v) are subject to the quality of the underlying securities
within the mutual funds. The Company's investments in such bond mutual funds
entail special risks of global investing, including, but not limited to, (i)
currency exchange fluctuations, (ii) government regulations, and (iii) the
potential for political and economic instability. The fair market value of the
Company's investments in such bond mutual funds can be expected to be more
volatile than that of a U.S.-only fund. These risks are intensified for certain
investments in debt of foreign governments (included in bond mutual funds) which
are located in countries generally considered to be emerging markets.
Additionally, certain of the bond mutual fund investments are also subject to
the effect of leverage, which in a declining market can be expected to result in
a greater decrease in fair market value than if such investments were not
leveraged.
Outstanding Debt of the Company. As of March 31, 1999, the Company had
outstanding debt of approximately $4.0 million, approximately $3.3 million of
which bears interest at an annual fixed rate of 7.0%. Since substantially all of
the interest on the Company's debt is fixed, a hypothetical 10.0% decrease in
interest rates would not have a material impact on the Company. Increases in
interest rates could, however, increase interest expense associated with future
borrowings by the Company, if any. For example, the Company may from time to
time effect borrowings under its $5.0 million line of credit for general
corporate purposes, including working capital requirements, capital expenditures
and other purposes related to expansion of the Company's capacity. Borrowings
under the $5.0 million line of credit bear interest at the lender's prime rate.
As of March 31, 1999, the Company had no outstanding line of credit obligations.
The Company has not hedged against interest rate changes.
Equity Price Risk
As of March 31, 1999, the Company held in its investments available for
sale portfolio, certain equity securities with original costs and fair market
values, in the aggregate, of $1.8 million and $1.3 million, respectively. The
Company's investments in equity securities generally consist of various real
investment trusts and equity mutual funds. A substantial decline in the values
of real estate investment trusts, equity mutual funds, and equity prices in
general could have a material adverse effect on the Company's equity
investments.
The Company has not hedged against equity price changes.
Foreign Currency Exchange Risk
Approximately 4.3% of the Company's revenues during the three months ended
March 31, 1999 were derived from arrangements whereby the Company received
payments from its clients in currencies other than U.S. dollars. The terms of
the Company's agreements with its clients and its foreign subcontracts are
typically in U.S. dollars except for certain of its agreements related to its
United Kingdom operations. If an arrangement provides for the Company to receive
payments in a foreign currency, the ultimate revenues realized from such an
arrangement may be less if the value of such foreign currency declines.
Similarly, if an arrangement provides for the Company to make payments in a
foreign currency, the ultimate cost of services and operating expenses for such
an arrangement may be more if the value of such foreign currency increases. For
example, a 10% change in the relative value of such foreign currency could cause
a related 10% change in the Company's previously expected revenues, cost of
services and operating expenses. In the past, the Company's exposure to currency
exchange risks has been minimal in connection with its day to day operations in
the United Kingdom. However, as the international portion of the Company's
business grows, more revenues and expenses may be denominated in foreign
currency, and this will increase the Company's exposure to fluctuations in
currency exchange rates.
The Company has not hedged against foreign currency exchange rate changes
related to its day to day operations in the United Kingdom. However, certain of
its investments classified as bond mutual funds (discussed in further detail
above as part of "Interest Rate Sensitivity and Other General Market Risks")
include investments in various forms of currency risk hedging instruments which
are intended to reduce fair market value fluctuations of such mutual funds.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities
The Company did not issue or sell any unregistered securities
during the three months ended March 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.17 Amended and Restated Credit Agreement, dated March 15, 1999, between StarTek, Inc. and
Norwest Bank Colorado, National Association, Denver, Colorado.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
three months ended March 31, 1999.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
STARTEK, INC.
--------------------------------------------------
(Registrant)
Date: May 15, 1999 /s/ MICHAEL W. MORGAN
------------------------------------------------ --------------------------------------------------
Michael W. Morgan
President and Chief Executive Officer
Date: May 15, 1999 /s/ DENNIS M. SWENSON
------------------------------------------------ --------------------------------------------------
Dennis M. Swenson
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.17 Amended and Restated Credit Agreement, dated March 15, 1999, between StarTek, Inc. and
Norwest Bank Colorado, National Association, Denver, Colorado.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.17
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AGREEMENT, dated March 15, 1999, is between STARTEK, INC. (the "Borrower")
and NORWEST BANK COLORADO, NATIONAL ASSOCIATION, Denver, Colorado (the "Bank").
This Agreement amends and restates the arrangement between the Bank and the
Borrower, and replaces all prior credit agreements between them. The Bank and
the Borrower hereby agree as follows.
ARTICLE I - DEFINITIONS
SECTION 1.1 The following terms defined in this Article shall have the meanings
specified for all purposes of this Agreement.
* "Borrower" shall mean STARTEK, INC.
* "Credit" means all principal and interest with respect to the revolving line
of credit described below..
* "Tangible Net Worth" shall mean the Borrower's consolidated net equity,
determined in accordance with generally accepted accounting principles, less
notes and accounts receivable from shareholders.
* "Working Capital" shall mean current assets less current liabilities, defined
in accordance with generally accepted accounting principles..
ARTICLE II - THE CREDIT
SECTION 2.1 Pursuant and concurrent to this Agreement, the Bank is renewing the
Credit to the Borrower in the aggregate amount of $5,000,000.00 as more fully
described below.
* A $5,000,000.00 committed revolving line of credit expiring April 30, 2001,
to provide funds for general corporate purposes. This Agreement shall apply to
any and all renewals of this Credit.
Interest on the Credit will accrue at an annual rate equal to the Bank's Prime
Rate, calculated for the actual number of days elapsed in a year of 360 days.
"Prime Rate" means the rate of interest announced or published by the Bank as
its 'prime' rate. The interest rate with respect to the Credit will change the
same day that there is any change in the Prime Rate.
Interest only will be payable monthly, with the full principal balance and all
accrued interest due at maturity.
Pricing of the Credit will include monthly fees calculated as follows. The
Earnings Credit Rate (as defined in Borrower's Account Analysis Statement),
multiplied by $250,000.00, divided by 12 will equal the monthly Credit fee.
The Bank will deduct this monthly Credit fee from the Borrower's demand
deposit account at the Bank.
Additional terms of the Credit is evidenced by separate Credit documents,
including but not limited to those referred to in Section 2.3 below.
Page 1 of 5
<PAGE> 2
SECTION 2.2 The Bank will debit from the Borrower's demand deposit account the
amounts necessary to make payments due under the Credit.
SECTION 2.3 The Bank's commitment to make the new line of credit shall be
subject to the delivery to the Bank, in form and substance satisfactory to the
Bank, of any documents required by the Bank which may include, but are not
limited to, promissory notes, security agreements, financing statements, and
other related documents necessary to confirm, continue or create the obligation
and/or any liens and security interests in favor of the Bank. These Credit
documents may be required of Borrower or its subsidiaries and related entities.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank as follows:
SECTION 3.1 The Borrower is validly existing and in good standing under the laws
of the State of Colorado. The Borrower is duly qualified to do business wherever
necessary to carry on its present operations.
SECTION 3.2 The making and performance of this Agreement is within its corporate
powers; has been duly authorized by all necessary corporate action; does not
require any stockholder consent; does not require the approval of any federal or
state regulatory authority; does not contravene any law, regulation or agreement
to which they are a party or by which their assets may be bound; and will not
conflict with any provision of the articles of incorporation, bylaws or other
governing documents.
SECTION 3.3 This Agreement is a legal, valid and binding obligation of the
Borrower enforceable in accordance with its terms.
SECTION 3.4 There is no pending or threatened action or proceedings before any
court or administrative agency which may materially adversely affect the
Borrower's financial condition or operations.
SECTION 3.5 The Borrower has good and marketable title to all properties or
assets (except those leased), and none of such properties or assets pledged as
security for the Credit are subject to any mortgage, pledge, credit security
interest, encumbrance or any other security agreement or arrangement of any type
whatsoever unless the security interests, liens and encumbrances are permitted
in this Agreement. The obligations and security interests set forth on exhibit A
to this Agreement are hereby approved by the Bank.
SECTION 3.6 To the best of the Borrower's knowledge and information no material
claim for taxes, whether federal, state or local, are presently being assessed
against the Borrower with respect to any past due taxes, nor are there any tax
disputes being litigated or determined by
Page 2 of 5
<PAGE> 3
governmental proceedings at the present time that have not been reflected in the
financial statements of the Borrower previously furnished to the Bank.
SECTION 3.7 The Borrower or property of the Borrower is not currently the
subject of any threatened or ongoing litigation, judgment, decree, order,
citation, compliant, or notice of violation relating to or arising out of
environmental laws or issues.
SECTION 3.8 As of the date of this Agreement, all representations and warranties
to the Bank contained herein are certified to be true and no Event of Default
shall have occurred and be continuing.
SECTION 3.9 All financial information previously supplied to the Bank in
conjunction with the Credit and required to be supplied under the terms of this
Agreement, including but not limited to financial statements, tax returns,
projections, borrowing base certificates and listings of accounts receivable,
equipment and/or inventory, are hereby certified to be true, accurate and
complete in every material respect.
ARTICLE IV - COVENANTS OF THE BORROWER
SECTION 4.1 So long as the Credit remains outstanding hereunder and until
performance of all other obligations of the Borrower, the Borrower shall:
* Permit or cause to permit the Bank at any reasonable time to have access to
the books and records of the Borrower, and to inspect or otherwise check the
properties of the Borrower, and to furnish to the Bank the following financial
information on a consolidated basis in a form and substance acceptable to the
Bank:
* within 45 days after the end of each quarter, the Borrower's 10Q report;
* within 90 days after the end of each fiscal year, the Borrower's 10K report;
* within 45 days of each quarter's end, an accounts receivable aging,
including a reconciliation to Borrower's financial statements;
* Maintain minimum Tangible Net Worth of $25,000,000;
* Maintain Working Capital of greater than $17,500,000;
* Use the Bank as its principal depository for all business accounts;
* Maintain insurance with responsible companies on such of its properties, in
such amounts and against such risks as is reasonable and customarily
maintained by similar businesses, and provide the Bank with evidence of such
coverage;
* Comply in all material respects with all laws and regulations applicable to
its business and operations; and
* Promptly provide notice to the Bank of any occurrence of an Event of Default.
SECTION 4.2 So long as the Credit remains outstanding hereunder and until
payment in full and performance of all other obligations of the Borrower, the
Borrower shall not, without the consent of the Bank, which consent shall not be
unreasonably withheld:
* Enter into any mergers, acquisitions or consolidations, or substantially
change the ownership structure of the Borrower;
* Sell, lease or otherwise dispose of all or any substantial part of its assets
or operation;
Page 3 of 5
<PAGE> 4
* Create, incur or permit to exist any lien, security interest
or other encumbrance upon any of its properties or assets in excess of
$2,500,000.00 per transaction and $5,000,000 in the aggregate during the term
of this Agreement, except liens for taxes or other items not yet overdue or
being contested in good faith; or
* Make distributions of property, or pay dividends, wages or bonuses to any of
the Borrower's officers or shareholders, in such amounts as would cause a
failure to comply with any financial covenant in this Agreement.
ARTICLE V - EVENTS OF DEFAULT
SECTION 5.1 The occurrence of any of the following events shall be an "Event of
Default":
* Any payment of principal or interest shall not be made when due and not be
cured within ten business days thereafter;
* Any representation or warranty made by the Borrower in connection with the
execution and delivery of this Agreement, or in any certificate furnished
pursuant hereto, shall prove to be at any time incorrect in any material
respect;
* The Borrower shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement and such failure shall continue for a
period of seven days after written notice from the Bank;
* Any obligation of the Borrower for the payment of any Credit is not made at
maturity, whether by acceleration or otherwise, or is declared to be due
and payable prior to the stated maturity thereof by reason of default or
other violation of the terms thereof; or
* The Borrower ceases doing business.
SECTION 5.2 Upon the occurrence of an Event of Default, the obligation of the
Bank to make advances under any Credit commitment to the Borrower shall
terminate and the Bank may declare the principal balance, together with accrued
interest thereon, to be immediately due and payable, and the same shall
forthwith become immediately due and payable without presentment, protest,
notice or demand of any kind, all of which are hereby expressly waived by the
Borrower. Upon any such Event of Default, the Bank may proceed with each and
every remedy provided for it in this Agreement, any Credit document, continuing
guaranty, security agreement or other instrument executed in connection with the
Credit, and may pursue any other remedy available to the Bank, whether in law or
equity, to enforce collection of all sums due and owing to the Bank, all of such
rights and remedies being cumulative and not exclusive of all rights and
remedies which the Bank has or may have against the Borrower.
ARTICLE VI - MISCELLANEOUS
SECTION 6.1 No failure on the part of the Bank in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power preclude any other or further exercise
thereof or the exercise of any other right or power hereunder. No modification
or waiver of any provision of this Agreement nor consent to any departure by the
Borrower therefrom shall in any event be effective unless the same shall be in
writing and then such a waiver or consent shall be effective only in the
specific instance and for
Page 4 of 5
<PAGE> 5
the purposes for which it was given. No notice or demand on the Borrower in any
case shall entitle it to any other or further notice or demand in similar or
other circumstances.
SECTION 6.2 No modification of this Agreement shall be effective unless the same
be in writing and mutually agreeable between the parties.
SECTION 6.3 The Borrower agrees to pay all costs incurred by the parties in
connection with preparation of this Agreement, the enforcement of any provision
of this Agreement, the collection of the Credit or the foreclosure or
realization upon any security therefor.
SECTION 6.4 The Borrower agrees to defend, indemnify, and hold harmless the Bank
for, from, and against and to reimburse the Bank with respect to any and all
claims, actions, costs and expenses whatsoever (including, without limitation,
attorneys fees and expenses and costs reasonably incurred), known or unknown,
asserted against or incurred by the Bank at any time by reason of or arising out
of or relating to any actual or alleged violation of any existing or future
environmental law or actual or threatened contamination relating to the property
or activities of the Borrower, whether or not such contamination was in
violation of any environmental statute. This indemnity shall last indefinitely
and is specifically intended to survive this Agreement.
SECTION 6.5 All notices or other communications required or permitted under this
Agreement shall be in writing and shall be deemed given when personally
delivered or mailed to the respective parties' addresses as set forth above.
SECTION 6.6 This Agreement and the rights and obligations of the parties
hereunder shall be construed and interpreted in accordance with the laws of the
State of Colorado.
STARTEK, INC. NORWEST BANK COLORADO,
NATIONAL ASSOCIATION
By: /s/ DENNIS M. SWENSON, 4/27/99 By: /s/ CRAIG BRANNEN
---------------------------------- --------------------------------
Title: Chief Financial Officer Title: Vice President
------------------------------- -----------------------------
By: /s/ A. EMMET STEPHENSON, JR., 4/27/99
--------------------------------------
Title: Chairman of the Board
-----------------------------------
Page 5 of 5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STARTEK,
INC. CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF MARCH 31, 1999 AND
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1999 (UNAUDITED) INCLUDED IN STARTEK, INC'S FORM 10-Q FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 19,396
<SECURITIES> 21,775
<RECEIVABLES> 13,143
<ALLOWANCES> 561
<INVENTORY> 1,152
<CURRENT-ASSETS> 56,342
<PP&E> 28,448
<DEPRECIATION> 8,740
<TOTAL-ASSETS> 76,110
<CURRENT-LIABILITIES> 16,191
<BONDS> 3,021
0
0
<COMMON> 138
<OTHER-SE> 56,393
<TOTAL-LIABILITY-AND-EQUITY> 76,110
<SALES> 0
<TOTAL-REVENUES> 40,850
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 33,164
<LOSS-PROVISION> 108
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 3,859
<INCOME-TAX> 1,432
<INCOME-CONTINUING> 2,427
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,427
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
