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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, 1999.
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
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STARTEK, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1370538
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 GARFIELD STREET
DENVER, COLORADO 80206
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(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 WHICH REGISTERED
- ---------------------------- -----------------------------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
PACIFIC EXCHANGE
CHICAGO STOCK EXCHANGE
BOSTON STOCK EXCHANGE
PHILADELPHIA STOCK EXCHANGE
BERLIN STOCK EXCHANGE
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 checkmark 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 the 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 March 1, 2000, 13,988,011 shares of common stock were outstanding and held
by approximately 3,389 holders. The aggregate market value of common stock held
by non-affiliates of the registrant on such date was approximately $184.3
million, based upon the closing price of the Company's common stock 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 III incorporates certain information by reference from the registrant's
proxy statement to be delivered in connection with its 2000 annual meeting of
stockholders. With the exception of certain portions 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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FORWARD-LOOKING STATEMENTS
All statements contained in this Form 10-K that are not statements of
historical facts are forward-looking statements 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, inflation and general economic conditions in the
Company's and its clients' markets, risks associated with the Company's reliance
on a principal client, loss or delayed implementation of a large project which
could cause quarterly variation in the Company's revenues and earnings,
difficulties in managing rapid growth, risks associated with rapidly changing
technology, dependence on labor force, risks associated with international
operations and expansion, control by principal stockholders, dependence on key
personnel, dependence on key industries and trends toward outsourcing, risks
associated with the Company's contracts, highly competitive markets, risks of
business interruptions, volatility of the Company's stock price, and risks
related to the Company's investment in and note receivable from Good Catalog
Company doing business as gifts.com, risks related to the Company's Internet web
site operations, and risks related to the Company's portfolio of Internet domain
names. 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 made as of the date hereof, and the
Company undertakes no obligation to update any such 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"
appearing elsewhere in this Form 10-K.
PART I
ITEM 1. BUSINESS
GENERAL
StarTek, Inc. (the "Company" or "StarTek") has an established position
as a global provider of process management services and owns and operates
branded vertical market Internet web sites. The Company's process management
service platforms include E-commerce support and fulfillment, provisioning
management for complex telecommunications systems, high-end inbound technical
support, and a comprehensive offering of supply chain management services. As an
outsourcer of process management 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 process management business and facilities to offer
additional outsourcing services in response to growing needs of its clients and
to capitalize on market opportunities, both domestically and internationally.
StarTek has a strategic partnership philosophy through which it assesses each of
its client's needs, and together with its clients develops and implements
customized outsourcing solutions. Management believes StarTek's 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 to
outsource non-core operations. StarTek's principal client, based on 1999
revenues, has utilized StarTek's outsourced services since 1996.
StarTek's existing process management services clients are primarily in
computer software, Internet, E-commerce, computer hardware, technology, and
telecommunications industries which are characterized by rapid growth, complex
and evolving product offerings, and large customer bases, which require
frequent, often sophisticated customer interaction. Currently, the Company is
also targeting financial services, consumer products, and health care companies.
Management believes there are substantial opportunities to cross-sell StarTek's
wide spectrum of outsourced process management services to its existing and
future client base. 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 currently has five operating facilities in Colorado, and one
facility each in Wyoming, Tennessee, and Texas. The Company's Europe operations
are performed from its facility in Hartlepool, England. The Company's Asia
operations are managed by employees co-located with a subcontractor in
Singapore.
StarTek owns a portfolio of branded vertical market Internet web sites
and operates certain sites, including airlines.com and wedding.com. In September
1999, StarTek and The Reader's Digest Association, Inc. entered into certain
arrangements whereby StarTek obtained a 19.9% ownership interest in Good Catalog
Company, doing business as gifts.com. Gifts.com provides an Internet web site
accessed through the URL www.gifts.com that sells gifts on-line. StarTek expects
to combine its process management service platforms with certain Internet web
site businesses arising from a portfolio of Internet domain names to establish a
solid position in the Internet connected world.
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The Company's business was founded in 1987 and, through its wholly
owned subsidiaries, has provided outsourced process management services since
inception. On December 30, 1996, StarTek, Inc. was incorporated in Delaware, and
in June 1997 StarTek completed an initial public offering of its common stock.
Prior to December 30, 1996, StarTek USA, Inc. and StarTek Europe, Ltd. conducted
business as affiliates under common control. In 1998, the Company formed StarTek
Pacific, Ltd., a Colorado corporation and Domain.com, Inc., a Delaware
corporation, both of which are also wholly owned subsidiaries of the Company.
StarTek, Inc. is a holding company for the businesses conducted by its wholly
owned subsidiaries. StarTek's principal executive offices are located at 100
Garfield Street, Denver, Colorado 80206 and its telephone number is (303)
361-6000. StarTek's home page on the Internet is located at www.startek.com.
PROCESS MANAGEMENT SERVICE PLATFORMS
The Company offers a wide spectrum of process management service
platforms designed to provide cost-effective and efficient management for
portions of its clients' operations. The Company works closely with its clients
to develop, refine, and implement efficient and productive integrated outsourced
solutions that link StarTek with its clients and their customers. The processes
that create such solutions generally include 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 processing, fulfillment, and
technical support. Substantially all of the Company's process-related
teleservices activities are inbound telephone calls rather than outbound calls.
Process management service platforms StarTek provides include, but are not
necessarily limited to:
Supply Chain Management. Product order processing is generally the
process by which a call or an Internet message from a client's customer is
received, identified, and routed to a StarTek service representative. Typically,
a customer calls or E-mails 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 message 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. For telephone calls, 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 customer visiting the web site of a client and placing orders which are
received by StarTek or a StarTek service representative offering products in
connection with a technical support call. To facilitate product orders, the
Company can process credit card charges and other payment methods in connection
with its product order processing.
StarTek 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 sourcing and manufacturing of various products and
related components including, among other things, 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 products and
related components are then assembled and packaged at certain of the Company's
facilities. The Company monitors 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 the Company's strong,
long-term relationships with multiple suppliers allows StarTek to be flexible
and responsive to its clients, while minimizing cost and dependency on any
single supplier.
StarTek personnel assemble and package 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) complexity of products to be assembled; (ii) availability of
materials from suppliers; (iii) availability of temporary personnel to increase
capacity; (iv) number of shifts operated by the Company; and (v) ability to
activate additional production lines.
StarTek's inventory management systems enable the Company to ship and
track products to distribution centers, individual stores, and its clients'
customers directly. Product orders are received by the Company via file transfer
protocol (FTP), the Internet, electronic data interchange (EDI), facsimile, as
well as through the Company's product order teleservices and E-commerce support
services described elsewhere.
E-commerce Support and Product Order Fulfillment. StarTek develops,
operates, and maintains Internet web sites and the Company's personnel process,
pack, and ship product orders received 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.
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Provisioning Management. StarTek personnel are responsible for managing
installation and providing on-going support services for large-scale
telecommunications networks for clients' customers, most of whom are Fortune
1000 companies. Service representatives manage relationships between StarTek's
clients and its customers on a transparent basis. StarTek's installation
management and on-going network support services, on an outsourced basis, enable
its clients to provide telecommunications services to customers more efficiently
and cost effectively.
High-End Technical Support Teleservices. StarTek service
representatives provide high-end 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 service, or by a customer's need for ongoing technical assistance.
Customers of StarTek's clients dial a technical support number listed in their
product or service manuals and, based on touch-tone responses, are automatically
connected to an appropriate StarTek service representative who is specially
trained in use of computerized knowledge databases for the applicable product.
Each StarTek service representative acts as a transparent extension of the
client when resolving complaints, diagnosing and resolving product or service
problems, or answering technical questions.
INTERNATIONAL OPERATIONS
StarTek provides process management services on an international basis
from the United Kingdom and Singapore. The Company's facility in the United
Kingdom provides most of the Company's process management service platforms for
clients throughout Europe, including supply chain management and inbound
technical support services in several languages. The Company currently provides
supply chain management through a subcontract relationship with a company in
Singapore. The subcontract relationship generally operates on a purchase order
basis. International operations, in the aggregate, generated approximately 24.0%
of the Company's revenues during 1999. See Note 15 to the consolidated financial
statements set forth herein for a further description of revenues, operating
profit, and identifiable assets classified by the major geographic areas in
which the Company operates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations"-- "Factors That May Affect Future
Results" set forth herein for a discussion of "Risks Associated with
International Operations and Expansion".
DOMAIN.COM OPERATIONS
StarTek, through it wholly owned subsidiary Domain.com, Inc., owns a
portfolio of branded vertical market Internet web sites and operates certain
sites, including airlines.com and wedding.com. In September 1999, StarTek,
through its wholly owned subsidiary Domain.com, Inc., and The Reader's Digest
Association, Inc. entered into certain arrangements whereby StarTek obtained a
19.9% ownership interest in Good Catalog Company, doing business as gifts.com.
Gifts.com provides an Internet web site accessed through the URL www.gifts.com
that sells gifts on-line. Since inception of gifts.com's Internet web site
operations, StarTek has provided various E-commerce support and product order
fulfillment services in connection with certain products and services sold
through gifts.com's web site. StarTek expects to combine its process management
service platforms with other Internet web site businesses arising from a
portfolio of Internet domain names to establish a solid position in the Internet
connected world.
BUSINESS STRATEGY
StarTek's strategic objectives are to increase revenues and earnings by
maintaining and enhancing its established position as a global provider of
process management services; and to enhance shareholder value, revenues, and
earnings by developing ownership interests in Internet web site businesses
arising from a portfolio of Internet domain names. To reach these objectives,
the Company intends to:
Provide Integrated, Outsourced Process Management Services. StarTek
seeks to provide integrated, outsourced process management 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 its
ability to tailor operations, materials, and employee resources objectively, and
provide process management 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. 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 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.
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Maintain Low-Cost Position through the StarTek Process Management
System. StarTek strives to establish a competitive advantage by frequently
redefining its operational processes to reduce cost and improve quality. The
Company believes its continuous improvement philosophy and modern process
management techniques enable the Company to reduce waste and increase efficiency
by: (i) controlling overproduction; (ii) minimizing waiting time due to
inefficient work sequences; (iii) reducing nonessential 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, through certain of its
wholly owned subsidiaries, has received ISO 9002 certifications, an
international standard for quality assurance and consistency in operating
procedures for substantially 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. Management believes it has
established a competitive advantage by capitalizing on sophisticated technology
and proprietary software, including automatic call distributors, inventory
management software, order management software, transportation management
software, knowledge databases, call tracking systems, resource scheduling
software, and computer telephony integration software. The Company further
believes 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.
Develop Ownership Interests in Internet Web Site Businesses. Management
believes the Company can continue to develop ownership interests in Internet web
site businesses arising from a portfolio of Internet domain names. Management
believes shareholder value can be enhanced in a variety of ways which include,
among others, joint ventures with third parties to develop web site businesses
based upon its Internet domain names. These opportunities are being pursued at
this time.
CLIENTS
StarTek provided process management services to approximately 45
clients in 1999. StarTek's current client base consists of companies engaged
primarily in computer software, Internet, E-commerce, computer hardware,
technology, and telecommunications industries. Currently, the Company is also
targeting financial services, consumer products, and health care companies.
Microsoft Corporation accounted for approximately 77.5% of the Company's
revenues in 1999. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations"-- "Factors That May Affect Future Results"
set forth herein for a further discussion of the Company's "Reliance on
Principal Client Relationship" and "Risks Associated with the Company's
Contracts".
SALES AND MARKETING
The Company's marketing objective is to develop long-term relationships
with existing and potential clients to become the preferred worldwide provider
of process management services. StarTek invests substantial 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, 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 cross selling of services.
StarTek markets its process management services through a variety of
methods, including personal sales calls, client referrals, attendance at trade
shows, advertisements in industry publications, and 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 an essential element to revenue 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 resources to develop a strategy to meet new
clients' outsourcing goals promptly, as well as the ability to implement
operations for such clients quickly and accurately.
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TECHNOLOGY
StarTek employs technology and proprietary software that incorporates
digital switching, relational knowledge database management systems, call
tracking systems, workforce management systems, object-oriented software
modules, and computer telephony integration. The Company's digital switching
technology is designed to enable 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 StarTek's proprietary
technology platform provides the Company with a competitive advantage in
maintaining existing clients and attracting new clients. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"--
"Factors That May Affect Future Results" set forth herein for a discussion of
"Risks Associated with Rapidly Changing Technology".
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 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 its service objectives, the Company
also utilizes temporary services. As of December 31, 1999, the Company had
approximately 2,522 full-time equivalent employees. The number of temporary
employees varies substantially due to the seasonal nature of the Company's
clients' businesses. Management believes demographics surrounding StarTek's
facilities, and the Company's reputation, stability, and compensation plans
should allow the Company to continue to attract and retain qualified employees.
However, the Company is adversely affected in some locations where unemployment
levels are currently at low levels compared to historic norms, resulting in a
shortage of available qualified employees. If low unemployment levels continue
to persist in these areas, the Company's ability to attract qualified employees
will continue to be adversely affected. Management believes StarTek's current
operations in eight separate locations helps reduce this risk exposure. The
Company considers its employee relations to be good. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"--
"Factors That May Affect Future Results" set forth herein for a discussion of
factors relating to the Company's "Dependence on Labor Force" and "Dependence on
Key Personnel".
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 service representatives. StarTek also maintains an employee
quality program to backup every employee, including specialized quality
coordinators who teach problem solving, assist with service calls, and offer
immediate performance feedback. On a more informal basis, the Company provides
on-the-job process training and tutoring for all product assembly and packaging
personnel. Employee teams gather daily to receive information about products to
be produced and techniques to be utilized, and have an opportunity to ask
questions and receive one-on-one training, as necessary.
The Company's in-house training programs for technical support and
telecommunications process management employees involve an in-depth, structured
learning environment that builds technical competence and teaches critical
software skills necessary to provide effective services to its clients. Each
client service representative is designated and trained to support a particular
product or group of products for a particular client. These client service
representatives receive 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 services. 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
Management believes businesses throughout the world are increasingly
focusing on their core competencies, and are increasingly engaging outsourced
service companies to perform specialized, non-core 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 point of origin, to 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. Management believes companies that focus on providing these services as
their core business, including StarTek, are expected to continue to benefit from
these outsourcing trends. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations"-- "Factors That May Affect Future Results"
set forth herein for a discussion of the Company's "Highly Competitive Market".
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StarTek competes on the basis of quality, reliability of service,
price, efficiency, speed, and flexibility in tailoring services to client needs.
Management believes StarTek's comprehensive and integrated services
differentiate the Company from non-client competitors who may only be able to
provide one or a few of the outsourced services 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. Management believes it can develop superior outsourced
solutions to such inefficiencies on a cost-effective basis. Management believes
StarTek competes primarily with in-house process management operations of its
current and potential clients. Such in-house operations include Internet
operations, E-commerce support, technical support teleservices, and supply chain
management. 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 principal executive offices are located in Denver, Colorado.
Currently, StarTek owns and operates (unless otherwise noted) the following
facilities, containing, in the aggregate, approximately 872,850 square feet:
<TABLE>
<CAPTION>
YEAR OPENED OR LEASED, COMPANY OWNED, OR
PROPERTIES ACQUIRED SQUARE FEET OTHERWISE
---------- -------- ----------- ---------
U.S. Facilities
<S> <C> <C> <C>
Greeley, Colorado 1987 100,000 Company Owned
Greeley, Colorado 1993 10,500 Company Owned (a)
Denver, Colorado 1995 138,000 Company Owned (b)
Greeley, Colorado 1998 35,000 Company Owned
Laramie, Wyoming 1998 22,000 Company Owned
Clarksville, Tennessee 1998 305,000 Company Owned (c)
Grand Junction, Colorado 1999 46,350 Leased
Greeley, Colorado 1999 88,000 Company Owned
Big Spring, Texas 1999 30,000 Leased
International Facilities
Hartlepool, England 1993 73,000 Leased
Singapore 1995 25,000 Subcontractor Relationship
</TABLE>
Substantially all of the Company's facility space can be used to support
several of the Company's process management service platforms. Management
believes StarTek's existing facilities are adequate for the Company's current
operations, but continued capacity expansion will be required to support
continued growth. Management intends to maintain a certain amount of excess
capacity to enable StarTek to readily provide for needs of new clients, and
increasing needs of existing clients. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations"-- "Factors That May Affect
Future Results" set forth herein for a discussion of "Risks of Business
Interruptions".
---------------
(a) This facility was closed in December 1999, and is currently for sale.
(b) Certain process management services previously provided from the Denver
facility were completely transferred to other facilities by January 31,
2000. Currently, a relatively small portion of the Denver facility provides
for certain executive, corporate, and information technology functions,
while management evaluates possible operating activities which could be
located in this facility.
(c) See Note 9 to the consolidated financial statements set forth herein for a
description of the Tennessee financing arrangement.
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 currently expected by
management to have a material adverse effect on the Company's business,
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
three months ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET PRICE OF COMMON STOCK
StarTek's common stock has traded under the symbol "SRT" on the New
York Stock Exchange since June 19, 1997, the effective date of the Company's
initial public offering. High and low sale prices of StarTek's common stock for
1998 and 1999 were:
<TABLE>
<CAPTION>
1998 HIGH LOW
---- ---- ---
<S> <C> <C> <C>
First Quarter 12 3/16 9 1/16
Second Quarter 13 1/8 11 9/16
Third Quarter 12 13/16 8 5/8
Fourth Quarter 12 9/16 8 1/16
<CAPTION>
1999 HIGH LOW
---- ---- ---
First Quarter 14 10 3/8
Second Quarter 24 3/4 9 15/16
Third Quarter 55 21 13/16
Fourth Quarter 69 21 3/8
</TABLE>
The closing sale price for StarTek's common stock on March 1, 2000 was
$44.25. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations"-- "Factors That May Affect Future Results" set forth
herein for a discussion of "Volatility of Stock Price".
HOLDERS OF COMMON STOCK
As of March 1, 2000, there were approximately 3,389 stockholders of
record and 13,988,011 shares of common stock outstanding. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"--
"Factors That May Affect Future Results" set forth herein for a discussion of
"Control by Principal Stockholders".
DIVIDEND POLICY
StarTek currently intends to retain all earnings to finance the
continued growth of its business and does not expect to pay any dividends 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,
availability of funds, future earnings, capital requirements, contractual
restrictions, general financial condition of the Company, and general business
conditions. Under its $5 million line of credit, the Company may not pay
dividends in an amount which would cause a failure to meet its financial
covenants. See Note 7 to the consolidated financial statements, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"--"Liquidity and Capital Resources" set forth herein for a
description of these financial covenants.
SALES OF UNREGISTERED SECURITIES
The Company did not issue or sell any unregistered securities during
the three months ended December 31, 1999, except for the following stock
options, all of which were granted at exercise prices equal to the market value
of the Company's common stock on the date the options were granted:
On October 1, 1999, the Company granted options to purchase 300 shares of
common stock, in the aggregate, to three employees pursuant to the Company's
Stock Option Plan. These options vest at a rate of 20% per year beginning
October 1, 2000, expire on October 1, 2009, and are exercisable at $50.06 per
share;
On November 22, 1999, the Company granted options to purchase 22,700 shares
of common stock, in the aggregate, to 25 employees pursuant to the Company's
Stock Option Plan. These options vest at a rate of 20% per year beginning
November 22, 2000, expire on November 22, 2009, and are exercisable at $32.81
per share; and
On December 14, 1999, the Company granted an option to purchase 10,000
shares of common stock to one director pursuant to the Company's Director Stock
Option Plan. This option fully vested on December 14, 1999 and is exercisable at
$38.63 per share.
The foregoing stock option grants were made in reliance upon exemptions
from registration provided by Sections 4(2) and 3(b) of the Securities Act of
1933, as amended, and regulations promulgated thereunder.
8
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
Form 10-K. Additionally, the following selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 41,509 $ 71,584 $ 89,150 $ 140,984 $ 205,227
Cost of services 33,230 57,238 71,986 115,079 166,880
----------- ----------- ----------- ----------- -----------
Gross profit 8,279 14,346 17,164 25,905 38,347
Selling, general and administrative
expenses 5,341 7,764 8,703 14,714 20,338
Management fee expense 2,600 6,172 3,126 -- --
----------- ----------- ----------- ----------- -----------
Operating profit 338 410 5,335 11,191 18,009
Net interest income (expense) and
other (396) (372) 933 2,254 2,814
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (58) 38 6,268 13,445 20,823
Income tax expense -- 112 2,110 4,901 7,800
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (58) $ (74) $ 4,158 $ 8,544 $ 13,023
=========== =========== =========== =========== ===========
Earnings per share:
Basic $ 0.62 $ 0.94
Diluted $ 0.62 $ 0.92
Weighted average shares outstanding:
Basic 13,828,571 13,874,556
Diluted 13,828,571 14,139,149
SELECTED OPERATING DATA:
Capital expenditures, net of proceeds $ 2,104 $ 1,333 $ 3,191 $ 13,927 $ 12,591
Depreciation and amortization $ 873 $ 1,438 $ 1,829 $ 2,852 $ 4,715
BALANCE SHEET DATA (DECEMBER 31):
Working capital $ 798 $ 2,895 $ 38,704 $ 38,336 $ 40,214
Total assets 21,580 22,979 58,172 80,201 101,435
Total debt 7,294 6,475 664 4,225 7,424
Total stockholders' equity $ 3,798 $ 7,103 $ 46,006 $ 54,133 $ 71,046
</TABLE>
SELECTED UNAUDITED PRO FORMA INFORMATION:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996 1997
------------ ------------ ------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Historical net income (loss) $ (58) $ (74) $ 4,158
Add back management fee expense 2,600 6,172 3,126
Less applicable income tax expense (948) (2,204) (1,394)
------------ ------------ ------------
Pro forma net income $ 1,594 $ 3,894 $ 5,890
============ ============ ============
Earnings per share:
Basic $ 0.47
Diluted $ 0.47
Weighted average shares outstanding:
Basic 12,652,680
Diluted 12,652,680
</TABLE>
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 in connection with the initial public
offering in June 1997. Pro forma presentation was not applicable for the years
ended December 31, 1998 and 1999.
9
<PAGE> 10
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 Form 10-K
that are not statements of historical facts are forward-looking statements 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, inflation and general economic conditions
in the Company's and its clients' markets, risks associated with the Company's
reliance on a principal client, loss or delayed implementation of a large
project which could cause quarterly variation in the Company's revenues and
earnings, difficulties in managing rapid growth, risks associated with rapidly
changing technology, dependence on labor force, risks associated with
international operations and expansion, control by principal stockholders,
dependence on key personnel, dependence on key industries and trends toward
outsourcing, risks associated with the Company's contracts, highly competitive
markets, risks of business interruptions, volatility of the Company's stock
price, and risks related to the Company's investment in and note receivable from
Good Catalog Company doing business as gifts.com, risks related to the Company's
Internet web site operations, and risks related to the Company's portfolio of
Internet domain names. 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 made as of the date hereof, and the
Company undertakes no obligation to update any such forward-looking statements.
All forward-looking statements herein are qualified in their entirety by the
information set forth in "Factors That May Affect Future Results" below.
OVERVIEW
StarTek has historically generated revenues through the provision of
process management services, which include E-commerce support and fulfillment,
provisioning management for complex telecommunications systems, high-end inbound
technical support, and a comprehensive offering of supply chain management
services. The Company recognizes revenues as process management services are
completed. 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, and the volume, complexity and type of
components involved in the handling of clients' products. Changes in the
complexity 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.
An essential element of the Company's ability to grow is availability
of capacity to readily provide for the needs of new clients and increasing needs
of existing clients. StarTek operates from facilities in the United States,
United Kingdom and Singapore. The Company's capacity expanded during 1999
through: (i) lease of a 30,000 square-foot building in Big Spring, Texas; (ii)
expansion of previously existing space in Hartlepool, England from 53,000 to
73,000 square feet; and (iii) purchase of an 88,000 square-foot building in
Greeley, Colorado. These three additions, together with the Company's previously
existing capacity, provided adequate capacity to accommodate revenue and
earnings growth experienced by the Company during 1999. Management believes
StarTek's existing facilities are adequate for the Company's current and near
term operations, but continued capacity expansion will be required to support
continued growth. Management intends to maintain a certain amount of excess
capacity to enable StarTek to readily provide for needs of new clients and
increasing needs of existing clients. The 10,500 square-foot Greeley facility
purchased in 1993 was closed in December 1999, and is currently for sale.
Certain process management services previously provided from the Denver facility
were completely transferred to other facilities by January 31, 2000. Currently,
a relatively small portion of the Denver facility provides for certain
executive, corporate, and information technology functions, while management
evaluates possible operating activities which could be located in this facility.
The Company's cost of services primarily include labor,
telecommunications, materials, and freight expenses that are variable in nature
and certain facility expenses. All other operating expenses, including expenses
attributed to technology support, sales and marketing, human resource
management, and other administrative functions not allocable to specific client
services, are included in selling, general and administrative expenses, which
generally 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 necessary working capital, with substantially
all of the remaining 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 sheets. Effective with the closing of the
Company's initial public offering, these management fees and bonus arrangements
were discontinued.
Compensation has continued to be payable to certain principal
stockholders as general compensation for services rendered in the form of
salaries or advisory fees and all such payments are included in selling, general
and administrative expenses in the consolidated statement of operations. At
current rates, such payments, in the aggregate, approximate $516,000 annually.
10
<PAGE> 11
The Company frequently purchases components of its clients' products as an
integral part of its process management services and in advance of providing its
product assembly and packaging services. These components are packaged,
assembled, and held by StarTek pending shipment. The Company generally has the
right to be reimbursed from clients for unused inventories. Client-owned
inventories are not reflected in the Company's consolidated balance sheets. See
Note 1 and 4 to the consolidated financial statements set forth herein for a
further description of the Company's inventories.
RESULTS OF OPERATIONS
The following tables should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Form 10-K.
The following table sets forth, for the periods indicated, certain
consolidated statement of operations data expressed as a percentage of revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of services 80.7 81.6 81.3
---------- ---------- ----------
Gross profit 19.3 18.4 18.7
Selling, general and administrative expenses 9.8 10.4 9.9
Management fee expense 3.5 -- --
---------- ---------- ----------
Operating profit 6.0 8.0 8.8
Net interest income and other 1.0 1.6 1.4
---------- ---------- ----------
Income before income taxes 7.0 9.6 10.2
Income tax expense 2.3 3.5 3.8
---------- ---------- ----------
Net income 4.7% 6.1% 6.4%
========== ========== ==========
</TABLE>
The following table sets forth certain unaudited pro forma consolidated
statement of operations data, expressed in dollars and as a percentage of
revenues for the year ended December 31, 1997 (dollars in thousands, except per
share data) (a):
<TABLE>
<S> <C> <C>
Revenues $ 89,150 100.0%
Cost of services 71,986 80.7
------------
Gross profit 17,164 19.3
Selling, general and administrative expenses 8,703 9.8
------------
Operating profit 8,461 9.5
Net interest income and other 933 1.0
------------
Income before income taxes 9,394 10.5
Income tax expense 3,504 3.9
------------
Pro forma net income $ 5,890 6.6%
============
Earnings per share:
Basic $ 0.47
Diluted $ 0.47
Weighted average shares outstanding:
Basic 12,652,680
Diluted 12,652,680
</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 in connection with the initial public
offering in June 1997. Pro forma presentation was not applicable for the years
ended December 31, 1998 and 1999.
11
<PAGE> 12
1999 Compared to 1998
Revenues. Revenues increased $64.2 million, or 45.6%, from $141.0
million in 1998 to $205.2 million in 1999. This increase was primarily from
existing and new clients, partially offset by decreases in the volume of
services provided to other existing clients. Also, management believes changes
in the timing of the volume of services provided to the Company's clients due to
year 2000 buying patterns contributed to the increase in revenues experienced by
the Company during 1999.
Cost of Services. Cost of services increased $51.8 million, or 45.0%,
from $115.1 million in 1998 to $166.9 million in 1999. As a percentage of
revenues, cost of services was 81.6% and 81.3% in 1998 and 1999, respectively.
This percentage amount remained relatively consistent.
Gross Profit. Due to the foregoing factors, gross profit increased
$12.4 million in 1999, or 48.0%, from $25.9 million in 1998 to $38.3 million in
1999. As a percentage of revenues, gross profit was 18.4% and 18.7% in 1998 and
1999, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $5.6 million, or 38.2%, from $14.7 million in
1998 to $20.3 million in 1999, primarily as a result of increased personnel and
related expansion costs incurred to service increasing business. As a percentage
of revenues, selling, general and administrative expenses decreased from 10.4%
in 1998 to 9.9% in 1999.
Operating Profit. As a result of the foregoing factors, operating
profit increased from $11.2 million in 1998 to $18.0 million in 1999. As a
percentage of revenues, operating profit increased from 8.0% in 1998 to 8.8% in
1999.
Net Interest Income and Other. Net interest income and other was $2.3
million in 1998 and $2.8 million in 1999. The majority of net interest income
and other continues to be derived from cash equivalents and investment balances,
partially offset by interest expense incurred as a result of the Company's
various debt and lease arrangements.
Income Before Income Taxes. As a result of the foregoing factors,
income before income taxes increased $7.4 million, or 54.9%, from $13.4 million
in 1998 to $20.8 million in 1999. As a percentage of revenues, income before
income taxes increased from 9.6% in 1998 to 10.2% in 1999.
Income Tax Expense. Income tax expense for 1998 and 1999 reflects a
provision for federal, state, and foreign income taxes at an effective rate of
36.5% and 37.5%, respectively.
Net Income. Based on the factors discussed above, net income increased
$4.5 million, or 52.4%, from $8.5 million in 1998 to $13.0 million in 1999.
1998 Compared to 1997
Revenues. Revenues increased $51.8 million, or 58.1%, from $89.2
million for 1997 to $141.0 million for 1998. This increase was primarily due to
an increase in the volume of services provided to one of the Company's principal
clients, together with certain 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 $43.2 million, or 59.9%,
from $71.9 million for 1997 to $115.1 million for 1998. As a percentage of
revenues, costs of services increased from 80.7% for 1997 to 81.6% for 1998.
This percentage increase was primarily due to higher overall costs of certain
business for a principal client at lower relative margins, mix of services
performed and training and start-up expenses related to the new Greeley,
Colorado, Laramie, Wyoming and Clarksville, Tennessee facilities, all of which
became operational during 1998.
Gross Profit. Due to the foregoing factors, gross profit increased $8.7
million, or 50.9%, from $17.2 million for 1997 to $25.9 million for 1998. As a
percentage of revenues, gross profit decreased from 19.3% for 1997 to 18.4% for
1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.0 million, or 69.1%, from $8.7 million for
1997 to $14.7 million for 1998, primarily as a result of increased personnel
costs incurred to service increasing business and costs associated with capacity
expansion. As a percentage of revenues, selling, general and administrative
expenses increased from 9.8% for 1997 to 10.4% for 1998.
Management Fee Expense. Management fee expense was $3.1 million for
1997 and zero for 1998. Effective with the closing of the Company's initial
public offering in June 1997, management fees were discontinued.
Operating Profit. As a result of the foregoing factors, operating
profit increased from $5.3 million for 1997 to $11.2 million for 1998. As a
percentage of revenues, operating profit increased from 6.0% for 1997 to 8.0%
for 1998.
12
<PAGE> 13
Net Interest Income and Other. Net interest income and other was $0.9
million for 1997 and $2.3 million for 1998. This increase was primarily a result
of an increase in interest income derived from cash equivalents and investments
available for sale balances during 1998, whereas there were line of credit and
substantially more capital lease borrowings outstanding during the first half of
1997, substantially all of which were repaid from the net proceeds received by
the Company from its June 1997 initial public offering.
Income Before Income Taxes. As a result of the foregoing factors,
income before income taxes increased $7.1 million, or 114.5%, from $6.3 million
for 1997 to $13.4 million for 1998. As a percentage of revenues, income before
income taxes increased from 7.0% for 1997 to 9.6% for 1998.
Income Tax Expense. 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. Accordingly, the Company was not subject to federal or
state income taxes prior to 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. Income tax expense for 1998 reflects a provision for
federal, state and foreign income taxes at an effective rate of 36.5%.
Net Income. Based on the factors discussed above, net income increased
$4.3 million, or 105.5%, from $4.2 million for 1997 to $8.5 million for 1998. As
a percentage of revenues, net income increased from 4.7% for 1997 to 6.1% for
1998.
Pro Forma Management Fee Expense; Pro Forma Operating Profit; Pro Forma
Income Before Income Taxes; Pro Forma Income Tax Expense and Pro Forma Net
Income for 1997 compared to actual results for 1998. Pro forma amounts for 1997
reflect the elimination of management fees and bonuses to stockholders and their
affiliates as these fees and bonuses were discontinued upon the closing of the
Company's June 1997 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
for the entire year of 1997. Pro forma presentation was not applicable to 1998.
As a result of the foregoing factors: (i) pro forma management fee expense is
zero for 1997 and actual management fee expense is zero for 1998; (ii) pro forma
operating profit was $8.5 million for 1997 compared to actual operating profit
of $11.2 million for 1998, while such operating profit represented 9.5% and 8.0%
of revenues, respectively; (iii) income before income taxes increased $4.0
million, or 43.1%, from a pro forma amount of $9.4 million for 1997 to an actual
amount of $13.4 million for 1998; (iv) income tax expense increased $1.4
million, or 39.9%, from a pro forma amount of $3.5 million for 1997 to an actual
amount of $4.9 million for 1998; and (v) net income increased $2.6 million, or
45.1%, from a pro forma amount of $5.9 million for 1997 to an actual amount of
$8.5 million for 1998.
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 received from its 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 has a $5.0 million line of credit with Norwest Bank
Colorado, N.A. (the "Bank"), which matures on April 30, 2001. Borrowings under
the line of credit bear interest at the Bank's prime rate (8.5% as of December
31, 1999). 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 December 31, 1999 and the date of this Form
10-K, the Company was in compliance with these financial covenants. Collateral
for the line of credit is trade accounts receivable of certain of the Company's
wholly owned subsidiaries. As of December 31, 1999 and the date of this Form
10-K, no amount was outstanding under the $5.0 million line of credit.
On October 26, 1998, the Company, through its wholly owned subsidiary
StarTek USA, Inc., entered into an equipment loan agreement with a finance
company maturing November 2, 2002. In connection with the equipment loan, the
Company received cash of $3.6 million in exchange for providing, among other
things, certain collateral, which generally consisted of equipment, furniture,
and fixtures used in the Company's business. The equipment loan provides for
interest at a fixed annual rate of interest of 7.0% and for the Company to pay
forty-eight equal monthly installments, which, in the aggregate, totaled
approximately $4.2 million at inception of the equipment loan. In addition to
the collateral described above, the Company granted to the finance company a
secondary security interest in certain of its wholly owned subsidiaries' account
receivable.
13
<PAGE> 14
On February 16, 1999, the Company entered into a lease agreement for
46,350 square feet of building space in Grand Junction, Colorado. The facility
is used for a call center, general office use, and other services offered by the
Company (the "Grand Junction Facility"). The term of the lease agreement
commenced 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 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 after the end of the fifth year, total minimum
rental commitments, in the aggregate, excluding certain taxes and utilities as
defined, are approximately $1.1 million and are payable on a monthly basis from
May 1999 through April 2009.
On July 16, 1999, the Company entered into a lease agreement for an
additional 20,000 square feet of building space in Hartlepool, England, to be
used for the continuing operations of StarTek Europe, Ltd. (a wholly owned
subsidiary of the Company). The term of the lease agreement commenced on May 1,
1998 and unless earlier terminated, extended, or otherwise revised, continues
until April 30, 2013. If the Company and the landlord do not complete a new
lease agreement for additional premises, as defined, the Company was granted the
right to terminate the lease agreement on May 1, 2003 by giving the landlord at
least six months written notice to terminate. Additionally, if a new lease
agreement for additional premises, as defined, is consummated, the Company was
granted the right to terminate the lease agreement on May 1, 2008 by giving the
landlord at least six months written notice to terminate. Pursuant to the terms
of the lease agreement, the Company was granted an option, which commences on
May 1, 2008 and expires on July 31, 2008, to purchase the leased property at
market value as determined at such time. The lease agreement provides for
quarterly lease payments which, in the aggregate for the periods described, are:
106,000 British Pounds from May 1, 1998 through April 30, 1999, all of which the
Company has paid; 584,000 British Pounds from May 1, 1999 through April 30,
2003, a portion of which the Company has paid pursuant to the quarterly lease
payment schedule provided for in the lease agreement; and 1,095,000 British
Pounds from May 1, 2003 through April 30, 2008. Quarterly lease payments from
May 1, 2008 through April 30, 2013 will equal lease payments as agreed to
between the landlord and the Company, or by formula in the absence of such an
agreement.
Effective September 15, 1999, the Company, through its wholly owned
subsidiary Domain.com, Inc. ("Domain.com"), entered into a contribution
agreement (the "Contribution Agreement") and stockholders agreement with The
Reader's Digest Association, Inc. ("Reader's Digest") and Good Catalog Company,
previously a wholly owned subsidiary of Reader's Digest. On November 8, 1999,
pursuant to the Contribution Agreement, Domain.com purchased 19.9% of the
outstanding common stock of Good Catalog Company for approximately $2.6 million
in cash. Reader's Digest owns the remaining 80.1% of the outstanding common
stock of Good Catalog Company. The Contribution Agreement provides for: (i) an
assignment from Domain.com to Good Catalog Company of Domain.com's right, title,
and interest in and to the URL www.gifts.com; and (ii) an undertaking by Good
Catalog Company to effect a change in its name to Gifts.com, Inc. Domain.com has
the right to designate at least one member of Good Catalog Company's board of
directors, which will consist of at least five directors. Effective November 1,
1999, Domain.com, Reader's Digest, and Good Catalog Company entered into a loan
agreement pursuant to which Domain.com advanced an unsecured loan of $7.8
million and Reader's Digest advanced an unsecured loan of $18.4 million to Good
Catalog Company ( the "Loans"). The Loans mature November 1, 2002, bear interest
at a rate equal to a three month LIBO rate plus 2.0% per annum, and interest is
payable quarterly. Currently, Good Catalog Company, doing business as gifts.com,
provides an Internet web site accessed through the URL www.gifts.com that sells
gifts on-line. The Company agreed to perform certain fulfillment services for
Good Catalog Company in connection with certain products and services to be sold
in connection with gifts.com.
On October 14, 1999, the Company purchased an 88,000 square-foot
building in Greeley, Colorado for $4.2 million in cash. The building is used for
certain executive and other offices, E-commerce support operations, and
telecommunications provisioning management business.
On October 22, 1999, the Company, through its wholly owned subsidiary
StarTek USA, Inc., completed an equipment loan arrangement with a finance
company maturing October 22, 2003. In connection with the equipment loan, the
Company received cash of $2.0 million in exchange for providing, among other
things, certain collateral which generally consisted of computer hardware and
software, various forms of telecommunications equipment, and furniture and
fixtures whose estimated cost was equal to the principal amount of the equipment
loan. The equipment loan arrangement provides for interest at the prime rate
minus 1.60% (6.9% as of December 31, 1999), and forty-eight consecutive monthly
payments. StarTek USA, Inc. is required, from time to time, to maintain certain
operating ratios. As of December 31, 1999 and the date of this Form 10-K,
StarTek USA, Inc. was in compliance with these financial covenants.
14
<PAGE> 15
On November 1, 1999, the Company entered into a lease agreement for
30,000 square feet of building space in Big Spring, Texas. The facility is
principally used for a call center supporting Internet and telecommunications
clients, and for general office use and other services offered by the Company.
The term of the lease agreement commenced on November 1, 1999 and unless earlier
terminated or extended, continues until November 1, 2014. Pursuant to the terms
of the lease agreement, the Company was granted, among other things: (i) a right
to terminate the lease agreement in the fifth or tenth year. Assuming the lease
agreement is not terminated after the end of the fifth or tenth year, total
minimum rental commitments, in the aggregate, excluding certain taxes and
utilities as defined, are approximately $0.9 million, and are payable on a
monthly basis from November 1999 through November 2014. Pursuant to an incentive
agreement and through the tenth year of the lease agreement, the Company shall
be reimbursed for the actual amount of its lease payments.
In November 1999, the Company received $2.3 million in cash in
connection with its Big Spring, Texas operations through a non-interest bearing
fifteen-year promissory note. The principal balance of the promissory note
declines without payment over fifteen years based on the level of employment at
the Company's Big Spring, Texas facility during the term of the promissory note.
As of December 31, 1999, the Company had cash, cash equivalents, and
investment balances of $35.9 million, working capital of $40.2, and
stockholders' equity of $71.0 million. Investments available for sale primarily
consisted of corporate bonds, foreign government bonds denominated in U.S.
dollars, bond mutual funds, real estate investment trusts, equity mutual funds,
and publicly traded common stock of U.S. based companies. Trading securities
generally consisted of publicly traded common stock of U.S. based companies, and
international equity mutual funds, together with certain hedging securities, and
various forms of derivative securities. StarTek's cash and cash equivalents are
not restricted. The Company's investments available for sale and trading
securities could be materially and adversely affected by: (i) various domestic
and foreign economic conditions, such as recession, increasing interest rates,
adverse foreign currency exchange fluctuations, foreign and domestic inflation,
and other factors; (ii) the inability of certain corporations to repay their
debts, including interest amounts, to the Company; and (iii) changes in market
price of common stocks, international equity mutual funds, hedging securities,
and other derivative securities held by the Company due to the level of trading
in such securities, and other risks generally attributable to U.S. based
publicly traded companies. See "Quantitative and Qualitative Disclosure About
Market Risk" set forth herein for further discussions regarding the Company's
cash, cash equivalents, investments available for sale, and trading securities.
Net cash provided by operating activities increased from $13.1 million
in 1998 to $15.8 million in 1999. This increase was primarily a result of
increases in net income, accrued and other liabilities, depreciation and
amortization expense, and income taxes payable. The positive effects of the
foregoing were partially offset by increases in net deferred tax assets, net
purchases of trading securities, net trade accounts receivable, inventories, and
prepaid expenses and other assets; and decreases in accounts payable. Microsoft
Corporation ("Microsoft") accounted for approximately 77.5% of the Company's
revenues in 1999. Correspondingly, the Company's cash flows from operating
activities were in the past and presently continue to be substantially dependent
upon its Microsoft related process management services operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"--"Factors That May Affect Future Results" set forth herein for a
further discussion of the Company's "Reliance on Principal Client Relationship"
and "Risks Associated with the Company's Contracts".
Net cash used in investing activities was $24.2 million in 1998 and
$28.9 million in 1999. This increase was primarily due to $2.6 million and $7.8
million paid to Good Catalog Company in exchange for a 19.9% equity interest in
and a note receivable from Good Catalog Company, respectively. The effects of
the foregoing were partially offset by decreases, in the aggregate of $5.7
million, related to net purchases of property, plant, and equipment and net
purchases of investments available for sale.
Net cash provided by financing activities was $3.6 million in 1998,
which primarily consisted of $3.7 million of net proceeds received from an
October 1998 equipment loan and other borrowings, partially offset by
approximately $0.1 million of principal payments for the October 1998 equipment
loan and various capital lease obligations. Net cash provided by financing
activities was $5.6 million in 1999, which primarily consisted of $2.4 million
of proceeds received from exercises of employee stock options and $4.3 million
of proceeds received from borrowing arrangements entered into during 1999,
partially offset by $1.1 million of principal payments on borrowings and capital
lease obligations.
The effect of currency exchange rate changes on the translation of the
Company's United Kingdom and Singapore operations was not substantial during
1999. The terms of the Company's agreements with its clients and its
subcontracts are typically in U.S. dollars except for certain of its agreements
related to its United Kingdom and Singapore operations. If the international
portion of the Company's business continues to grow, more revenues and expenses
will be denominated in foreign currencies, 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.
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<PAGE> 16
Management believes the Company's current cash, cash equivalents,
investments, anticipated cash flows from future operations, and $5.0 million of
currently available financing under its 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 and the rate at which the Company expands its business,
whether internally or through acquisitions and strategic alliances. To the
extent funds generated from 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.
QUARTERLY RESULTS
Note 17 to the consolidated financial statements set forth herein
reflects certain unaudited statement of operations data for the quarters in 1998
and 1999. Unaudited quarterly information has been prepared on the same basis as
annual information and, in management's opinion, includes all adjustments
necessary to present fairly information for quarters presented. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"-- "Factors That May Affect Future Results"--"Variability of
Quarterly Operating Results" set forth herein for a further discussion of the
Company's quarterly results.
For quarterly periods in 1998 and 1999, revenues, cost of services and
gross profits fluctuated principally due to the seasonal pattern of certain of
the businesses served by the Company and an increase in the volume of services
provided to the Company's principal client, together with certain existing and
new clients, partially offset by decreases in the volume of services provided to
other existing clients. Revenues, cost of services, and gross profit from the
fourth quarter of 1998 to the first quarter of 1999 declined principally due to
the seasonal pattern of certain businesses served by the Company. Also,
management believes changes in the timing of the volume of services provided to
the Company's clients due to year 2000 buying patterns contributed to the
increase in revenues experienced by the Company in the third quarter of 1999 by
accelerating significant revenues into the third quarter of 1999 revenues that
may have otherwise occurred in the fourth quarter of 1999 and potentially the
first quarter of 2000.
The following table sets forth certain unaudited statement of
operations data, expressed as a percentage of revenues:
<TABLE>
<CAPTION>
1998 QUARTERS ENDED 1999 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>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 18.8 19.0 18.4 18.0 18.8 18.6 18.5 18.8
Selling, general and administrative
expenses 11.2 13.3 11.0 8.6 10.8 11.4 10.7 7.7
Operating profit 7.6 5.7 7.4 9.4 8.0 7.2 7.8 11.1
Net income 6.2% 5.4% 5.7% 6.5% 6.0% 5.5% 5.8% 7.6%
</TABLE>
Gross profit as a percentage of revenues, remained relatively constant
from the fourth quarter of 1998 to the first quarter of 1999, and for each of
the comparative quarters between 1998 and 1999 as a substantial portion of the
Company's revenues continued to be derived from the Company's principal client
and the terms of the Company's arrangements with its principal client have also,
in large part, remained constant.
For the quarterly periods in 1998 and 1999, selling, general and
administrative expenses fluctuated principally due to personnel and related
expansion costs incurred to service increasing business. Additionally, for the
quarterly periods in 1998 and 1999, selling, general and administrative expenses
fluctuated partially due to the spreading of fixed and semi-variable costs over
a revenue base that fluctuates from quarter to quarter.
Operating profit fluctuated within the quarterly periods of 1998 and
1999 based primarily on the factors noted above.
Net income also fluctuated within the quarterly periods in 1998 and
1999 based primarily on the factors noted above, and based on an increase in net
interest income and other derived from the Company's cash equivalents and
investments in 1999 partially offset by a provision for income taxes in 1999 of
37.5%.
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<PAGE> 17
INFLUENCE OF YEAR 2000
In 1999, management discussed the nature and progress of StarTek's plans to
become Year 2000 ready. In late 1999, management believed the Company completed
its remediation and testing of certain systems. Because of those planning and
implementation efforts, management believes: (i) the Company experienced no
significant disruptions in mission critical information technology and
non-information technology systems; and (ii) those systems successfully
responded to the Year 2000 date change. The Company expensed approximately
$150,000 related to remediating its systems. Management is not aware of any
substantial problems, resulting from Year 2000 issues, with StarTek's services,
internal systems, or products and services of third parties. Management plans to
continue to monitor StarTek's mission critical computer applications and those
of its important suppliers throughout 2000 in an effort to insure StarTek
addresses any latent Year 2000 problems responsively. Management does not
anticipate incurring any material costs related to its ongoing monitoring of
Year 2000 issues.
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 inflation
has had, or is likely in the foreseeable future to have, a material adverse
effect on its results of operations or financial condition.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Reliance on Principal Client Relationship
Microsoft Corporation ("Microsoft") accounted for approximately 77.5% of
the Company's revenues in 1999. Loss of Microsoft as a client would have a
material adverse effect on the Company's business, results of operations, and
financial condition. The Company provides various outsourced services to various
divisions of Microsoft, which began its outsourcing relationship with the
Company in April 1996. There can be no assurance the Company will be able to
retain Microsoft as a client or, if it were to lose Microsoft as a client, it
would be able to timely replace Microsoft with clients which generate a
comparable amount of revenues. Additionally, the amount and growth rate of
revenues derived from the Microsoft relationship in the past is not necessarily
indicative of revenues that may be expected from Microsoft in the future.
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 quarters preceding the
fourth quarter due to 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)
timing of existing and future client product launches; (ii) expiration or
termination of existing client projects; (iii) timing and amount of costs
incurred to expand capacity in order to provide for further revenue growth from
current and future clients; (iv) seasonal nature of certain clients' businesses;
(v) cyclical nature of certain high technology clients' businesses; and (vi)
changes in the amount and growth rate of revenues generated from the Company's
principal client.
Difficulties in Managing Business Undergoing Rapid Growth
StarTek has experienced rapid growth over the past several years and
anticipates continued future growth. Continued growth depends on a number of
factors, including the Company's ability to: (i) initiate, develop, and maintain
new and existing client relationships, particularly relationships with its
principal client; (ii) expand its sales and marketing organization; (iii)
recruit, motivate, and retain qualified management, customer support, and other
personnel; (iv) rapidly expand capacity of its existing facilities or identify,
acquire or lease suitable additional facilities on acceptable terms and complete
build-outs of such facilities in a timely and economic fashion; (v) provide high
quality services to its clients; and (vi) maintain relationships with
high-quality and reliable suppliers. Continued rapid growth can be expected to
place significant strain upon the Company's management, employees, operations,
operating and financial systems, and other resources. To accommodate such growth
and to compete effectively, the Company must continue to implement and improve
its information systems, procedures, and controls and expand, train, motivate,
and manage its workforce. There can be no assurance the Company's personnel,
systems, procedures, and controls will be adequate to support the Company's
future operations. Further, there can be no assurance the Company will be able
to maintain or accelerate its current growth, effectively manage its expanding
operations, or achieve planned growth on a timely and profitable basis. If the
Company is unable to manage growth effectively or if growth does not occur, its
business, results of operations, and financial condition could be materially and
adversely affected.
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<PAGE> 18
Risks Associated with Rapidly Changing Technology
Continued and substantial world-wide use and development of the
Internet as a delivery system for computer software, hardware, computer games,
other computer related products, and products in general could significantly and
adversely affect demand for the Company's services. Additionally, the Company's
success is significantly dependent on its computer equipment, telecommunications
equipment, software systems, operating systems, and financial systems. There can
be no assurance the Company will be able to timely and successfully develop and
market any new services, such services will be commercially successful, or
clients' and competitors' technologies or services will not render the Company's
services obsolete. Furthermore, the Company's failure to successfully and timely
implement sophisticated technology or to respond effectively to technological
changes in general, would have a material adverse effect on the Company's
success, growth prospects, results of operations, and financial condition.
Dependence on Labor Force
StarTek's success is largely dependent on its ability to recruit, hire,
train, and retain qualified employees. The Company's business is labor intensive
and continues to experience relatively high personnel turnover. The Company's
operations, especially its technical support teleservices, generally require
specially trained employees. Increases in the Company's employee turnover rate
could increase the Company's recruiting and training costs and decrease its
operating efficiency and productivity. Also, the addition of new clients or
implementation of new projects for existing clients may require the Company to
recruit, hire, and train personnel at accelerated rates. There can be no
assurance the Company will be able to successfully recruit, hire, train, and
retain sufficient qualified personnel to adequately staff for existing business
or future growth. Additionally, since a substantial portion of the Company's
operating expenses consist of labor related costs, continued labor shortages
together with increases in wages (including minimum wages as mandated by the
U.S. federal government, employee benefit costs, employment tax rates, and other
labor related expenses) could have a material adverse effect on StarTek's
business, operating profit, and financial condition. Furthermore, certain of
StarTek's facilities are located in areas with relatively low unemployment rates
and/or relatively high labor costs, thus potentially making it more difficult
and costly to hire qualified personnel.
Risks Associated with International Operations and Expansion
StarTek currently conducts business in Europe and Asia, in addition to
its North America operations. Such international operations accounted for
approximately 24.0% of the Company's revenues for the year ended December 31,
1999. A component of the Company's growth strategy continues to be expansion of
its international operations. There can be no assurance the Company will be able
to continue or expand its capacity to market, sell, and deliver its services in
international markets, or develop relationships with other businesses to expand
its international operations. Additionally, there are certain risks inherent in
conducting international business, including: (i) exposure to foreign currency
fluctuations against the U.S. dollar; (ii) potentially longer working capital
cycles; (iii) greater difficulties in collecting accounts receivable; (iv)
difficulties in complying with a variety of foreign laws and foreign tax
regulations; (v) unexpected changes in foreign government programs, policies,
regulatory requirements and labor laws; (vi) difficulties in staffing and
effectively managing foreign operations; and (vii) political instability and
adverse tax consequences. There can be no assurance one or more of such factors
will not have a material adverse effect on the Company's international
operations and, consequently, on the Company's business, results of operations,
growth prospects, and financial condition.
Control by Principal Stockholders
As of March 1, 2000, A. Emmet Stephenson, Jr., Chairman of the Board
and co-founder of the Company, and his family beneficially own approximately
65.5% of the Company's outstanding common stock. As a result, Mr. Stephenson and
his family will be able to elect the entire Board of Directors of the Company
and to control substantially all other matters requiring action by the Company's
stockholders. Additionally, substantially all of the Company's revenues,
operating expenses, and operating results in general are derived from the
Company's wholly owned subsidiaries. Mr. Stephenson is the sole director for
each of the Company's wholly owned subsidiaries. Such voting concentration may
discourage, delay or prevent a change in control of the Company and its wholly
owned subsidiaries. In connection with Domain.com, Inc.'s 19.9% equity interest
in Good Catalog Company, Mr. Stephenson is also a director of Good Catalog
Company. Previously, Good Catalog Company was a wholly owned subsidiary of The
Reader's Digest Association, Inc. Domain.com, Inc. is a wholly owned subsidiary
of StarTek, Inc. Currently, Good Catalog Company, doing business as gifts.com,
sells gifts on-line through an Internet web site accessed through the URL
www.gifts.com.
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<PAGE> 19
Dependence on Key Personnel
The Company's success to date has depended in part on the skills and
efforts of Mr. Stephenson and Michael W. Morgan, President, Chief Executive
Officer, Director, and co-founder of the Company. As of March 1, 2000, Mr.
Stephenson and his family and Mr. Morgan beneficially own approximately 65.5%
and 4.7% of the Company's outstanding common stock, respectively. Mr. Stephenson
and Mr. Morgan have not entered into employment agreements with the Company and
there can be no assurance the Company can retain the services of these
individuals. The loss of either Mr. Stephenson, Mr. Morgan, or the Company's
inability to hire and retain other qualified officers, directors and key
employees, could have a material adverse effect on the Company's success, growth
prospects, results of operations, and financial condition.
Dependence on Key Industries and Trends Toward Outsourcing
StarTek's current client base generally consists of companies engaged
primarily in the computer software, computer hardware, Internet, E-commerce,
technology, and telecommunications industries. The Company's business and growth
is largely dependent on continued demand for its services from clients in these
industries and industries targeted by the Company, and current trends in such
industries to outsource various non-core functions which are offered on an
outsourced basis by the Company. A general economic downturn in the computer
industry or in other industries targeted by the Company, or a slowdown or
reversal of the trend in these industries to outsource services provided by the
Company could materially and adversely affect the Company's business, results of
operations, growth prospects, and financial condition.
Risks Associated with the Company's Contracts
The Company typically enters into written agreements 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,
including its principal client, the Company typically generates revenues based
on the number and duration of customer inquiries, and volume, complexity, and
type of components involved in its clients' products. Consequently, the amount
of revenues generated from any particular client is generally dependent upon
customers' purchase and use of StarTek's clients' products. There can be no
assurance as to the number of customers who will be attracted to the products of
the Company's clients or the Company's clients will continue to develop new
products that will require the Company's services. 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 its
clients; (ii) do not designate the Company as its clients' exclusive outsourcing
service provider; (iii) do not penalize its clients for early termination, and;
(iv) generally hold the Company responsible for work performed which does not
meet certain pre-defined specifications. To the extent the Company works on a
purchase order basis, agreements with its clients frequently do not provide for
minimum purchase requirements, except in connection with certain of its
technical support services. Substantially all of the Company's contracts require
the Company, through its wholly owned subsidiaries and for certain of its
facilities and services, to maintain ISO 9002 certification.
Highly Competitive Markets
The markets in which StarTek operates are highly competitive.
Management expects competition to persist and intensify in the future. The
Company's competitors include small firms offering specific applications,
divisions of large companies, large independent firms and, most significantly,
in-house operations of StarTek's existing and potential clients. A number of
competitors have or may develop financial and other resources greater than those
of the Company. Similarly, there can be no assurance additional competitors with
greater name recognition and resources than the Company will not enter the
markets in which the Company operates. In-house operations of the Company's
existing and potential clients are significant competitors of the Company. As a
result, StarTek's performance and growth could be materially and adversely
affected if its clients decide to provide in-house services currently
outsourced, or if potential clients retain or increase their in-house
capabilities. Moreover, a decision by its principal client to consolidate its
outsourced services with a company other than StarTek would materially and
adversely affect the Company's business. Additionally, competitive pressures
from current or future competitors could result in substantial price erosion,
which could materially and adversely affect the Company's business, results of
operations, and financial condition.
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<PAGE> 20
Risks of Business Interruptions
StarTek's operations depend on its ability to protect its facilities,
clients' products, confidential client information, computer equipment,
telecommunications equipment, and software systems against damage from Internet
interruption, fire, power-loss, telecommunications interruption, E-commerce
interruption, natural disaster, theft, unauthorized intrusion, computer viruses,
other emergencies, and ability of its suppliers to deliver component parts
quickly. While the Company maintains certain procedures and contingency plans to
minimize the detrimental impact of such events, there can be no assurance such
procedures and plans will be successful. In the event the Company experiences
temporary or permanent interruptions or other emergencies at one or more of its
facilities, the Company's business could be materially and adversely affected
and the Company may be required to pay contractual damages to its clients, or
allow its clients to terminate or renegotiate their arrangements with the
Company. While the Company maintains property and business interruption
insurance, such insurance may not adequately and/or timely compensate the
Company for all losses it may incur. Further, some of the Company's operations,
including telecommunication systems and telecommunication networks, and the
Company's ability to timely and consistently access and use 24 hours per day,
seven days per week, telephone, Internet, E-commerce, E-mail, facsimile
connections, and other forms of communication are substantially dependent upon
telephone companies, Internet service providers, T1 lines, etc. If such
communications are interrupted on a short or long-term basis, the Company's
services would be similarly interrupted and delayed.
Volatility of Stock Price
The market price of StarTek's common stock may be highly volatile and
could be subject to wide fluctuations in response to quarterly variations in
operating results, the success of the Company in implementing its business and
growth strategies, announcements of new contracts or contract cancellations,
announcements of technological innovations or new products and services by the
Company or its competitors, changes in financial estimates by securities
analysts, or other events or factors. Additionally, the stock market has
experienced substantial price and volume fluctuations that have particularly
affected the market prices of equity securities of many companies, and that have
often been unrelated to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of StarTek's common
stock. Additionally, since approximately 29.8% of StarTek's outstanding common
stock is currently available to the public for trading, any change in demand for
such shares can be expected to substantially influence market prices of
StarTek's outstanding common stock.
Risks related to Investment in and Note Receivable from Good Catalog Company,
doing business as gifts.com
Through its wholly owned subsidiary Domain.com, Inc., the Company's
investment in and note receivable from Good Catalog Company, doing business as
gifts.com, of approximately $10.4 million, in the aggregate, involves a high
degree of risk. The business of gifts.com is difficult to evaluate because it
has a limited operating history under its current business model. Good Catalog
Company was a wholly owned subsidiary of The Reader's Digest Association, Inc.
Gifts.com's current management team and its current web site were both formed in
late 1999. Accordingly, an investor in the Company's common stock must consider
the challenges, risks, and uncertainties frequently encountered by early stage
companies using new and unproven business models in new and rapidly evolving
markets. These challenges influencing gifts.com's ability to substantially
increase its revenues and thereby achieve profitability, include gifts.com's
ability to: (i) execute on its business model; (ii) increase brand recognition;
(iii) manage growth in its operations; (iv) cost-effectively attract and retain
a high volume of online customers and build a critical mass of repeat customers
at a reasonable cost; (v) effectively manage, control, and account for
inventory; (vi) upgrade and enhance its web site, transaction-processing
systems, order fulfillment capabilities, and inventory management systems; (vii)
increase awareness of its online store; (viii) establish pricing to meet
customer expectations; (ix) compete effectively in its market; (x) adapt to
rapid regulatory and technological changes related to E-commerce and the
Internet; and (xi) protect its trademarks, service marks, and copyrights. These
and other uncertainties generally attributable to businesses engaging in
E-commerce and the Internet must be considered when evaluating the Company's
investment in and note receivable from Good Catalog Company, and the Company's
participation in the business of gifts.com. An impairment of the Company's
investment in and note receivable from Good Catalog Company could have an
adverse effect on the Company's results of operations and financial condition.
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<PAGE> 21
Risks related to the Company's Internet web site operations
Through its wholly owned subsidiary Domain.com, Inc., the Company's
Internet web site operations involve a high degree of risk. The businesses of
airlines.com and wedding.com, for example, are difficult to evaluate because
each are early stage and have a limited operating history. Accordingly, an
investor in the Company's common stock must consider the challenges, risks, and
uncertainties frequently encountered by early stage companies using new and
unproven business models in new and rapidly evolving markets. These challenges
influencing, for example, airlines.com's and wedding.com's ability to
substantially increase revenues and thereby achieve profitability, include the
ability to: (i) execute on business models; (ii) increase brand recognition;
(iii) manage growth in operations; (iv) cost-effectively attract and retain a
high volume of online customers and build a critical mass of repeat customers at
a reasonable cost; (v) upgrade and enhance web sites, transaction-processing
systems, and order fulfillment capabilities; (vi) increase awareness of online
offerings; (vii) establish pricing to meet customer expectations; (viii) compete
effectively; (ix) adapt to rapid regulatory and technological changes related to
E-commerce and the Internet; and (x) protect trademarks, service marks, and
copyrights. These and other uncertainties generally attributable to businesses
engaging in E-commerce and the Internet must be considered when evaluating
prospects of the Company's Internet web site operations.
Risks related to the Company's portfolio of Internet domain names
Through its wholly owned subsidiary Domain.com, Inc., the Company owns
a portfolio of Internet domain names. The estimated fair market value of domain
names owned by the Company is difficult to assess because the Company, to date,
has had limited activity related to its Internet domain name portfolio. An
investor in the Company's common stock must consider the challenges, risks, and
uncertainties frequently encountered by early stage companies using new and
unproven business models in new and rapidly evolving markets. These challenges
influencing the Company's ability to benefit from its portfolio of Internet
domain names include the Company's ability to: (i) execute on its business
model; (ii) increase brand recognition of the Internet domain names within the
Company's portfolio; and (iii) protect trademarks, service marks, and copyrights
related to the domain names. These and other uncertainties generally
attributable to businesses engaging in E-commerce and the Internet must be
considered when evaluating the Company's portfolio of Internet domain names, and
prospects of the Company's Internet web site operations anticipated to be
developed from these domain names.
ITEM 7a. 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 other general market risks, and foreign currency exchange rates. All
of the Company's investment decisions are supervised or managed by its Chairman
of the Board. On May 19, 1999 and as amended on August 19, 1999, the Company's
Board of Directors approved the Company's current investment portfolio policy
which provides for, among other things, investment objectives and investment
portfolio allocation guidelines. 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 and other general market risks, 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"
appearing elsewhere in this Form 10-K. Also, see Note 1 and 3 to the
consolidated financial statements set forth herein for a further discussion of
the Company's cash, cash equivalents, and investments.
Interest Rate Sensitivity and Other General Market Risks
Cash and Cash Equivalents. As of December 31, 1999, the Company had
$11.9 million in cash and cash equivalents, which was not restricted, and
consisted of: (i) approximately $11.6 million invested in various money market
funds, overnight investments, and various commercial paper securities at a
combined weighted average interest rate of approximately 5.0%; and (ii)
approximately $0.3 million in various non-interest bearing accounts. Management
considers cash equivalents to be short-term, highly liquid investments readily
convertible to known amounts of cash, and so near their maturity 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.
Investments Available for Sale. As of December 31, 1999, the Company
had investments available for sale, which, in the aggregate, had an original
cost and fair market value of $23.7 million and $22.8 million, respectively.
These investments available for sale generally consisted of corporate bonds,
foreign government bonds denominated in U.S. dollars, bond mutual funds, and
various forms of equity securities. The Company's investment portfolio is
subject to interest rate risk and will fall in value if interest rates increase.
Fair market value of and estimated cash flows from the Company's
investments in corporate bonds are substantially dependent upon credit
worthiness of certain corporations 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.
21
<PAGE> 22
The Company's investments in foreign government bonds denominated in
U.S. dollars entail special risks of global investing. These risks 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. 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 related to certain of the
Company's investments available for sale as of December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED EXPECTED MATURITY DATE
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 6.12% $ 5,944 $ -- $ -- $ -- $ -- $ -- $ 5,944 $ 6,059
Foreign government bonds 6.25% 1,980 -- -- -- -- -- 1,980 1,991
Corporate bonds 8.54% -- 3,987 -- -- -- -- 3,987 3,975
Corporate bonds 7.26% -- -- 2,711 -- -- -- 2,711 2,518
Corporate bonds 5.08% -- -- -- -- 1,830 -- 1,830 1,484
Foreign government bonds 8.88% -- -- -- -- -- 1,438 1,438 1,582
------- ------- ------- ------- ------- ------- ------- -------
Total 6.96% $ 7,924 $ 3,987 $ 2,711 $ -- $ 1,830 $ 1,438 $17,890 $17,609
======= ======= ======= ======= ======= ======= ======= =======
</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 December 31, 1999 and as part of its investments available for
sale portfolio, the Company was invested in: (i) various bond mutual funds
which, in the aggregate, had an original cost and fair market value of
approximately $2.0 million and $1.9 million, respectively; and (ii) equity
securities which, in the aggregate, had an original cost and fair market value
of approximately $3.8 million and $3.3 million, respectively.
Debt securities within bond mutual funds as of December 31, 1999: (i)
had a weighted average yield of approximately 11.8%, and a weighted average
maturity of approximately 3.4 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 bond mutual funds entail
special risks of global investing, including, but not limited to: (i) currency
exchange fluctuations; (ii) foreign government regulations; and (iii) the
potential for political and economic instability. The fair market value of the
Company's investments in 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 December 31, 1999, the Company
had outstanding debt of approximately $7.4 million, approximately $2.7 million
of which bears interest at an annual fixed rate of 7.0%, and approximately $2.3
million of which bears no interest, as long as the Company complies with the
terms of this debt arrangement. On October 22, 1999, the Company completed a
$2.0 million equipment loan arrangement whereby the Company is expected to repay
its debt at a variable rate of interest over a forty-eight month period.
Management believes a hypothetical 10.0% increase in interest rates would not
have a material adverse effect on the Company. Increases in interest rates
could, however, increase interest expense associated with the Company's existing
variable rate $2.0 million equipment loan and 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 December 31, 1999, the
Company had no outstanding line of credit obligations. The Company has not
hedged against interest rate changes.
22
<PAGE> 23
Equity Price Risk and Other General Market Risks
Equity Securities. As of December 31, 1999, the Company held in its
investments available for sale portfolio certain equity securities with original
cost and fair market value, in the aggregate, of $3.8 million and $3.3 million,
respectively. The Company's investments in equity securities consisted of real
estate investment trusts, equity mutual funds, and publicly traded common stock
of U.S. based companies. A substantial decline in the value of equity securities
and equity prices in general would have a material adverse affect on the
Company's equity investments. Also, the price of common stock held by the
Company would be materially and adversely affected by poor management, shrinking
product demand, and other risks that may affect single companies, as well as
groups of companies. The Company has partially hedged against some equity price
changes.
Trading Securities. As of December 31, 1999, the Company was invested
in trading securities which, in the aggregate, had an original cost and fair
market value of approximately $1.4 million and $1.2 million, respectively.
Trading securities consisted primarily of publicly traded common stock of U.S.
based companies and international equity mutual funds, together with certain
hedging securities and various forms of derivative securities. Trading
securities were held to meet short-term investment objectives. The Company
entered into hedging and derivative securities in an effort to maximize its
return on investments in trading securities while managing risk. As part of
trading securities and as of December 31, 1999, the Company was invested in
securities sold short related to a total of 24,421 shares of U.S. equity
securities which, in the aggregate, had a basis and estimated fair market value
of approximately $1.8 million and $2.2 million, respectively, all of which were
reported net as components of trading securities. These securities sold short
were used in conjunction with and were substantially offset by other trading
securities, which taken together, represented a risk arbitrage portfolio in U.S.
equity securities.
Management believes the risk of loss to the Company in the event of
nonperformance by any party under these agreements is not substantial. Because
of potential limited liquidity of some of these instruments, recorded values of
these transactions may be different from values that might be realized if the
Company were to sell or close out the transactions. Management believes such
differences are not substantial to the Company's results of operations,
financial condition, or liquidity. Hedging and derivative securities may involve
elements of credit and market risk in excess of the amounts recognized in the
accompanying consolidated financial statements. A substantial decline and/or
change in value of equity securities, equity prices in general, international
equity mutual funds, hedging securities, and derivative securities could have a
material adverse effect on the Company's trading securities. Also, the price of
common stock, hedging securities, and other derivative securities held by the
Company as trading securities would be materially and adversely affected by poor
management, shrinking product demand, and other risks that may affect single
companies, as well as groups of companies.
Foreign Currency Exchange Risk
Approximately 17.3% of the Company's revenues in 1999 were derived from
arrangements whereby the Company received payments from its clients in
currencies other than U.S. dollars. Terms of the Company's agreements with its
clients and its subcontracts are typically in U.S. dollars except for certain of
its agreements related to its United Kingdom and Singapore operations. If an
arrangement provides for the Company to receive payments in a foreign currency,
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, 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. If the international portion
of the Company's business continues to grow, more revenues and expenses will be
denominated in foreign currencies, and this will increase the Company's exposure
to fluctuations in currency exchange rates. In the past, the Company has not
hedged against foreign currency exchange rate changes related to its day to day
operations in the United Kingdom and Singapore.
Certain of the Company's 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.
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY FINANCIAL DATA
Consolidated financial statements and supplementary data of the Company
required by Item 8. are set forth herein at the pages indicated in Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
23
<PAGE> 24
PART III
ITEMS 10. THROUGH 13.
Information required by 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) will be included in StarTek's definitive
proxy statement to be delivered in connection with its 2000 annual meeting of
stockholders 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 25 of this Form 10-K.
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 25 of this Form 10-K.
3. An Index of Exhibits is on pages 44 and 45 of this Form 10-K.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the three
months ended December 31, 1999, except for:
Current Report on Form 8-K relating to the Company's October 20,
1999 announcement of Mr. Thomas O. Ryder's resignation from the
Company's board of directors in connection with the formation of
the gifts.com business by Good Catalog Company. Good Catalog
company is 19.9% owned by StarTek and 80.1% owned by The Reader's
Digest Association, Inc. Mr. Ryder is Chairman and Chief
Executive Officer of The Reader's Digest Association, Inc.
Gifts.com provides an Internet web site accessed through the URL
www.gifts.com that sells gifts on-line.
24
<PAGE> 25
STARTEK, INC. AND SUBSIDIARIES
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 26
Consolidated Balance Sheets,
as of December 31, 1998 and 1999 27
Consolidated Statements of Operations,
years ended December 31, 1997, 1998, and 1999 28
Consolidated Statements of Cash Flows,
years ended December 31, 1997, 1998, and 1999 29
Consolidated Statements of Stockholders' Equity,
years ended December 31, 1997, 1998, and 1999 30
Notes to Consolidated Financial Statements 31
SUPPLEMENTARY DATA:
Selected Financial Data 9
FINANCIAL STATEMENT SCHEDULES
</TABLE>
Note. All schedules have been included in the Consolidated Financial Statements
or notes thereto.
25
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
StarTek, Inc.
We have audited the accompanying consolidated balance sheets of
StarTek, Inc. and subsidiaries (the "Company") as of December 31, 1999 and 1998,
and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
Denver, Colorado
February 11, 2000
26
<PAGE> 27
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,593 $ 11,943
Investments 16,829 23,907
Trade accounts receivable, less allowance for
doubtful accounts of $441 and $775, respectively 20,476 21,792
Inventories 2,772 3,740
Deferred tax assets 1,135 2,363
Prepaid expenses and other assets 165 448
------------ ------------
Total current assets 60,970 64,193
Property, plant and equipment, net 19,171 26,758
Investment in Good Catalog Company, at cost -- 2,606
Note receivable from Good Catalog Company -- 7,818
Other assets 60 60
------------ ------------
Total assets $ 80,201 $ 101,435
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,433 $ 16,148
Accrued liabilities 2,092 4,443
Income taxes payable 1,944 1,384
Current portion of capital lease obligations 46 32
Current portion of long-term debt 906 1,428
Other 213 544
------------ ------------
Total current liabilities 22,634 23,979
Capital lease obligations, less current portion 77 42
Long-term debt, less current portion 3,196 5,922
Deferred income taxes 144 446
Other 17 --
Commitments and contingencies -- --
Stockholders' equity:
Common stock 138 140
Additional paid-in capital 41,661 45,681
Cumulative translation adjustment 167 25
Unrealized loss on investments available for sale (606) (596)
Retained earnings 12,773 25,796
------------ ------------
Total stockholders' equity 54,133 71,046
------------ ------------
Total liabilities and stockholders' equity $ 80,201 $ 101,435
============ ============
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 28
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 89,150 $ 140,984 $ 205,227
Cost of services 71,986 115,079 166,880
---------- ---------- ----------
Gross profit 17,164 25,905 38,347
Selling, general and administrative
expenses 8,703 14,714 20,338
Management fee expense 3,126 -- --
---------- ---------- ----------
Operating profit 5,335 11,191 18,009
Net interest income and other 933 2,254 2,814
---------- ---------- ----------
Income before income taxes 6,268 13,445 20,823
Income tax expense 2,110 4,901 7,800
---------- ---------- ----------
Net income $ 4,158 $ 8,544 $ 13,023
========== ========== ==========
Earnings per share:
Basic $ 0.62 $ 0.94
Diluted $ 0.62 $ 0.92
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 29
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,158 $ 8,544 $ 13,023
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,829 2,852 4,715
Deferred income taxes (153) (577) (884)
(Gain) loss on sale of assets -- (106) 3
Changes in operating assets and liabilities:
Purchases of trading securities, net -- -- (1,146)
Trade accounts receivable, net (1,487) (7,958) (1,316)
Inventories (4) (233) (968)
Prepaid expenses and other assets (65) (17) (283)
Accounts payable 2,425 8,046 (1,285)
Income taxes payable 106 1,838 1,094
Accrued and other liabilities (661) 679 2,874
---------- ---------- ----------
Net cash provided by operating activities 6,148 13,068 15,827
INVESTING ACTIVITIES
Purchases of investments available for sale (7,504) (18,684) (19,123)
Proceeds from disposition of investments available for sale -- 8,397 13,197
Purchases of property, plant and equipment (3,191) (14,108) (12,593)
Proceeds from disposition of property, plant and equipment -- 181 2
Investment in Good Catalog Company, at cost -- -- (2,606)
Note receivable from Good Catalog Company -- -- (7,818)
Collections on notes receivable-stockholders 213 -- --
---------- ---------- ----------
Net cash used in investing activities (10,482) (24,214) (28,941)
FINANCING ACTIVITIES
Stock options exercised -- -- 2,368
Principal payments on line of credit borrowings, net (3,500) -- --
Principal payments on borrowings (1,854) (62) (1,057)
Proceeds from borrowings and capital lease obligations 1,500 3,729 4,331
Principal payments on capital lease obligations (2,218) (80) (14)
Dividend to S corporation principal stockholders (8,000) -- --
Net proceeds from initial public offering of common stock 41,042 -- --
Contributed capital 1,641 -- --
---------- ---------- ----------
Net cash provided by financing activities 28,611 3,587 5,628
Effect of exchange rate changes on cash (59) 192 (164)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 24,218 (7,367) (7,650)
Cash and cash equivalents at beginning of year 2,742 26,960 19,593
---------- ---------- ----------
Cash and cash equivalents at end of year $ 26,960 $ 19,593 $ 11,943
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 368 $ 58 $ 332
Income taxes paid $ 2,263 $ 3,640 $ 7,484
Property, plant and equipment acquired or refinanced under
long-term debt $ 261 $ 3,629 $ 2,031
Change in unrealized loss on investments available for sale,
net of tax $ 92 $ 514 $ (10)
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 30
STARTEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL NOTE OTHER TOTAL
------------------------ PAID-IN RECEIVABLE RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDER EARNINGS INCOME EQUITY
----------- ----------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 43,200 $ 1 $ 6,148 $ (213) $ 1,038 $ 129 $ 7,103
Payment of note receivable - stockholder -- -- -- 213 -- -- 213
Contribution of StarTek Europe, Ltd. (9,582) -- -- -- -- -- --
Contributed capital -- -- 1,641 -- -- -- 1,641
322.1064-for-one common stock split
effected by stock dividend,
immediately prior to closing
of initial public offering 10,794,953 107 (107) -- -- -- --
Dividend to principal stockholders -- -- (7,033) -- (967) -- (8,000)
Issuance of common stock pursuant
to initial public offering, net of
stock issuance costs of $3,958 3,000,000 30 41,012 -- -- -- 41,042
Net income -- -- -- -- 4,158 -- 4,158
Cumulative translation adjustment -- -- -- -- -- (59) (59)
Unrealized loss on investments
available for sale -- -- -- -- -- (92) (92)
-----------
Comprehensive income -- -- -- -- -- -- 4,007
-----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 13,828,571 138 41,661 -- 4,229 (22) 46,006
Net income -- -- -- -- 8,544 -- 8,544
Cumulative translation adjustment -- -- -- -- -- 97 97
Unrealized loss on investments
available for sale -- -- -- -- -- (514) (514)
-----------
Comprehensive income -- -- -- -- -- -- 8,127
-----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 13,828,571 138 41,661 -- 12,773 (439) 54,133
Stock options exercised 158,540 2 2,366 -- -- -- 2,368
Income tax benefit from stock
options exercised -- -- 1,654 -- -- -- 1,654
Net income -- -- -- -- 13,023 -- 13,023
Cumulative translation adjustment -- -- -- -- -- (142) (142)
Unrealized gain on investments
available for sale -- -- -- -- -- 10 10
-----------
Comprehensive income -- -- -- -- -- -- 12,891
-----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 13,987,111 $ 140 $ 45,681 $ -- $ 25,796 $ (571) $ 71,046
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
StarTek, Inc.'s business was founded in 1987 and, through its wholly
owned subsidiaries, has provided outsourced process management services since
inception. On December 30, 1996, StarTek, Inc. (the "Company" or "StarTek") was
incorporated in Delaware, and in June 1997 StarTek completed an initial public
offering of its common stock. Prior to December 30, 1996, StarTek USA, Inc. and
StarTek Europe, Ltd. conducted business as affiliates under common control. In
1998, the Company formed StarTek Pacific, Ltd., a Colorado corporation and
Domain.com, Inc., a Delaware corporation, both of which are also wholly owned
subsidiaries of the Company. StarTek, Inc. is a holding company for the
businesses conducted by its wholly owned subsidiaries. The consolidated
financial statements include accounts of all wholly owned subsidiaries after
elimination of significant intercompany accounts and transactions.
Business Operations
StarTek has an established position as a global provider of process
management services and owns and operates branded vertical market Internet web
sites. The Company's process management services include E-commerce support and
fulfillment, provisioning management for complex telecommunications systems,
high-end inbound technical support, and a comprehensive offering of supply chain
management services. As an outsourcer of process management 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 process management business and
facilities to offer additional outsourcing services in response to growing needs
of its clients and to capitalize on market opportunities, both domestically and
internationally. The Company has process management operations in North America,
Europe, and Asia.
StarTek owns a portfolio of branded vertical market Internet web sites
and operates certain sites, including airlines.com and wedding.com. In September
1999, StarTek and The Reader's Digest Association, Inc. entered into certain
arrangements whereby StarTek obtained a 19.9% ownership interest in Good Catalog
Company, doing business as gifts.com. Gifts.com provides an Internet web site
accessed through the URL www.gifts.com that sells gifts on-line. StarTek expects
to combine its process management service platforms with certain Internet web
site businesses arising from a portfolio of Internet domain names to establish a
solid position in the Internet connected world. The Company's investment in Good
Catalog Company is carried at cost because the Company does not exercise
significant influence over financial or operating policies of such company
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, related prices in per share calculations, per
share amounts, and stock option plan information have been restated to reflect
the split.
Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are
translated into U.S. dollars at current exchange rates. Revenues and expenses
are translated at average monthly exchange rates. Resulting translation
adjustments, net of applicable deferred income taxes (1997 tax benefit of $42,
1998 tax of $53, and 1999 tax of $15), are reported as a separate component of
stockholders' equity. Foreign currency transaction gains and losses are included
in determining net income. Such gains and losses were not material for any
period presented.
Comprehensive Income
Financial Accounting Standards Board Statement No. 130, "Reporting
Comprehensive Income", establishes 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 $4,007, $8,127, and $12,891 for 1997, 1998, and 1999, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the Company's
management to make estimates and assumptions that affect amounts reported in the
Company's consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Reclassifications
Certain reclassifications of the 1997 and 1998 consolidated financial
statements and related notes have been made to conform to the 1999 presentation.
31
<PAGE> 32
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Revenue Recognition
Revenues are recognized as services are completed.
Training
Training costs pertaining to start-up and ongoing projects are expensed
during the year incurred.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents,
investments, accounts receivable, accounts payable, notes receivable, debt, and
capital lease obligations. Carrying values of cash and cash equivalents,
accounts receivable, and accounts payable approximate fair value. Investments
are reported at fair value. Management believes differences between fair values
and carrying values of notes receivable, 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 cash equivalents to be short-term, highly liquid
investments readily convertible to known amounts of cash and so near their
maturity they present insignificant risk of changes in value because of changes
in interest rates.
Investments
Investments available for sale consist of debt and equity securities
reported at fair value, with unrealized gains and losses, net of tax (tax
benefits of $56, $356, and $360 for 1997, 1998, and 1999, respectively) reported
as 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
investments available for sale. Original cost of investments available for sale,
which are sold, is based on the specific identification method. Interest income
from investments available for sale is included in net interest income and
other. Trading securities are carried at fair market values. Fair market values
are determined by the most recently traded price of the security as of the
balance sheet date. Gross unrealized gains and losses from trading securities
are reflected in income currently and as part of net interest income and other.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, ("SFAS No. 133") "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards requiring every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at fair
value. SFAS No. 133 requires changes in the derivative's fair value be
recognized currently in income unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allow a derivative's gains and
losses to offset related results on the hedged item in the statement of
operations, and requires a company to formally document, designate, and assess
effectiveness of transactions that receive hedge accounting treatment. SFAS No.
133 is effective for the Company's fiscal quarters of fiscal years beginning
after June 15, 2000. The Company has not yet quantified the impacts of adopting
SFAS No. 133 on its consolidated financial statements and has not determined
timing or method of adoption of SFAS No. 133.
Inventories
Inventories are valued at average costs that approximate actual costs
computed on a first-in, first-out basis, not in excess of market value.
Investment in Good Catalog Company, at cost
Equity investments of less than 20% in non-publicly traded companies
are carried at cost. Changes in value of these investments are not recognized
unless impairment in value is deemed to be other than temporary.
32
<PAGE> 33
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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. Depreciation and amortization is
computed using the straight-line method based on:
Estimated Useful Lives
----------------------------
Buildings and improvements 7 to 30.5 years
Equipment 3 to 5 years
Furniture and fixtures 7 years
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 tax returns of
stockholders and no provision was made for federal, state, and foreign income
taxes.
Subsequent to termination of the Company's Subchapter S status, the
Company began accounting for income taxes using the liability method of
accounting for income taxes as prescribed by Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Deferred income taxes reflect
net effects of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for income tax
purposes. The Company is subject to foreign income taxes on its foreign
operations.
Management Fee Expense
Prior to the Company's June 24, 1997 initial public offering, and in
addition to general compensation for services rendered, certain S corporation
stockholders and an affiliate were paid certain management fees, bonuses, and
other fees in connection with services rendered to the Company, which were not
included in selling, general and administrative expenses. These management fees
have been reflected as management fee expense as set forth below. Effective with
the closing of the Company's June 24, 1997 initial public offering, these
management fees, bonuses, and other fees were discontinued.
After the closing of the June 24, 1997 initial public offering, 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 expenses. These advisory fees
and salaries were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Selling, general and administrative expenses $ 512 $ 516 $ 516
Management fee expense $ 3,126 -- --
</TABLE>
2. EARNINGS PER SHARE
Basic earnings per share is computed on the basis of weighted average
number of common shares outstanding. Diluted earnings per share is computed on
the basis of weighted average number of common shares outstanding plus effects
of outstanding stock options using the "treasury stock" method. Components of
basic and diluted earnings per share were:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net income (A) $ 4,158 $ 8,544 $ 13,023
------------ ------------ ------------
Weighted average shares of common stock (B) 12,652,680 13,828,571 13,874,556
Dilutive effect of stock options -- -- 264,593
------------ ------------ ------------
Common stock and common stock equivalents (C) 12,652,680 13,828,571 14,139,149
============ ============ ============
Earnings per share:
Basic (A/B) $ 0.33 $ 0.62 $ 0.94
Diluted (A/C) $ 0.33 $ 0.62 $ 0.92
</TABLE>
33
<PAGE> 34
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. INVESTMENTS
As of December 31, 1998, investments available for sale consisted of:
<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>
As of December 31, 1999, investments available for sale consisted of:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Corporate bonds $ 14,472 $ 141 $ (577) $ 14,036
Foreign government bonds 3,418 155 -- 3,573
Bond mutual funds 1,992 -- (142) 1,850
Equity securities 3,835 184 (717) 3,302
-------- -------- -------- --------
Total $ 23,717 $ 480 $ (1,436) $ 22,761
======== ======== ======== ========
</TABLE>
As of December 31, 1999, amortized costs and estimated fair values of
investments available for sale by contractual maturity were:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------------ ------------
<S> <C> <C>
Corporate bonds and foreign government
bonds maturing within:
One year $ 7,924 $ 8,050
Two to five years 8,528 7,977
Due after five years 1,438 1,582
------------ ------------
17,890 17,609
Bond mutual funds 1,992 1,850
Equity securities 3,835 3,302
------------ ------------
Total $ 23,717 $ 22,761
============ ============
</TABLE>
Bond mutual funds were 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. Equity securities consisted of real estate investment
trusts, equity mutual funds, and publicly traded common stock of U.S. based
companies.
As of December 31, 1999, the Company was also invested in trading
securities which, in the aggregate, had an original cost and fair market value
of approximately $1,429 and $1,146, respectively. Trading securities consisted
primarily of publicly traded common stock of U.S. based companies and
international equity mutual funds, together with certain hedging securities and
various forms of derivative securities. Trading securities were held to meet
short-term investment objectives. The Company entered into hedging and
derivative securities in an effort to maximize its return on investments in
trading securities while managing risk. As part of trading securities and as of
December 31, 1999, the Company was invested in securities sold short related to
a total of 24,421 shares of U.S. equity securities which, in the aggregate, had
a basis and estimated fair market value of approximately $1,845 and $2,160,
respectively, all of which were reported net as components of trading
securities. These securities sold short were used in conjunction with and were
substantially offset by other trading securities, which taken together,
represented a risk-arbitrage portfolio in U.S. equity securities.
34
<PAGE> 35
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. INVESTMENTS (CONTINUED)
Risk of loss to the Company in the event of nonperformance by any party
under these agreements is not considered substantial. Because of potential
limited liquidity of some of these instruments, recorded values of these
transactions may be different from values that might be realized if the Company
were to sell or close out the transactions. Such differences are not considered
substantial to the Company's results of operations, financial condition, or
liquidity. Hedging and derivative securities may involve elements of credit and
market risk in excess of the amounts recognized in the accompanying consolidated
financial statements. A substantial decline and/or change in value of equity
securities, equity prices in general, international equity mutual funds, hedging
securities, and derivative securities could have a material adverse effect on
the Company's trading securities. Also, the price of common stock, hedging
securities, and other derivative securities held by the Company as trading
securities would be materially and adversely affected by poor management,
shrinking product demand, and other risks that may affect single companies, as
well as groups of companies.
4. INVENTORIES
The Company frequently purchases components of its clients' products as
an integral part of its process management 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 consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
Purchased components and
fabricated assemblies $ 2,313 $ 1,986
Finished goods 459 1,754
------------ ------------
$ 2,772 $ 3,740
============ ============
</TABLE>
5. INVESTMENT IN AND NOTE RECEIVABLE FROM GOOD CATALOG COMPANY
Effective September 15, 1999, the Company, through its wholly owned
subsidiary Domain.com, Inc. ("Domain.com"), entered into a contribution
agreement (the "Contribution Agreement") and stockholders agreement with The
Reader's Digest Association, Inc. ("Reader's Digest") and Good Catalog Company,
previously a wholly owned subsidiary of Reader's Digest. On November 8, 1999,
pursuant to the Contribution Agreement, Domain.com purchased 19.9% of the
outstanding common stock of Good Catalog Company for approximately $2,606 in
cash. Reader's Digest owns the remaining 80.1% of the outstanding common stock
of Good Catalog Company. The Contribution Agreement provides for: (i) an
assignment from Domain.com to Good Catalog Company of Domain.com's right, title,
and interest in and to the URL www.gifts.com; and (ii) an undertaking by Good
Catalog Company to effect a change in its name to Gifts.com, Inc. Domain.com has
the right to designate at least one member of Good Catalog Company's board of
directors, which will consist of at least five directors. Effective November 1,
1999, Domain.com, Reader's Digest, and Good Catalog Company entered into a loan
agreement pursuant to which Domain.com advanced an unsecured loan of $7,818 and
Reader's Digest advanced an unsecured loan of $18,433 to Good Catalog Company (
the "Loans"). The Loans mature November 1, 2002, bear interest at a rate equal
to a three month LIBO rate plus 2.0% per annum (approximately 8.0% as of
December 31, 1999), and interest is payable quarterly. Currently, Good Catalog
Company, doing business as gifts.com, provides an Internet web site accessed
through the URL www.gifts.com that sells gifts on-line. The Company agreed to
perform certain fulfillment services for Good Catalog Company in connection with
certain products and services to be sold in connection with gifts.com. During
1999 and included in the accompanying 1999 consolidated statement of operations,
the Company recognized approximately $1,100 of revenues related to fulfillment
services performed by the Company for Good Catalog Company, and approximately
$89 of interest income related to Good Catalog Company's $7,818 debt to
Domain.com. Included in trade accounts receivable in the accompanying
consolidated balance sheet as of December 31, 1999, was approximately $622 due
from Good Catalog Company to the Company in connection with the Company's
provision of fulfillment services to Good Catalog Company during 1999.
Management has evaluated its investment in and note receivable from
Good Catalog Company for recoverability. Management reviewed certain financial
data and held discussions with Good Catalog Company management. As of December
31, 1999, management believes its investment in and note receivable from Good
Catalog are recoverable and no impairment loss provision is necessary. Should
available information in the future indicate a material impairment in carrying
values of the Company's investment in and note receivable from Good Catalog
Company, an adjustment would be recorded.
35
<PAGE> 36
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Land $ 1,129 $ 2,179
Buildings and improvements 9,656 14,079
Equipment 14,785 20,333
Furniture and fixtures 1,445 2,219
------------ ------------
27,015 38,810
Less accumulated depreciation and amortization (7,844) (12,052)
------------ ------------
Property, plant and equipment, net $ 19,171 $ 26,758
============ ============
</TABLE>
Management decided to dispose of a 10,500 square-foot facility and
related land in Greeley, Colorado, and is actively searching for a buyer.
Process management service operations at this facility ceased in December 1999.
As of December 31, 1999, management believes carrying values of this facility
and related land, which, in the aggregate, total approximately $198, are
recoverable and no impairment loss provision is necessary. Should available
information in the future indicate a material impairment in carrying values of
this facility and related land, an adjustment would be recorded.
Certain process management services previously provided from the
Company's Denver facility were completely transferred to other facilities by
January 31, 2000. Currently, a relatively small portion of the Denver facility
provides for certain executive, corporate, and information technology functions,
while management evaluates possible operating activities which could be located
in this facility. As of December 31, 1999, management believes carrying values
of this facility and related land are recoverable and no impairment loss
provision is necessary. Should available information in the future indicate a
material impairment in carrying values of this facility and related land, an
adjustment would be recorded.
7. LINE OF CREDIT
As of December 31, 1998 and 1999, 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 of credit as of December 31,
1998 and 1999. Interest is payable monthly and accrues at the prime rate of the
bank (8.5% as of December 31, 1999). This revolving line of credit matures on
April 30, 2001.
The Company has pledged as security certain of its wholly owned
subsidiaries' accounts receivable under the revolving line of credit agreement.
The Company must maintain working capital of $17,500 and tangible net worth of
$25,000. The Company may not pay dividends in an amount which would cause a
failure to meet these financial covenants. As of and for the year ended December
31, 1999, the Company was in compliance with the various financial and other
covenants provided for under the line of credit.
8. LEASES
Amortization of equipment held under capital lease obligations is
included in depreciation and amortization expense. Included in property, plant,
and equipment in the accompanying consolidated balance sheets was the following
equipment held under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1998 1999
-------- --------
<S> <C> <C>
Equipment $ 261 $ 162
Less accumulated amortization (233) (100)
-------- --------
$ 28 $ 62
======== ========
</TABLE>
36
<PAGE> 37
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. LEASES (CONTINUED)
The Company also leases equipment under various non-cancelable
operating leases. As of December 31, 1999, future minimum rental commitments for
capital and operating leases were:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
2000 $ 42 $ 541
2001 41 448
2002 -- 449
2003 -- 292
2004 -- 136
Thereafter -- 12
---------- ----------
Total minimum lease payments $ 83 $ 1,878
==========
Less amount representing interest (9)
----------
Present value of minimum lease payments 74
Less current portion of obligations under capital leases (32)
----------
Obligations under capital leases, less current portion $ 42
==========
</TABLE>
Rent expense, including equipment rentals, for 1997, 1998, and 1999 was
$271, $410, and $1,054, respectively.
On November 1, 1999, the Company entered into a lease agreement for
30,000 square feet of building space in Big Spring, Texas. The facility is
principally used for a call center supporting Internet and telecommunications
clients, and for general office use and other services offered by the Company.
The term of the lease agreement commenced on November 1, 1999 and unless earlier
terminated or extended, continues until November 1, 2014. Pursuant to the terms
of the lease agreement, the Company was granted, among other things: (i) a right
to terminate the lease agreement in the fifth or tenth year. Assuming the lease
agreement is not terminated after the end of the fifth or tenth year, total
minimum rental commitments, in the aggregate, excluding certain taxes and
utilities as defined, are approximately $903, and are payable on a monthly basis
from November 1999 through November 2014. Pursuant to an incentive agreement and
through the tenth year of the lease agreement, the Company shall be reimbursed
for the actual amount of its lease payments.
9. TENNESSEE FINANCING AGREEMENT
On July 8, 1998, the Company entered into certain financing agreements
with the Industrial Development Board of the County of Montgomery, Tennessee,
(the "Board") in connection with the Board's issuance to StarTek USA, Inc. of an
Industrial Development Revenue Note, Series A not to exceed $4,500 (the
"Facility Note") and an Industrial Development Revenue Note, Series B not to
exceed $3,500 (the "Equipment Loan"). The Facility Note bears interest at 9% per
annum commencing on October 1, 1998, payable quarterly and maturing on July 8,
2008. Concurrently, the Company advanced $3,575 in exchange for the Facility
Note and entered into a lease agreement, maturing July 8, 2008, with the Board
for the use and acquisition of a 305,000 square-foot process management and
distribution facility in Clarksville, Tennessee (the "Facility Lease"). The
Facility Lease provides for the Company to pay to the Board lease payments
sufficient to pay, when and as due, the principal of and interest on the
Facility Note due to the Company from the Board. Pursuant to the provisions of
the Facility Lease and upon the Company's payment of the Facility Lease in full,
the Company shall have the option to purchase the 305,000 square-foot,
Clarksville, Tennessee facility for a lump sum payment of one hundred dollars.
The Equipment Loan bears interest at 9% per annum, generally contains the same
provisions as the Facility Note, and provides for an equipment lease, except the
Equipment Loan and equipment lease mature on January 1, 2004. As of December 31,
1999, the Company had used approximately $4,012 and $1,745 of the Facility Note
and Equipment Loan, respectively, and correspondingly entered into further lease
arrangements with the Board.
All transactions related to the purchase of the notes by the Company
from the Board and the lease arrangements from the Board to the Company have
been offset against each other, and accordingly have no impact on the
consolidated balance sheets. The assets acquired are included in property, plant
and equipment. Similarly, the interest income and interest expense related to
the notes and lease arrangements, respectively, have also been offset. The lease
payments are equal to the amount of principal and interest payments on the
notes, and accordingly have no impact on the consolidated statements of
operations.
37
<PAGE> 38
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Equipment loan 3,564 2,744
Equipment loan -- 1,957
Promissory note with incentive provisions -- 2,300
Other debt obligations 538 349
------------ ------------
4,102 7,350
Less current portion of long-term debt (906) (1,428)
------------ ------------
Long-term debt, less current portion $ 3,196 $ 5,922
============ ============
</TABLE>
On October 26, 1998, the Company, through its wholly owned subsidiary
StarTek USA, Inc., entered into an equipment loan agreement with a finance
company maturing November 2, 2002. In connection with the equipment loan, the
Company received cash of $3,629 in exchange for providing, among other things,
certain collateral which generally consisted of equipment, furniture, and
fixtures used in the Company's business. The equipment loan provides for
interest at a fixed annual interest rate of 7.0% and for the Company to pay
forty-eight equal monthly installments, which, in the aggregate, totaled
approximately $4,176 at inception of the equipment loan. In addition to the
collateral described above, the Company granted to the finance company a
secondary security interest in certain of its wholly owned subsidiaries'
accounts receivable. During the years ended December 31, 1998 and 1999, interest
expense incurred on the equipment loan was $21 and $224, respectively.
On October 22, 1999, the Company, through its wholly owned subsidiary
StarTek USA, Inc., completed an equipment loan arrangement with a finance
company maturing October 22, 2003. In connection with the equipment loan, the
Company received cash of $2,031 in exchange for providing, among other things,
certain collateral which generally consisted of computer hardware and software,
various forms of telecommunications equipment, and furniture and fixtures whose
estimated cost was equal to the principal amount of the equipment loan. The
equipment loan arrangement provides for interest at the prime rate minus 1.60%
(6.9% on December 31, 1999), and forty-eight consecutive monthly payments.
StarTek USA, Inc. is required, from time to time, to maintain certain operating
ratios. During the year ended December 31, 1999, interest expense incurred on
the equipment loan was $22. As of December 31, 1999, StarTek USA, Inc. was in
compliance with these financial covenants.
In November 1999, the Company received $2,300 in cash in connection
with its Big Spring, Texas operations through a non-interest bearing
fifteen-year promissory note with incentive provisions. The principal balance of
the promissory note declines without payment over fifteen years based on the
level of employment at the Company's Big Spring, Texas facility during the term
of the promissory note.
The Company has other debt obligations totaling $349 as of December 31,
1999 with interest up to 6.0% annually and maturing through 2007.
Future scheduled annual principal payments on long-term debt, including
amounts related to the promissory note with waiver provisions and the promissory
note with incentive provisions, as of December 31, 1999 were:
<TABLE>
<S> <C>
2000 $ 1,428
2001 1,708
2002 1,643
2003 659
2004 190
Thereafter 1,722
--------
$ 7,350
========
</TABLE>
38
<PAGE> 39
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. 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. Significant
components of the provision for income taxes for the years ended December 31,
1997, 1998, and 1999 were:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 2,211 $ 5,311 $ 7,054
Foreign 9 123 864
State 99 249 762
---------- ---------- ----------
Total current 2,319 5,683 8,680
Deferred:
Federal (181) (678) (765)
State (28) (104) (115)
---------- ---------- ----------
Total deferred (209) (782) (880)
---------- ---------- ----------
Income tax expense $ 2,110 $ 4,901 $ 7,800
========== ========== ==========
</TABLE>
Income tax benefits associated with disqualifying dispositions of
incentive stock options during 1999 reduced income taxes payable as of December
31, 1999 by $1,654. Such benefits were recorded as an increase to additional
paid-in capital.
Significant components of deferred tax assets, which required no
valuation allowance, and deferred tax liabilities included in the accompanying
balance sheets as of December 31 were:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Deferred tax assets:
Bad debt allowance $ 161 $ 347
Vacation accrual 233 433
Deferred revenue 88 311
Accrued expenses 192 668
Unrealized loss on investments
available for sale 356 360
Other 105 244
---------- ----------
Total deferred tax assets 1,135 2,363
Long-term deferred tax liabilities:
Tax depreciation in excess of book (49) (422)
Other (95) (24)
---------- ----------
Total long-term deferred tax liabilities (144) (446)
---------- ----------
Net deferred tax assets $ 991 $ 1,917
========== ==========
</TABLE>
Differences between U.S. federal statutory income tax rates and the
Company's effective tax rates for the years ended December 31, 1997, 1998, and
1999 were:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Tax at U.S. statutory rates 34.0% 35.0% 35.0%
State income taxes, net of federal tax
benefit 3.3 3.2 3.1
One-time credit to record deferred
tax asset upon termination of
S corporation status (4.4) -- --
Other, net (2.0) (1.7) (0.6)
---------- ---------- ----------
30.9% 36.5% 37.5%
========== ========== ==========
</TABLE>
12. NET INTEREST INCOME AND OTHER
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Interest income $ 1,229 $ 2,122 $ 2,741
Interest expense (373) (58) (332)
Other income and expense 77 190 405
---------- ---------- ----------
Net interest income and other $ 933 $ 2,254 $ 2,814
========== ========== ==========
</TABLE>
39
<PAGE> 40
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. STOCKHOLDERS' EQUITY
Immediately prior to 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 notes to consolidated financial
statements to shares and related prices in per share calculations, per share
amounts, and stock option plan information have been restated to reflect the
split.
Immediately prior to closing the initial public offering, the Company
also declared an $8,000 dividend approximating additional paid-in capital and
retained earning of the Company as of the closing date, payable to principal
stockholders pursuant to certain promissory notes. Promissory notes payable to
principal stockholders were paid from net proceeds of the Company's initial
public offering. As of December 31, 1998, common stock and additional paid-in
capital consisted of:
<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>
At the Company's May 19, 1999 annual meeting of stockholders, a
proposal to amend the Company's Certificate of Incorporation to reduce the
number of shares of common stock the Company has the authority to issue from
95,000,000 shares to 18,000,000 shares and eliminate the authorization of
preferred stock was approved by an affirmative vote of holders of a majority of
the shares of common stock outstanding. As of December 31, 1999, common stock
and additional paid-in capital consisted of:
<TABLE>
<S> <C>
Common stock; 18,000,000 shares, $.01 par value, authorized;
13,987,111 shares outstanding $ 140
Additional paid-in capital 45,681
--------
$ 45,821
========
</TABLE>
14. 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.
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."
Options granted under the Plan could be exercised for a period of not
more than 10 years and one month from 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 date of grant, or 110% of fair market value per share in case of a 10%
or greater stockholder. Options generally vested ratably over a five-year period
from date of grant. Unexercised, vested options remained exercisable for three
calendar months from 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 holders to exercise
any granted options. Subsequently, all outstanding options were exercised. In
the aggregate, 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 were
repaid in full. Options for 2,124,936 shares of common stock were available for
grant at the end of 1996.
The Plan was terminated effective January 24, 1997.
40
<PAGE> 41
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. STOCK OPTIONS (CONTINUED)
1997 Stock Option Plan
On February 13, 1997, the Company's Board of Directors approved the
StarTek, Inc. Stock Option Plan (the "Option Plan") and, on January 27, 1997,
the Director Stock Option Plan (the "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 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 termination of employment; (iii) 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 to serve on the Company's board of
directors and serve continuously from commencement of their term (the
"Participants"). The Director Option Plan provides for stock options to be
granted for a maximum of 90,000 shares of common stock. Participants were
automatically granted options to acquire 10,000 shares of common stock upon the
closing of the Company's June 1997 initial public offering. 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 Participant is reelected to serve on the Company's board of
directors. All options granted under the Director Option Plan fully vest upon
grant and expire at the earlier of: (i) date of Participant's membership on the
Company's board of directors is terminated for cause; (ii) ten years from option
grant date; or (iii) one year after Participant's death. Stock option activity
during 1997, 1998, and 1999 consisted of:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding as of beginning of
year -- 611,500 613,800
Granted 618,500 36,200 194,550
Exercised -- -- (158,540)
Canceled (7,000) (33,900) (44,100)
---------- ---------- ----------
Outstanding as of end of year 611,500 613,800 605,710
========== ========== ==========
Exercisable as of end of year 20,000 140,200 107,820
========== ========== ==========
</TABLE>
As of December 31, 1997, the exercise price for options outstanding,
each of which is exercisable on a basis of one option for one share of the
Company's common stock, was $15.00, except for 8,000 options exercisable at
$13.06 per share. As of December 31, 1998, the exercise price per share for
options outstanding was $15.00 for 583,000 options, $13.06 for 8,000 options,
$12.69 for 6,000 options, $12.25 for 7,600 options, and $10.38 for 9,200
options. As of December 31, 1999, the exercise price for options outstanding was
$50.06 for 300 options, $42.75 for 89,650 options, $38.63 for 10,000 options,
$32.81 for 22,700 options, $31.00 for 6,600 options, $18.50 for 47,200 options,
$15.00 for 406,300 options, $13.06 for 2,000 options, $12.69 for 6,000 options,
$12.25 for 7,600 options, and $10.38 for 7,360 options. As of December 31, 1999,
there were 10,000 fully vested options exercisable at $38.63 per share, 6,000
fully vested options exercisable at $18.50 per share, 83,500 fully vested
options exercisable at $15.00 per share, 800 fully vested options exercisable at
$13.06 per share, 6,000 fully vested options exercisable at $12.69 per share,
and 1,520 fully vested options exercisable at $12.25 per share. Options for
262,750 and 48,000 shares of the Company's common stock were available for
future grant as of December 31, 1999 under the Option Plan and Director Option
Plan, respectively.
The Company elected to follow Accounting Principles Board Opinion No.
25, ("APB 25") "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock options. Under APB 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on date of grant, no compensation expense has been recognized.
Pro forma information regarding net income and net income per share is required
by Statement of Financial Accounting Standards No. 123, (SFAS 123") "Accounting
For Stock Based Compensation", and has been determined as if the Company had
accounted for its stock options under the fair value method as provided for by
SFAS 123.
41
<PAGE> 42
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. STOCK OPTIONS (CONTINUED)
Fair value of options granted during 1997 was estimated as of date of
grant using a Black-Scholes option pricing model and assuming a 6.0% risk free
rate, a seven year life, a 30.0% expected volatility, and no dividends. Fair
value of options granted during 1998 was estimated as of date of grant using a
Black-Scholes option pricing model and assuming a 5.5% risk-free interest rate,
a seven year life, a 55.1% expected volatility, and no dividends. Fair value of
options granted during 1999 was estimated as of date of grant using a
Black-Scholes option pricing model assuming a range of 6.0% to 6.3% for the
risk-free rate, a seven year life, a 72.1% expected volatility, and no
dividends. Weighted average grant date fair market value of options granted
during 1997, 1998, and 1999 was approximately $7.00 per share, $7.00 per share,
and $24.24 per share, respectively. Had this method been used in the
determination of pro forma net income for 1997, pro forma net income would have
decreased by $367 and pro forma basic and diluted earnings per share would have
decreased by $0.03. Had this method been used in the determination of net income
for 1998, net income would have decreased by $559 and basic and diluted earnings
per share would have decreased by $0.04. Similarly, had this method been used in
the determination of net income for 1999, net income would have decreased by
$848 and basic and diluted earnings per share would have decreased by $0.06.
The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options which have no vesting restrictions and
are fully transferable. In addition, option valuation models require input of
highly subjective assumptions, including expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in subjective input
assumptions can materially affect fair value estimates, in management's opinion,
the existing models do not necessarily provide a reliable single measure of fair
value of the Company's stock options.
15. GEOGRAPHIC AREA INFORMATION
The Company, operating in a single industry segment, provides a variety
of integrated, outsourcing services to other businesses throughout the world. As
of and for the year ended December 31, 1997, the Company's operations in Asia
were not material and are included with North America in the following table. As
of December 31, 1997, 1998 and 1999 the Company's long-lived assets located in
Europe and Asia were not material and are included with North America in the
following table. The Company's North America operations are located in the
United States of America. The Company's Europe operations are located in the
United Kingdom. The Company's Asia operations are located in Singapore.
Revenues, operating profit, and identifiable assets, classified by major
geographic areas in which the Company operates were:
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE ASIA ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
YEAR ENDED DECEMBER 31, 1998
Revenues $ 121,374 $ 8,317 $ 11,293 $ -- $ 140,984
Operating profit 10,279 330 582 -- 11,191
Identifiable assets $ 76,385 $ 2,861 $ 1,075 $ (120) $ 80,201
YEAR ENDED DECEMBER 31, 1999
Revenues $ 156,008 $ 23,330 $ 25,889 $ -- $ 205,227
Operating profit 14,877 1,818 1,314 -- 18,009
Identifiable assets $ 92,402 $ 7,478 $ 3,819 $ (2,264) $ 101,435
</TABLE>
16. PRINCIPAL CLIENTS
Two clients accounted for 56.3% and 25.4% of revenues for the year
ended December 31, 1997. One client accounted for 72.5% and 77.5% of revenues
for the year ended December 31, 1998 and 1999, respectively. The loss of its
principal client for the year ended December 31, 1999 would have a material
adverse effect on the Company's business, operating results, and 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 substantial
credit risk exists as of December 31, 1999.
42
<PAGE> 43
STARTEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
17. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1998 QUARTERS ENDED
---------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 24,321 $ 24,692 $ 31,617 $ 60,354
Gross profit 4,564 4,684 5,821 10,836
Selling, general and administrative expenses 2,732 3,285 3,483 5,214
Operating profit 1,832 1,399 2,338 5,622
Net income $ 1,512 $ 1,338 $ 1,787 $ 3,907
Earnings per share:
Basic $ 0.11 $ 0.10 $ 0.13 $ 0.28
Diluted $ 0.11 $ 0.10 $ 0.13 $ 0.28
Weighted average shares outstanding:
Basic 13,828,571 13,828,571 13,828,571 13,828,571
Diluted 13,828,571 13,828,571 13,828,571 13,828,571
</TABLE>
<TABLE>
<CAPTION>
1999 QUARTERS ENDED
---------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 40,850 $ 45,723 $ 52,279 $ 66,375
Gross profit 7,686 8,507 9,690 12,464
Selling, general and administrative expenses 4,429 5,202 5,576 5,131
Operating profit 3,257 3,305 4,114 7,333
Net income $ 2,427 $ 2,490 $ 3,036 $ 5,070
Earnings per share:
Basic $ 0.18 $ 0.18 $ 0.22 $ 0.36
Diluted $ 0.18 $ 0.18 $ 0.21 $ 0.35
Weighted average shares outstanding:
Basic 13,828,571 13,832,246 13,856,554 13,979,393
Diluted 13,828,571 13,832,246 14,191,360 14,283,613
</TABLE>
43
<PAGE> 44
STARTEK, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
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).
*3.3 Certificate of Amendment to the Certificate of
Incorporation of StarTek, Inc. filed with the Delaware
Secretary of State on May 21, 1999. 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 (incorporated by reference from
Form 10-K Annual Report filed with the Securities and
Exchange Commission on March 31, 1998).
10.13 HP Master Agreement Technical Support Services dated
January 7, 1998 by and between Hewlett Packard Company
and StarTek USA, Inc. (incorporated by reference from
Form 10-K Annual Report filed with the Securities and
Exchange Commission on March 31, 1998).
10.14 Facility lease agreement dated as of July 8, 1998 between
StarTek USA, Inc. (a wholly owned subsidiary of the
Company) and the Industrial Development Board of the
County of Montgomery, Tennessee and Industrial
Development Revenue Note, Series A dated as of July 8,
1998 and issued by the Industrial Development Board of
the County of Montgomery, Tennessee (incorporated by
</TABLE>
44
<PAGE> 45
<TABLE>
<S> <C>
reference from Form 10-Q Quarterly Report filed with the
Securities and Exchange Commission on August 14, 1998).
10.15 Microsoft Corporation Manufacturing Agreement between
StarTek, Inc. and Microsoft Corporation dated as of
January 1, 1998 (incorporated by reference from Form 10-Q
Quarterly Report filed with the Securities and Exchange
Commission on November 13, 1998).
10.16 Equipment lease agreement dated as of July 8, 1998
between StarTek USA, Inc. (a wholly owned subsidiary of
the Company) and the Industrial Development Board of the
County of Montgomery, Tennessee and Industrial
Development Revenue Note, Series B dated as of July 8,
1998 and issued by the Industrial Development Board of
the County of Montgomery, Tennessee (incorporated by
reference from Form 10-K Annual Report filed with the
Securities and Exchange Commission on March 31, 1999).
10.17 Amended and Restated Credit Agreement, dated March 15,
1999, between StarTek, Inc. and Norwest Bank Colorado,
National Association, Denver, Colorado (incorporated by
reference from Form 10-Q Quarterly Report filed with the
Securities and Exchange Commission on May 15, 1999).
10.18 Lease by and between StarTek Europe, Ltd., as Lessee, and
Spencer Holdings Plc., as Lessor, dated May 27, 1999
(incorporated by reference from Form 10-Q Quarterly
Report filed with the Securities and Exchange Commission
on August 16, 1999).
10.19 Promissory Note of StarTek USA, Inc. dated October 26,
1998 in the principal amount of $3,629,367.67 payable to
the order of Norwest Equipment Finance, Inc., Security
Agreement dated October 26, 1998 by and between StarTek
USA, Inc. and Norwest Equipment Finance, Inc., and
Security Agreement dated October 26, 1998 by and between
StarTek USA, Inc. and Norwest Equipment Finance, Inc.
(incorporated by reference from Form 10-Q Quarterly
Report filed with the Securities and Exchange Commission
on November 15, 1999).
10.20 Contribution Agreement dated September 15, 1999 among
Good Catalog Company, The Reader's Digest Association,
Inc., and Domain.com, Inc. (incorporated by reference
from Form 10-Q Quarterly Report filed with the Securities
and Exchange Commission on November 15, 1999).
10.21 Stockholders Agreement dated September 15, 1999 by and
among Good Catalog Company, The Reader's Digest
Association, Inc., and Domain.com, Inc. (incorporated by
reference from Form 10-Q Quarterly Report filed with the
Securities and Exchange Commission on November 15, 1999).
10.22 Loan Agreement dated November 1, 1999 with respect to
loans to be extended by The Reader's Digest Association,
Inc. and Domain.com, Inc. to Good Catalog Company
(incorporated by reference from Form 10-Q Quarterly
Report filed with the Securities and Exchange Commission
on November 15, 1999).
10.23 Promissory Note of Good Catalog Company dated November 1,
1999 in the principal amount of $7,816,875.00 payable to
the order of Domain.com, Inc. (incorporated by reference
from Form 10-Q Quarterly Report filed with the Securities
and Exchange Commission on November 15, 1999).
10.24 Promissory Note of StarTek USA, Inc. dated October 22,
1999 in the principal amount of $2,030,565.67 payable to
the order of KeyCorp Leasing, a division of Key Corporate
Capital, Inc., Security Agreement dated October 13, 1999
by and between StarTek USA, Inc. and KeyCorp Leasing, and
Amendment No. 1 to Security Agreement dated October 13,
1999 (incorporated by reference from Form 10-Q Quarterly
Report filed with the Securities and Exchange Commission
on November 15, 1999).
**10.25 Microsoft Corporation Manufacturing and Supply and
Services Agreement between StarTek, Inc. and Microsoft
Corporation dated as of July 1, 1999.
**10.26 Microsoft Ireland Operations Limited Manufacturing
Agreement between StarTek Europe, Ltd. and Microsoft
Ireland Operations Limited dated as of February 1, 1999.
*21.2 Subsidiaries of the Registrant.
*23.1 Consent of Independent Auditors dated March 8, 2000.
*27.1 Financial Data Schedule.
</TABLE>
- ------------------
* Filed with this Form 10-K.
** Filed with this Form 10-K. Certain portions of the exhibit have been
omitted pursuant to a request for confidential treatment and have been
filed separately with the Securities and Exchange Commission.
45
<PAGE> 46
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 Form 10-K
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 8, 2000
- --------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K 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 8, 2000
- --------------------------------------------
/s/ Dennis M. Swenson
- --------------------------------------------
Dennis M. Swenson
Executive Vice President, Chief Financial Officer, Secretary,
and Treasurer (Principal Financial and Accounting Officer)
Date: March 8, 2000
- --------------------------------------------
/s/ E. Preston Sumner, Jr.
- --------------------------------------------
E. Preston Sumner, Jr.
Executive Vice President and Chief Operating Officer
Date: March 8, 2000
- --------------------------------------------
/s/ A. Emmet Stephenson, Jr.
- --------------------------------------------
A. Emmet Stephenson, Jr.
Chairman of the Board
Date: March 8, 2000
- --------------------------------------------
/s/ Ed Zschau
- --------------------------------------------
Ed Zschau
Director
Date: March 8, 2000
- --------------------------------------------
/s/ Jack D. Rehm
- --------------------------------------------
Jack D. Rehm
Director
Date: March 8, 2000
- --------------------------------------------
46
<PAGE> 47
STARTEK, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<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).
*3.3 Certificate of Amendment to the Certificate of
Incorporation of StarTek, Inc. filed with the Delaware
Secretary of State on May 21, 1999. 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 (incorporated by reference from
Form 10-K Annual Report filed with the Securities and
Exchange Commission on March 31, 1998).
10.13 HP Master Agreement Technical Support Services dated
January 7, 1998 by and between Hewlett Packard Company
and StarTek USA, Inc. (incorporated by reference from
Form 10-K Annual Report filed with the Securities and
Exchange Commission on March 31, 1998).
10.14 Facility lease agreement dated as of July 8, 1998 between
StarTek USA, Inc. (a wholly owned subsidiary of the
Company) and the Industrial Development Board of the
County of Montgomery, Tennessee and Industrial
Development Revenue Note, Series A dated as of July 8,
1998 and issued by the Industrial Development Board of
the County of Montgomery, Tennessee (incorporated by
</TABLE>
<PAGE> 48
<TABLE>
<S> <C>
reference from Form 10-Q Quarterly Report filed with the
Securities and Exchange Commission on August 14, 1998).
10.15 Microsoft Corporation Manufacturing Agreement between
StarTek, Inc. and Microsoft Corporation dated as of
January 1, 1998 (incorporated by reference from Form 10-Q
Quarterly Report filed with the Securities and Exchange
Commission on November 13, 1998).
10.16 Equipment lease agreement dated as of July 8, 1998
between StarTek USA, Inc. (a wholly owned subsidiary of
the Company) and the Industrial Development Board of the
County of Montgomery, Tennessee and Industrial
Development Revenue Note, Series B dated as of July 8,
1998 and issued by the Industrial Development Board of
the County of Montgomery, Tennessee (incorporated by
reference from Form 10-K Annual Report filed with the
Securities and Exchange Commission on March 31, 1999).
10.17 Amended and Restated Credit Agreement, dated March 15,
1999, between StarTek, Inc. and Norwest Bank Colorado,
National Association, Denver, Colorado (incorporated by
reference from Form 10-Q Quarterly Report filed with the
Securities and Exchange Commission on May 15, 1999).
10.18 Lease by and between StarTek Europe, Ltd., as Lessee, and
Spencer Holdings Plc., as Lessor, dated May 27, 1999
(incorporated by reference from Form 10-Q Quarterly
Report filed with the Securities and Exchange Commission
on August 16, 1999).
10.19 Promissory Note of StarTek USA, Inc. dated October 26,
1998 in the principal amount of $3,629,367.67 payable to
the order of Norwest Equipment Finance, Inc., Security
Agreement dated October 26, 1998 by and between StarTek
USA, Inc. and Norwest Equipment Finance, Inc., and
Security Agreement dated October 26, 1998 by and between
StarTek USA, Inc. and Norwest Equipment Finance, Inc.
(incorporated by reference from Form 10-Q Quarterly
Report filed with the Securities and Exchange Commission
on November 15, 1999).
10.20 Contribution Agreement dated September 15, 1999 among
Good Catalog Company, The Reader's Digest Association,
Inc., and Domain.com, Inc. (incorporated by reference
from Form 10-Q Quarterly Report filed with the Securities
and Exchange Commission on November 15, 1999).
10.21 Stockholders Agreement dated September 15, 1999 by and
among Good Catalog Company, The Reader's Digest
Association, Inc., and Domain.com, Inc. (incorporated by
reference from Form 10-Q Quarterly Report filed with the
Securities and Exchange Commission on November 15, 1999).
10.22 Loan Agreement dated November 1, 1999 with respect to
loans to be extended by The Reader's Digest Association,
Inc. and Domain.com, Inc. to Good Catalog Company
(incorporated by reference from Form 10-Q Quarterly
Report filed with the Securities and Exchange Commission
on November 15, 1999).
10.23 Promissory Note of Good Catalog Company dated November 1,
1999 in the principal amount of $7,816,875.00 payable to
the order of Domain.com, Inc. (incorporated by reference
from Form 10-Q Quarterly Report filed with the Securities
and Exchange Commission on November 15, 1999).
10.24 Promissory Note of StarTek USA, Inc. dated October 22,
1999 in the principal amount of $2,030,565.67 payable to
the order of KeyCorp Leasing, a division of Key Corporate
Capital, Inc., Security Agreement dated October 13, 1999
by and between StarTek USA, Inc. and KeyCorp Leasing, and
Amendment No. 1 to Security Agreement dated October 13,
1999 (incorporated by reference from Form 10-Q Quarterly
Report filed with the Securities and Exchange Commission
on November 15, 1999).
**10.25 Microsoft Corporation Manufacturing and Supply and
Services Agreement between StarTek, Inc. and Microsoft
Corporation dated as of July 1, 1999.
**10.26 Microsoft Ireland Operations Limited Manufacturing
Agreement between StarTek Europe, Ltd. and Microsoft
Ireland Operations Limited dated as of February 1, 1999.
*21.2 Subsidiaries of the Registrant.
*23.1 Consent of Independent Auditors dated March 8, 2000.
*27.1 Financial Data Schedule.
</TABLE>
- ------------------
* Filed with this Form 10-K.
** Filed with this Form 10-K. Certain portions of the exhibit have been
omitted pursuant to a request for confidential treatment and have been
filed separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
STARTEK, INC.
StarTek, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Act"), hereby certifies as
follows:
1. The name of the corporation is StarTek, Inc. (the "Corporation").
2. The amendment to the Certificate of Incorporation of the
Corporation set forth below was duly adopted in accordance with the provisions
of Section 242 of the Act.
3. The Certificate of Incorporation of the Corporation is hereby
amended by deleting Article IV thereof in its entirety and by substituting in
lieu thereof the following, so that Article IV, Section A shall hereafter read
as follows:
ARTICLE IV
Stock
-----
The total number of shares of stock which the Corporation shall
have authority to issue is 18,000,000 shares with $.01 per share
par value, all of which are designated as common stock ("Common
Stock").
IN WITNESS WHEREOF, this Certificate of Amendment to the Certificate of
Incorporation of StarTek, Inc. is executed May 20, 1999.
STARTEK, INC., a Delaware corporation
By: /s/ Dennis M. Swenson
----------------------------------
Title: Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
<PAGE> 1
EXHIBIT 10.25
PORTIONS OF THIS EXHIBIT MARKED WITH AN "*" HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
MICROSOFT CORPORATION
MANUFACTURING AND SUPPLY AND SERVICES AGREEMENT
- --------------------------------------------------------------------------------
CONFIDENTIAL
- --------------------------------------------------------------------------------
This Microsoft Manufacturing and Supply and Services Agreement
("Agreement") is made and entered into this 1st day of July, 1999 ("Effective
Date"), by and between Microsoft Corporation ("Microsoft"), a Washington, USA
corporation, and StarTek, Inc. ("StarTek"), a Colorado corporation.
RECITALS
WHEREAS, Microsoft and StarTek intend to create a formal relationship
by which StarTek shall provide certain manufacturing and distribution services
with respect to orders for Microsoft software and hardware products.
WHEREAS, the parties intend in this Agreement to set forth specific
terms and conditions governing the performance of certain manufacturing and
distribution services by StarTek for Microsoft; and
NOW, THEREFORE, in consideration of the covenants and conditions set
forth below, the adequacy of which is agreed to and hereby acknowledged, the
parties agree as follows:
AGREEMENT
1. DEFINITIONS.
The following terms, whenever initially capitalized, shall have the following
meanings for the purposes of this Agreement:
(a) "BOM" shall mean the bill of materials document provided by
Microsoft to StarTek, which bill of materials identifies all components
comprising a given Product or Product Component. BOMs may be modified in writing
prospectively from time to time by Microsoft at its sole discretion.
(b) "CUSTOMERS" shall mean customers designated by Microsoft, including
Microsoft internal customers and distribution vendors, to whom Microsoft
authorizes StarTek to deliver Product pursuant to the terms and conditions of
this Agreement and the Statements of Work.
(c) "DELIVERABLES" shall mean and include all Hardware, code material,
source material, software masters or replicative material or other such
documented material, of any kind or description and in any form including
compact disk, other disks or diskettes, tape, text or any electronic or other
medium supplied by Microsoft or at its direction. It does not include such
materials if held under an independent contractual relationship with an Original
Equipment Manufacturer ("OEM") which contract contains the requisite license.
Nor does it include Products acquired for office purposes and used by StarTek in
its offices.
(d) "FACILITY" shall mean the manufacturing facility operated, owned,
subcontracted or leased by StarTek, at *.
<PAGE> 2
(e) "FINISHED PRODUCT UNIT" shall mean fully packaged Microsoft
Product, which includes all requisite Product Components, Microsoft software
and/or Hardware, ready for delivery to a Customer.
(f) "HARDWARE" shall mean, without limitation, all Microsoft keyboards,
mice, joysticks and other Microsoft Products which could not reasonably be
categorized as software.
(g) "INSOLVENT" shall mean a financial condition such as to make the
sum of a party's debts greater than all of the party's assets, at fair
valuation; or, when a party has incurred debts beyond that party's ability to
pay such debts as they mature; or, when a party is engaged in a business or
transaction for which the party has unreasonably small capital.
(h) "INTELLECTUAL PROPERTY" shall mean any and all trademarks,
copyrights, patents and other proprietary rights comprising or encompassing a
given Product.
(i) "INVENTORY" includes Finished Product Units, Deliverables, work in
process, Product Components, Hardware or Raw Materials pertaining to the
Products that contain Microsoft software, trademarks, copyrighted material,
logos or other proprietary materials.
(j) "MANUFACTURING AND SUPPLY" OR "MANUFACTURING AND SUPPLYING" shall
mean the manufacturing and supply of Product Components and Products as
described in the Statements of Work.
(k) "PRODUCTS LIST" shall mean a list provided to StarTek by Microsoft
from time to time that will list the Products to be Manufactured and Supplied by
StarTek and Services to be provided by StarTek for Products pursuant to the
terms of this Agreement.
(l) "PRODUCT(S)" shall mean the copyrighted and/or patented Microsoft
software products, including Product Components, Microsoft software, and any
associated documentation, packaging and other written materials, including,
where applicable, the specified user documentation, which Microsoft may request
StarTek to Manufacture pursuant to this Agreement, by the issuance of a purchase
order .
(m) "PRODUCT COMPONENTS" shall mean the Product CD-ROMs, Jewel Case
Components, Disk Set Components, Assembled Box Components and Microsoft software
products.
(n) "RAW MATERIALS" shall mean each raw material purchased by StarTek
from third parties and used to compromise a Product or Product Component such
as, for example and without limitation, disks, polyvinyl disk baggies,
documentation, boxes, retail *.
(o) "SERVICES" shall mean packaging and distribution services described
in this Agreement and the Statement of Work.
(p) "STATEMENT(S) OF WORK" shall mean the attached Exhibits A and B,
including any modifications made thereto pursuant to Section 14(b).
(q) "PRODUCT CD-ROMS" shall mean the Product CD-ROM media either
supplied by Microsoft or produced or procured by StarTek, but shall not include
any Microsoft software included on the CD-ROM.
(r) "DISK SET COMPONENT" shall mean the fully assembled disk set,
including polyvinyl disk baggies and duplicated disks either supplied by
Microsoft or produced or procured by StarTek, but shall not include any
Microsoft software included on the disks.
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<PAGE> 3
(s) "JEWEL CASE COMPONENT" shall mean a fully assembled jewel case or
CD sleeve, including all documentation and other printed material, such as the
front and back liners but excluding the Product CD-ROMs, to be included as an
insert in the jewel case.
(t) "ASSEMBLED BOX COMPONENT" shall mean the fully assembled retail
packaging, including without limitation, retail bar code labels and all manuals
and other documentation that is to be included with the Product, but excluding
the Product CD-ROMs, Jewel Case Components, Disk Set Components.
2. MANUFACTURING AND SERVICES.
(a) GENERAL. StarTek hereby agrees to conduct Manufacturing and Supply
and Services for Products on the Products List at the Facility pursuant to the
terms and conditions set forth in this Agreement, including without limitation,
the Statements of Work. StarTek shall not conduct Manufacturing and Supply and
Services at or from any location other than the Facility without Microsoft's
prior written approval. In the event of any conflict between the terms contained
in this Agreement and terms contained in the Statements of Work, the terms
contained in this Agreement shall control.
(b) OTHER MANUFACTURING/SERVICES. In addition to Manufacturing and
Supply and Services, the parties may identify other manufacturing and/or
services to be provided under this Agreement through an addendum signed by the
parties hereto.
(c) REPORTS. StarTek, at the scheduled times shall provide Microsoft
with reports as specified herein or in the Exhibits (each a "Report"), with
respect to all Products or Manufacturing and Supply and Services ordered or sold
hereunder through StarTek to Customers. All Reports shall be in the form shown
in the Exhibits and have the content as set forth in this Agreement or as
otherwise agreed by the parties in writing, and shall be complete as required
under this Agreement and accurate. Each Report, whether in paper or electronic
format, shall meet the Standard Report Requirements identified for the Report in
the Exhibits and shall be delivered as specified in the Exhibits. StarTek shall
use reasonable efforts to correct any errors in a Report within * following
Microsoft's notice specifying the item in respect of which an error has
occurred. StarTek shall deliver each Report and all required supporting
documentation therefor, by the time and on the date specified in the Exhibits.
(d) NO ALTERATION; NO MISREPRESENTATION. Except in accordance with the
terms of this Agreement or as otherwise authorized in writing by Microsoft,
StarTek shall not alter the Product or Product packaging without the specific
prior written consent of Microsoft, and shall have no authority to make copies
of Microsoft diskettes or documentation other than as provided in this
Agreement. StarTek shall distribute Product to Customers as specified in the
Statements of Work. No other product or informational piece, including without
limitation flyers, literature, documentation and advertising may be bundled with
any product without the prior written consent of Microsoft. All materials used
by StarTek in the distribution of Product shall comply with Section 4 hereof and
shall clearly note that such Product is Microsoft Product. Such materials may
include, but are not limited to, Microsoft invoices, packing slips, and
packaging.
(e) INVENTORY. All of the Inventory shall at all times be held
exclusively for assembly and delivery to shipping locations as authorized by
Microsoft and for no other purpose, use or disposition, except as may be
directed in writing by Microsoft. StarTek shall at all times cause the Inventory
to be free and clear of any and all liens, encumbrances and other claims of its
creditors. StarTek grants Microsoft the option, assignable to any affiliated
corporation, to acquire by purchase all of the Inventory and/or Product
Components (less Finished Product Units which have already been purchased by
Microsoft) upon * notice, and payment as would apply for unused Inventory in the
case of termination as stated in Section 10, at the price set forth at in
Exhibit C. At any time, upon Microsoft's request, StarTek shall take all
necessary steps and shall execute such documents as may be necessary or
3
<PAGE> 4
advisable under the local law where the Inventory is located, in order to effect
the sale of such Inventory and/or Product Components to Microsoft and to
document Microsoft's title to Inventory and/or Product Components owned by
Microsoft. Use of Intellectual Property in any manner by StarTek after
expiration or termination of this Agreement for any reason, whether or not
incorporated in Inventory, shall be deemed to be in violation of Microsoft's
Intellectual Property rights and shall entitle Microsoft to have all remedies
provided by law or equity (including injunctive relief); provided, however, (i)
this does not preclude StarTek from continuing to use in its offices Microsoft
Products legally acquired for that purpose; and (ii) it does not preclude
StarTek's performance of independent contractual relationships with Microsoft or
an OEM (original equipment manufacturer) or other party, which contract contains
the requisite Microsoft product replication license.
(f) INVENTORY CONSIGNMENT. If, and to the extent that, Microsoft
delivers Deliverables, Product CD-ROMs and/or Disk Set Components (collectively
referred to herein as the "Consigned Inventory") to StarTek or places it under
StarTek's control, this is a true consignment agreement governing such Consigned
Inventory, which StarTek shall hold in trust for the sole benefit of Microsoft
pursuant to Section 6(b)(i). StarTek is not purchasing the Consigned Inventory.
StarTek shall hold the Consigned Inventory either (a) for delivery to
Microsoft's distribution center pursuant to this Agreement or (b) for return to
Microsoft, and StarTek's authority is limited thereto. Microsoft consents only
to sales in the ordinary course of providing the Services pursuant to this
Agreement. The references in this subsection or elsewhere in this Agreement to
"StarTek's control" means its ability to exercise restraining or directing
influence over the item described. All of the Consigned Inventory shall be held
in the Microsoft approved Facilities and exclusively for transfer to Microsoft's
distribution center as authorized by Microsoft and for no other purpose, use or
disposition, except as may be directed by Microsoft. Microsoft shall have title
and ownership of the entire Consigned Inventory. StarTek shall at all times
cause the Consigned Inventory to be free and clear of any and all liens,
encumbrances and other claims of StarTek's creditors. StarTek shall label all
Consigned Inventory as being the "property of Microsoft" and keep all such
Consigned Inventory completely and totally segregated from any materials,
supplies or inventory belonging to StarTek or any of its customers. At any time,
at Microsoft's request, StarTek shall take all reasonable steps and shall
execute a security agreement and financing statements, or their equivalents, all
as may be necessary or advisable under the local law where the Consigned
Inventory is located, in order to place of record Microsoft's ownership of all
Consigned Inventory, and its unavailability to any creditor or creditors of
StarTek. Microsoft shall bear the reasonable cost to StarTek (not to exceed
$500.00) of reviewing, negotiating and executing any such security agreements or
financing statements, except that StarTek shall bear the cost of executing any
such agreements or statements done contemporaneously in connection with the
execution of this Agreement.
(g) DECLARATION OF TRUST.
(1) GENERALLY. StarTek hereby declares, confirms and agrees that
throughout the term of this Agreement, StarTek shall hold in trust for the sole
benefit of Microsoft all Consigned Inventory within StarTek's possession or
within its reasonable control, of any kind, description or character. StarTek
further agrees to account for the Consigned Inventory in its possession or under
its reasonable control as property held in trust for Microsoft and not as assets
belonging to StarTek, and not to present any Consigned Inventory as assets of
StarTek in its balance sheet or in any representations (whether oral or written)
to its creditors.
Wherever this Agreement states StarTek holds property in trust or as
trustee, StarTek agrees to exercise ordinary care that Consigned Inventory
received by StarTek will be handled as specified in this Agreement, but it does
not, because of any trust or otherwise, undertake any greater standard of care.
(2) ACCOUNTING. StarTek agrees to account for the disposition of all
Consigned Inventory received by StarTek, such accounting to be given to
Microsoft at Microsoft's request, at the times and in the manner reasonably
4
<PAGE> 5
requested by Microsoft. If this is beyond the reports otherwise required
hereunder, the reasonable expense of it shall be paid by Microsoft.
(3) DIRECTIONS. Microsoft may at any time direct StarTek to return to
Microsoft according to Microsoft's direction and at Microsoft's sole expense
part or all of the Consigned Inventory in StarTek's possession or under its
reasonable control. StarTek shall promptly (within *) comply with any such
direction.
(h) AGREEMENT NOT TO SELL. StarTek acknowledges that, under the terms
of this Agreement, that both during and after the term of this Agreement it has
no rights within the licenses pertaining to software or other Microsoft
proprietary materials or Products which would allow StarTek to be a seller or
distributor of any Products. Whenever requested by Microsoft and from time to
time, it will sign separate mutually acceptable agreements to this effect.
(i) SAFE STORAGE AND *. StarTek agrees not to store any other goods
near or in such relation to the Products or Product Components as to cause
injury to those Products or Product Components through contamination by strong
odors, leakage, or otherwise. *.
(j) NON-EXCLUSIVITY. This Agreement is not an exclusive agreement. At
all times Microsoft shall have the right to appoint other third parties to
perform Manufacturing and Supply and Services and other services for Microsoft
or Customers. Provided that StarTek would not be placed in breach of this
Agreement, StarTek may contract with and conduct manufacturing services for
other software companies.
(k) FINANCIAL INFORMATION. Within * after StarTek learns that it has
become or will become Insolvent, StarTek shall submit financial statements to
Microsoft in sufficient detail to allow Microsoft to determine whether StarTek
shall be capable of continuing to perform its obligations hereunder. The
financial statements shall include, but shall not be limited to, balance sheets
and related statements of income and retained earnings and statements of changes
in financial condition. To the extent those statements are audited, the audit
report of the certified public accountant performing the audit shall also be
made available to Microsoft.
(l) RETURN OF DELIVERABLES. StarTek will have possession of
Deliverables and replicable material for certain Products and other property for
purposes of the replication to be done under this Agreement. Upon termination of
this Agreement and at any early time whenever requested by Microsoft to do so,
StarTek shall immediately deliver, at Microsoft's cost, to Microsoft all of such
Deliverables (provided that in no event shall such a request by Microsoft for
StarTek's return of the Deliverables prejudice StarTek's right to full
performance by Microsoft under this Agreement), replicable materials and all and
any other Microsoft proprietary materials ever received by it and it shall not
retain any copy or original of the same in any way whatsoever.
(m) QUALITY REQUIREMENTS. StarTek shall ensure that in performing its
obligations under this Agreement, it shall operate in accordance with the
quality guidelines as posted on Microsoft's Website, which can be found at *
(the "Microsoft Website") and as set forth in the Statements of Work.
(n) PRODUCTION. StarTek covenants and agrees to meet Microsoft's
demands for Product related to designated shipping locations, as such demands
may be adjusted from time to time. Additional measurement procedures may be
implemented as mutually agreed upon by Microsoft and StarTek.
(o) NON-CONFORMING PRODUCT. StarTek shall promptly replace and deliver,
within * from notification, at no charge to Microsoft or its Customers, any
non-conforming Product if any delivery of Product, or any portion of it, to any
Customer fails to meet the quality standards specified in the Statements of
Work. If StarTek is unable to obtain Product Components necessary to replace
non-conforming Product within the specified two (2)
5
<PAGE> 6
week period, then replacement of such non-conforming Products shall take place
as soon as possible after necessary Product Components are obtained by StarTek.
StarTek agrees to use its best efforts to obtain Product Components as quickly
as possible. In the event Microsoft determines that a Product recall is
necessary due to a breach of StarTek's warranties hereunder, or due to a
manufacturing defect, StarTek shall cooperate with Microsoft in all respects to
conduct such recall at StarTek's expense; provided that if StarTek has given
prior notice of the possible defect and recommended against delivery and the
Product is nonetheless delivered at Microsoft's direction, or if the recall is
necessary because of a Microsoft error, the recall on account of that defect
shall be at Microsoft `s expense, but StarTek shall still cooperate with it, and
in such a case, Microsoft shall reimburse StarTek for the costs of Manufacturing
and Supply and Services for the replacement Products.
3. DEDICATED REPRESENTATIVES. StarTek shall appoint one qualified staff
member ("StarTek Account Manager") who has or is hereby granted authority to (i)
submit material and information requests to Microsoft; (ii) provide access to
StarTek's staff and independent advisors (including accountants) to provide
information and answer questions; and (iii) provide schedules and plans to
Microsoft for Microsoft' review and/or approval. StarTek shall also appoint a
more senior officer who shall have authority to act for StarTek in making
binding decisions with respect to this Agreement, and amend this Agreement.
Microsoft shall appoint one or more qualified staff members ("Microsoft Vendor
Account Manager") who has or is hereby granted authority to (i) act for
Microsoft and make binding decisions with respect to this Agreement, and amend
this Agreement; (ii) review information supplied by StarTek; (iii) provide any
Microsoft information and answer questions and provide Product training to
StarTek. The StarTek Account Manager is * and the Microsoft Vendor Account
Manager is *. StarTek's senior officer described above is *, its *. Either party
may change account managers and StarTek may change the designated senior officer
upon twenty (20) days' prior notice to the other (as long as or to the extent
that such notice is reasonably possible).
4. PRICE AND PAYMENT.
(a) GENERAL. Microsoft and StarTek agree that StarTek shall be
compensated for the Manufacturing and Supply and Services pursuant to the Price
and Payment terms and conditions set forth in Exhibit C ("Component Pricing
Matrix"). Microsoft shall be liable for payment to StarTek for Raw Materials
that have been purchased in support of the weekly forecasts issued by Microsoft.
Such forecasts shall only cover a two (2) week period and Microsoft shall not be
responsible for Raw Materials purchased in excess of such forecasts. StarTek
will use all reasonable efforts to provide competitive pricing to Microsoft.
Except for Miscellaneous Charges (as defined below), all payments due by
Microsoft to StarTek under this Agreement for Manufacturing Services shall be
made * from Microsoft's receipt of a Purchase Order Receipt from StarTek.
Payment shall be made by Microsoft in accordance with the Microsoft SAP
Autovoucher Procedures. Payment for Miscellaneous Charges due by Microsoft to
StarTek under this Agreement shall be made * from Microsoft's receipt of an
invoice from StarTek. Any undisputed payment that is overdue for more than *,
shall thereafter bear interest at an annual rate of * per annum (or such lower
rate as may then be the highest rate legally available).
(b) MANNER OF PAYMENT; INVOICES. For Manufacturing and Supply and
Services, with the exception of Miscellaneous Charges, StarTek shall provide
daily Purchase Order Receipts in accordance with the Microsoft SAP Autovoucher
Procedures. StarTek shall render accurate monthly invoices for the Miscellaneous
Charges earned by the date of the Microsoft Fiscal Month Close. For purposes of
this Section 4, "Miscellaneous Charges" shall be defined as including, without
limitation, prep/tooling, freight charges, pallet charges and samples. Such
invoices shall consist of a complete, itemized listing of all such Manufacturing
and Supplying and Services performed or Miscellaneous Charges incurred during
the current invoice period. Microsoft shall pay within * of its receipt of an
invoice, the entire amount of the invoice (except for Disputed Amounts), if the
invoice is accurate, complete and accompanied by backup documentation required
in the Statements of Work. All invoices shall be expressed in U.S. dollars. All
payments shall be made by Microsoft in U.S. dollars either by first class mail,
postage paid, at the address specified herein for notices to StarTek or in such
other manner or at such other place as StarTek
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<PAGE> 7
may reasonably designate from time to time by notice to Microsoft or
electronically, at Microsoft's sole option. Payment shall be deemed credited to
the account of Microsoft when received by StarTek if sent by first class mail or
upon receipt by StarTek's financial institution if sent electronically.
(c) DISPUTED AMOUNTS. As used herein, "Disputed Amounts" means invoice
or Purchase Order Receipt amounts that are subject to a bona fide dispute raised
by Microsoft in writing within * of Microsoft's receipt of an invoice, in the
case of Miscellaneous Charges, or within * of an audit of Purchase Order
Receipts, in the case of Manufacturing Services, which claim of dispute may
concern not only the accuracy of the charge itself, but also any claim of
deficient service or performance or any other claim of breach of this Agreement
that relates to the specific charges in the invoice or Purchase Order Receipt.
All Disputed Amounts that Microsoft subsequently agrees in writing to pay
("Agreed Payment") or that are required to be paid pursuant to a proper court
order or award from any mutually submitted arbitration ("Required Payment")
shall be paid within * from the date of such agreement or determination. Payment
of an invoice or Purchase Order Receipt without asserting a dispute is not a
waiver as to any claim or circumstance.
(d) REVISIONS TO STARTEK SERVICES. From time to time, Microsoft may
request that StarTek revise its Manufacturing and Supply and Services. If (i)
Microsoft makes a request or a series of requests that materially changes the
Manufacturing and Supply and Services and (ii) StarTek determines that a change
in compensation is warranted, StarTek may provide Microsoft with a quote of the
change in cost, by unit or other appropriate measure, for which it will
undertake the change of Services ("Interim Rate Quote"). Microsoft may accept or
reject any Interim Rate Quote. If Microsoft accepts an Interim Rate Quote,
StarTek's Manufacturing and Supply and Services and the corresponding costs to
Microsoft shall be revised accordingly, which revision shall be memorialized in
a written amendment signed by both parties. If Microsoft rejects an Interim Rate
Quote, StarTek's Manufacturing and Supply and Services shall not be revised but
Microsoft shall then be free to have the changed Manufacturing and Supply and
Services in question performed by a third party and to terminate the relevant
portion of the Manufacturing and Supply and Services upon thirty (30) calendar
days' prior notice to StarTek. StarTek agrees, at Microsoft's reasonable
expense, to cooperate with such third party to transition and allow it to
perform such Manufacturing and Supply and Services. This Section 4(d) does not
impair either party's rights under Section 11(b) hereof.
(e) COST CONTAINMENT. *
(f) TAXES. In the event income taxes are required to be withheld by
Microsoft on payments to StarTek required hereunder, Microsoft agrees to provide
StarTek with reasonable notice in advance of the first such withholding, and
Microsoft may deduct such income taxes from the amounts owed and timely pay such
taxes, when required, to the appropriate taxing authority. Microsoft shall in
turn promptly secure and deliver to StarTek an official receipt for any income
taxes withheld. Microsoft agrees to pay all applicable goods and services or
other applicable consumption taxes (other than income taxes) levied on it by a
duly constituted and authorized taxing authority on the Manufacturing and Supply
and Services. To the extent required by any such taxing authority, StarTek may
collect such taxes, if any, from Microsoft, and, in such case, shall remit to
Microsoft official tax receipts indicating that such taxes have been collected
by StarTek and remitted to the appropriate tax authorities, to the extent such
receipts are available, and StarTek shall show such taxes as separate line items
on invoices to Microsoft. StarTek agrees to take such steps as are reasonably
requested by Microsoft to minimize such taxes in accordance with all relevant
laws and to cooperate with and assist Microsoft, in challenging the validity of
any taxes applicable to the Manufacturing and Supply and Services and collected
from Microsoft by StarTek or otherwise paid by Microsoft. Except as required by
law or where expressly agreed to, in writing, by Microsoft pursuant to Exhibit
C, Microsoft shall not pay any taxes other than those described above,
including, without limitation (1) taxes on or with respect to or measured by any
net or gross income or receipts of StarTek, (2) any franchise taxes, taxes on
doing business, gross receipts taxes or capital stock taxes (including any
minimum taxes and taxes measured by any
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item of tax preference), (3) any taxes imposed or assessed for work performed
without the written authorization by Microsoft after the date upon which this
Agreement is terminated, (4) taxes based upon or imposed with reference to
StarTek's real and personal property ownership, (5) taxes incurred by StarTek on
all goods and services purchased from other related or unrelated parties, and/or
(6) any taxes similar to or in the nature of those taxes described in (1), (2),
(3), (4) or (5) above. StarTek agrees to make available to Microsoft any and all
records necessary to comply with any and all tax obligations as provided herein,
including but not limited to reports necessary for goods and services tax
compliance and audit purposes. The contents and form of such reports shall be
mutually agreed to between the parties.
5. LICENSE GRANT.
(a) GENERAL. In order to allow StarTek to perform its Manufacturing and
Supply and Services as required hereunder during the term of this Agreement,
Microsoft grants StarTek a non-exclusive, non-transferable, personal, limited
license right to the Intellectual Property for each Product:
(1) to procure materials, reproduce and/or Manufacture and Supply the
Product Components based upon the applicable BOM(s) and purchase orders
delivered by Microsoft pursuant to the Statements of Work;
(2) to assemble the Product Components into Finished Product Unit(s)
solely in accordance with the written instructions and BOM(s) delivered by
Microsoft, including the right to reproduce and manufacture any Microsoft
software and documentation specified in the BOM(s) as necessary to build the
Finished Product Unit(s); and
(3) to deliver the Finished Product Unit(s) to Customers solely in
accordance with the Statements of Work.
(b) LICENSE RESTRICTIONS.
(1) Except as expressly provided in the Statements of Work or in this
Agreement, StarTek shall not in any way modify any BOM, Print Specifications,
Products or Intellectual Property without obtaining, in advance, the express
written permission of Microsoft;
(2) StarTek shall not reproduce, manufacture, or distribute any Product
or Intellectual Property except pursuant to the terms of this Agreement or
pursuant to a separate legal contractual arrangement, which contains a valid
Microsoft license or authorization to do same;
(3) StarTek shall not reverse engineer, decompile, or disassemble any
Products or Intellectual Property. Notwithstanding the foregoing, StarTek may
physically disassemble those Product Components that do not consist of software
or hardware solely for the purpose improving Product assembly and/or quality. No
other product or informational piece, including without limitation flyers,
literature, documentation and advertising, may be bundled with any Products
without the prior written consent of Microsoft.
(4) StarTek shall perform the Manufacturing and Supply and Services
(including, but not limited to replication and assembly of Products) only at the
Facilities. Additional StarTek Facilities may be added to Exhibit H, but the
addition of such locations is subject to Microsoft's prior written approval and,
in the case of a StarTek subsidiary, the full execution by the StarTek
subsidiary of the Microsoft Subsidiary Agreement between Microsoft and such
StarTek subsidiary as shown in Exhibit I. StarTek hereby guarantees its
subsidiary's fulfillment of the applicable obligations imposed on StarTek by
this Agreement. StarTek agrees to indemnify Microsoft for all damages and/or
costs of any kind, without limitation, incurred by Microsoft or any third party
and caused by a
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breach of its subsidiary's fulfillment of the applicable obligations imposed on
StarTek by this Agreement, including, without limitation, StarTek's payment of
any costs, fees and/or monetary judgments awarded in favor of Microsoft, by a
court of competent jurisdiction, resulting from StarTek's subsidiary's
unauthorized replication and/or distribution of Product(s).
(5) StarTek shall perform Manufacturing and Supply and Services solely
in accordance with this Agreement, including without limitation, the Statements
of Work.
(6) All rights not expressly granted herein, without limitation, are
reserved by, and shall exclusively inure to the benefit of, Microsoft.
6. SUBCONTRACTING.
(a) TO THIRD PARTIES. StarTek shall not subcontract any of its rights
or obligations under this Agreement, with respect to Manufacturing and Supply
and Services, except as follows:
(1) Prior to any subcontractor performing any
such services for StarTek under this Agreement, StarTek and its subcontractor
shall enter into a written agreement ("Subcontractor Agreement") that expressly
provides that Microsoft is a third party beneficiary of the Subcontractor
Agreement with rights to enforce such agreement should StarTek fail to timely do
so; that Microsoft, at its sole discretion, reserves the right to evaluate the
Subcontractor, either in person or in written form; and further that requires
Subcontractor to:
(A) comply with the applicable
obligations identical to those imposed on StarTek under Sections 2, 5(b), 7(a),
8(a)(1), 9, 10, 11(c), 12, 13, 16(k), 16(l) and Exhibits A and B of this
Agreement, and
(B) halt reproduction of Product(s) as
required under this Agreement or upon notice from StarTek or Microsoft of the
termination or expiration of this Agreement, and
(C) pay Microsoft's attorneys' fees if
Microsoft employs attorneys to enforce any rights arising out of the
Subcontractor Agreement; and
(2) StarTek guarantees its subcontractor's
fulfillment of the applicable obligations imposed on StarTek by this Agreement;
and
(3) StarTek shall indemnify, defend and hold
Microsoft harmless for all damages and/or costs of any kind, including without
limitation, those incurred by Microsoft and caused by a breach of the
Subcontractor Agreement by a subcontractor and/or subcontractor's failure to
fulfill the applicable obligations imposed on StarTek by this Agreement,
including, but not limited to, StarTek's payment of any monetary judgments
awarded to Microsoft by a court of competent jurisdiction and any costs and fees
relating thereto, not paid by subcontractor, resulting from subcontractor's
unauthorized replication and/or distribution of Product(s) in accordance with
the Subcontractor Agreement; and
(4) Upon execution of this Agreement and
thereafter prior to a subcontractor performing any services under this
Agreement, StarTek shall provide Microsoft with a written certification, signed
by a StarTek officer, representing and warranting that StarTek is in compliance
with the provisions of Section 6 of this Agreement; and
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(5) Microsoft, in its reasonable discretion,
will provide an approved CD and COA supplier list as seen in Exhibit F which may
be updated by Microsoft from time to time. If a supplier used by StarTek as a
subcontractor is removed from such list by Microsoft, Microsoft acknowledges
that StarTek may not be able to immediately discontinue use of subcontractor. In
such case, subject to other rights and obligations of enforcement as set forth
in the Agreement, Microsoft and StarTek will mutually agree to a transition
plan.
(b) RIGHTS PASS THROUGH. It is the intention of this section that
StarTek be able to subcontract, provided StarTek fully maintains quality
standards and protects Microsoft's property rights in Microsoft's Intellectual
Property and Deliverables such that, in addition to Microsoft's recourse to
StarTek under this Agreement, Microsoft shall also have rights enforceable
directly against the subcontractor. The responsibility and liability of StarTek
under this Agreement is not diminished on account of any subcontract and StarTek
shall be fully responsible for the subcontractor's performance and work.
(c) EXPORT RESTRICTIONS. StarTek hereby agrees that in subcontracting
portions of the Manufacturing and Supply and Services to third parties pursuant
to Section 6(a) or (b) above, StarTek shall not, directly or indirectly, export
or transmit (i) any Product Component, Product and/or technical data or (ii) any
Product (or any part thereof), process, or service that is the direct product of
a Product, to (a) any countries that are subject to U.S. export restrictions
(including as of the Effective Date, but not limited to, the Federal Republic of
Yugoslavia (Serbia and Montenegro), Cuba, Iran, Iraq, Libya, North Korea, Sudan
and Syria); (b) any end-user whom StarTek knows or has reason to know will
utilize such Product Component, Product and/or technical data in the design,
development or production of nuclear, chemical or biological weapons; or (c) any
other country to which such export or transmission is restricted by the export
control laws and regulations of the United States, and any amendments thereof,
without prior written consent, if required, of the Bureau of Export
Administration of the U.S. Department of Commerce, or such other governmental
entity as may have jurisdiction over such export or transactions, unless
Microsoft specifically directs StarTek in writing to do so.
(d) INDEMNIFICATION. If StarTek delivers Product(s) to a Customer
specified by Microsoft or at Microsoft's direction, Microsoft agrees to
indemnify StarTek for any consequent indirect violation of the export
restrictions described in subsection 6(c) above.
(e) ENFORCEMENT. StarTek agrees that it will diligently and timely
enforce all rights against or obligations of any subcontractor(s) in order to
enforce compliance with the applicable terms of this Agreement and/or to
otherwise cure a subcontractor breach.
7. REPRESENTATIONS & WARRANTIES.
(a) BY STARTEK. StarTek represents and warrants to Microsoft as
follows:
(1) StarTek has full right and power to enter into and perform
according to the terms of this Agreement and doing so does not violate any
agreement between it and any third party;
(2) the Manufacturing and Supply and Services, including any portion
done by any subcontractor as contemplated in Section 5, will strictly comply
with all applicable laws, as well as the terms and conditions of this Agreement,
including without limitation the Statements of Work;
(3) the Products (including the Raw Materials, reproduction quality,
Product Components and Finished Product Unit quality) will satisfy the quality
workmanship standards and service levels set forth in the Microsoft Website (*)
and Statements of Work and StarTek shall further protect Microsoft's property
rights in Microsoft's Intellectual Property and Deliverables from unauthorized
use within the scope of this Agreement;
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(4) StarTek shall at all times comply with its commitments and
obligations as stated in this Agreement;
(5) StarTek's performance of Manufacturing and Supply and Services,
pursuant to the rights granted under this Agreement, does not infringe any third
party's patent, copyright, trade secret and/or any other intellectual property
right with respect to StarTek's replication, assembly, and/or distribution
processes;
(6) StarTek will, at all times relevant to this Agreement, keep any and
all license agreement with third parties relevant to Manufacturing and Supply
and Services for the Products in force and in good standing; and
(7) StarTek shall promptly replace, at no charge to Microsoft or the
Customers, any non-conforming Products, and all transportation, customs, and/or
taxes relating thereto, if any delivery of Products to Microsoft or Customers,
or any portion of it, breaches the warranties of Section 7(a). In the event
Microsoft determines that a Product recall is necessary, StarTek shall cooperate
with Microsoft in all respects to conduct such recall at StarTek's expense,
provided that if the recall is necessary because of a Microsoft error, the
recall on the account of that defect shall be at Microsoft's expense, but
StarTek shall still cooperate with it, and in such a case, Microsoft shall
reimburse StarTek for the costs of producing and distributing the replacement
Products.
(8) StarTek agrees that it will not make any warranties, statements or
representations regarding Product(s) beyond the scope of what is authorized by
this Agreement or contained in Microsoft-provided written documentation or other
Microsoft documents or contained in the written Microsoft Software License
Agreement.
(9) StarTek agrees that it will not modify any of the warranties
regarding Product(s) set forth in the written Microsoft Software License
Agreement or in Microsoft-provided written documentation or other Microsoft
documents.
(10) StarTek shall indemnify, defend and hold Microsoft harmless from
all Claims threatened, asserted or filed by any person or entity arising out of
or related to any other warranty of alleged warranty made or modified by
StarTek.
(11) All equipment, products, systems and processes utilized by StarTek
in providing the Manufacturing services including without limitation all
hardware, software and networks will be fully and effectively "Year 2000
Compliant."
(12) YEAR 2000 COMPLIANCE.
(A) In this Section 7(a)(12), the expression
"Year 2000 Compliant" (and like expressions) shall mean that no operational,
financial, data transmission, communication or process is affected or
interrupted by dates prior to, during or after the Year 2000, and in particular,
but without prejudice to the generality of the foregoing that:
(i) *;
(ii) *;
(iii) *;
(iv) *.
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(B) *.
StarTek at its expense shall have completed the
following:
(i) *.
(ii) *.
(iii) *.
(iv) *.
(v) *.
(vi) *.
(C) *.
(D) *.
(E) In this Section 7(a)(12), time shall be of the
essence.
(b) BY MICROSOFT. Microsoft hereby represents and warrants to
StarTek as follows:
(1) Microsoft has the full and exclusive right and power to enter
into and perform according to the terms of this Agreement;
(2) Microsoft has and will have, at all relevant times, sufficient
rights in the Products to grant StarTek the rights granted in this Agreement;
(3) that at all times relevant to this Agreement, Microsoft will keep
any and all license agreements with third parties relevant to the reproduction
and manufacture of the Products in force and in good standing; and
(4) that any and all software and Intellectual Property provided by
Microsoft to StarTek for incorporation into the Products will be EXPORTABLE into
the countries where Microsoft requests it be delivered.
(c) DISCLAIMER OF WARRANTY. THE WARRANTIES SET FORTH IN SECTIONS 7(a)
AND 7(b) ABOVE ARE THE ONLY WARRANTIES MADE BY THE PARTIES AND ARE IN LIEU OF
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, OR STATUTORY, INCLUDING BUT NOT
LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR
PURPOSE WITH RESPECT TO THE PRODUCTS.
8. INDEMNIFICATION.
(a) INDEMNITY.
(1) BY STARTEK. StarTek agrees to hold harmless and indemnify
Microsoft, its subsidiaries and affiliates, and their respective directors,
officers, and employees, from and against any and all claims, suits, actions,
proceedings, or liabilities of any kind, including reasonable attorneys fees and
expenses associated therewith or with
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successfully establishing the right to indemnification hereunder, which arises
out of or is connected with this Agreement, except to the comparative extent
such claims, suits, actions, proceedings or liabilities result from the fault,
negligence, or willful acts of Microsoft. StarTek shall further hold harmless
and indemnify Microsoft from and against any and all claims, suits, actions,
proceedings, or liabilities of any kind, including reasonable attorneys fees and
expenses incurred in connection therewith or with successfully establishing the
right to indemnification hereunder, which arise out of (i) the breach or alleged
breach of any representation, warranty or agreement made by StarTek in this
Agreement, or (ii) the breach or default by StarTek in the performance of any
obligation to be fulfilled by StarTek under this Agreement.
(2) BY MICROSOFT. Microsoft agrees to hold harmless and indemnify
StarTek, its subsidiaries and affiliates, and their respective directors,
officers, and employees, from and against any and all claims, suits, actions,
proceedings, or liabilities of any kind, including reasonable attorneys fees and
expenses associated therewith or with successfully establishing the right to
indemnification hereunder, which arises out of or is connected with any claim
that, if true, would constitute a breach of Microsoft's representations and
warranties set forth in Section 7(b) above.
(b) SURVIVAL. StarTek and Microsoft agree that the indemnities set
forth in this Section 8 shall survive and shall be enforceable beyond the
termination or completion of this Agreement.
(c) LIMITATION ON LIABILITY. STARTEK'S TOTAL LIABILITY AS TO MATTERS
ARISING UNDER THIS AGREEMENT SHALL BE LIMITED TO THE LESSER OF * OR *, WITH THE
EXCEPTION THAT STARTEK'S LIABILITY SHALL BE UNLIMITED AS TO: (i) ANY
INDEMNIFICATION OBLIGATION FOR PERSONAL INJURY, DEATH OR PROPERTY DAMAGE TO THE
EXTENT SUCH CLAIM IS BASED UPON STRICT LIABILITY, NEGLIGENCE, GROSS NEGLIGENCE,
INTENTIONAL ACT OR OTHER FAULT OF STARTEK OR ITS SUBCONTRACTOR(S); (ii) ANY
MATTER ARISING UNDER SECTIONS 9 OR OF THIS AGREEMENT; (iii) FOR THE COST OF
REPLACING PRODUCTS AND ASSOCIATED TRANSPORTATION COSTS OF ANY PRODUCT RECALL;
(iv) ANY FAILURE TO RETURN ANY DELIVERABLES AS IS OTHERWISE PROVIDED FOR IN THIS
AGREEMENT; OR (v) ANY COPYRIGHT, PATENT, TRADEMARK OR TRADE SECRET
INFRINGEMENT(S) (ALL OF THE FOREGOING BEING COLLECTIVELY REFERRED TO AS THE
"STARTEK EXCLUDED MATTERS"). MICROSOFT'S TOTAL LIABILITY AS TO MATTERS ARISING
UNDER THIS AGREEMENT SHALL ALSO BE LIMITED TO THE LESSER OF * OR *, EXCEPT FOR
ANY MATTERS ARISING UNDER SECTION 9 OF THIS AGREEMENT. EXCEPT WITH REGARD TO
STARTEK EXCLUDED MATTERS (WHICH TERM FOR THE PURPOSES OF THIS SENTENCE SHALL NOT
INCLUDE ANY LIABILITY AS TO RECALL), NO PARTY HERETO SHALL BE LIABLE TO ANOTHER
FOR ANY INDIRECT, CONSEQUENTIAL, PUNITIVE OR INCIDENTAL DAMAGES ARISING OUT OR
RELATED TO THIS AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THE OTHER PROVISIONS OF
THIS AGREEMENT RELY UPON THE INCLUSION OF THIS SECTION 8(c).
9. CONFIDENTIALITY.
(a) GENERAL. Each party expressly undertakes to retain in confidence
the terms of this Agreement and the Agreement itself, along with all information
and know-how transmitted to or otherwise received by each party that the
disclosing party has identified as being proprietary and/or confidential or
that, by the nature of the circumstances surrounding the disclosure, ought in
good faith to be treated as proprietary and/or confidential (collectively,
"Confidential Information"), and will make no use of such Confidential
Information except under the terms and during the existence of this Agreement.
Notwithstanding the foregoing, any party may disclose the terms of this
Agreement to its outside legal and financial advisors with whom such party has a
confidential relationship and who are obligated to retain such information in
confidence, in the ordinary course of business. In addition, no party shall have
an obligation to maintain the confidentiality of information that (i) it
received rightfully from an
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unaffiliated third party prior to its receipt from the disclosing party; (ii)
the disclosing party has disclosed to an unaffiliated third party without any
obligation to maintain such information in confidence; or (iii) is independently
developed by the obligated party. Further, each party may disclose Confidential
Information as required by governmental or judicial order, provided such party
gives the disclosing party prompt written notice prior to such disclosure, and
complies with any protective order (or equivalent) imposed on such disclosure,
and provides the disclosing party the option of either seeking a protective
order or having its Confidential Information be subject to the same protective
orders as may apply to information of the party subject to the governmental or
judicial order. No party shall disclose, disseminate or distribute any other
party's Confidential Information to any third party without the other's prior
written permission. Each party's obligation under this Section 8 shall extend to
the earlier of such time as the information protected hereby is in the public
domain through no fault of the obligated party or five (5) years following
termination or expiration of this Agreement. Each party shall take all
reasonable steps to ensure that their employees (and in the case of StarTek,
also its subcontractors) comply with this Section 9(a).
(b) OWNERSHIP RIGHTS. Both parties agree that each has and shall retain
ownership rights to its own Confidential Information and that upon completion or
termination of this Agreement and request from the other party, each party will
return the other's Confidential Information regardless of the media in which it
is stored. For Microsoft, Confidential Information at least and specifically
includes, but is not limited to: * Notwithstanding the foregoing, if as a result
of StarTek's performance of the Services, StarTek enhances or improves Microsoft
Customer lists, such enhancements or improvements shall be the sole property of
Microsoft. Both parties agree to return all Confidential Information including,
but not limited to, records released to either party for marketing and
distribution services, to either party immediately upon either party's written
request, and upon termination or expiration of this Agreement.
(c) INJUNCTIVE RELIEF. Both parties acknowledge that unauthorized
disclosure or use of Confidential Information could cause irreparable harm and
significant injury which may be difficult to ascertain. Accordingly, both
parties agree that the aggrieved party will have the right to seek and obtain
injunctive relief from breaches of this Agreement, in addition to any other
rights and remedies it may have.
(d) FACILITY TOURS. Microsoft acknowledges that customers and potential
customers of StarTek may tour the Facility. Microsoft agrees that any casual
viewing during such a tour of Products that Microsoft has already commercially
released does not violate Section 9(a) above. *. In the event that Microsoft
reasonably believes that additional security measures are necessary, Microsoft
will notify StarTek, and the parties will implement additional mutually
agreeable security procedures for so long as necessary.
10. RISK OF LOSS.
(a) GENERAL. Risk of loss for all Consigned Inventory, Inventory,
Deliverables, Products, Finished Product Units, and Microsoft property which are
the subject of this Agreement, together with all Product Components (including
the associated Raw Materials), shall remain with StarTek except as otherwise
provided in this Section 10. StarTek shall take all reasonable precautions to
protect Microsoft property against loss, damage, theft or disappearance while in
its care, custody or control.
(b) TRANSIT RISKS. Risk of loss for Product(s) or Product Components in
transit shall remain at all times with StarTek unless and until acceptance of
Finished Product Units is made by a Microsoft or Customer directed carrier.
(c) ON PREMISES RISK. StarTek shall be responsible for all risk of loss
or damage to all Microsoft property while located at StarTek's or its
subcontractor's facilities. StarTek shall be responsible for the full amount
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of the loss or damage and shall reimburse Microsoft for such loss or damage.
Reimbursable amount for any loss or damage shall be as set forth in Section (d)
below.
(D) REIMBURSABLE AMOUNT. StarTek shall reimburse Microsoft for any
loss or damage to Finished Product Units as follows:
(1) StarTek shall reimburse Microsoft for the * as established by
Microsoft for any loss or damage to Finished Product Units, except loss or
damage resulting from (i) theft; (ii) mysterious disappearance; (iii) StarTek's
negligence or willful acts; or (iv) Shortage (as defined below) in excess of *.
The * variance will be calculated as defined in the Statement of Work Metrics
Reporting attachment;
(2) StarTek shall reimburse Microsoft for * as established by Microsoft
for any loss to Finished Product Units resulting from (i) theft; (ii) mysterious
disappearance; (iii) the negligence or willful acts of StarTek; or (iv) Shortage
(as defined below) in excess of *.
(e) PROTECTION OF MICROSOFT INTELLECTUAL PROPERTY. StarTek shall ensure
that the Intellectual Property provided by Microsoft to StarTek or its
Microsoft-approved subcontractor in accordance with this Agreement is retained
and held by StarTek or its Microsoft-approved subcontractor in such a manner as
to prevent its unauthorized use. Without limiting the generality of the
foregoing, StarTek shall ensure that the Media is *. For purposes of this
Section, (a) "Intellectual Property" shall mean any and all trademarks,
copyrights, patents and other proprietary rights comprising or encompassing a
given Product, (b) "Product" shall mean those Microsoft products, including
without limitation, any associated documentation and packaging that StarTek or
its Microsoft-approved subcontractor manufactures pursuant to the Agreement, and
(c) "Media" shall mean the media upon which the Intellectual Property is stored,
including, but not limited to, electronic and physical artwork files, PID files
and labels, labels and label art, CD serialization files and lables, film, all
software media on disk, CD-R masters, CD-ROM masters, glass masters, stampers
and electronic files.
Obsolete Media shall be destroyed to prevent unauthorized use in the
following manner:
(1) StarTek shall verify that CD stampers *.
(2) CD-R masters shall be *.
(3) Electronic media and artwork files shall be *.
(4) Printed materials shall be *.
(5) Label printing ribbons shall be *.
Product obsolescence and the corresponding Media destruction shall be
coordinated through the Microsoft Vendor Account Manager. Physical destruction
of the Media shall either be witnessed by Microsoft personnel or certified in
writing by StarTek.
(f) SHORTAGE. StarTek shall be liable for and shall reimburse Microsoft
for any Product(s) that is unaccounted for ("Shortage"), when such Shortage
exceeds *, calculated as shown in Exhibit __, as reported in the * build reports
provided to Microsoft, or as determined upon physical inventory/audit conducted
pursuant to Section 12 of this Agreement. "Shortage" shall be include *.
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(g) SALVAGE. At all times, and regardless of whether StarTek or its
insurers are required to compensate Microsoft for property losses as provided
for in this section, Microsoft shall retain sole rights to salvage for damaged
Products. StarTek shall not surrender damaged goods to carriers, insurers, other
parties or for destruction or disposal without first obtaining the written
consent of Microsoft.
(h) *
11. TERM AND TERMINATION.
(a) DURATION. The term of this Agreement shall commence on the
Effective Date and continue until * (the "Initial Term"), unless terminated
earlier as provided below. Upon expiration of the Initial Term, this Agreement
shall automatically renew for successive * terms (each a "Renewal Term") at the
then-current pricing, unless either party notifies the other party of its intent
not to renew by providing the other party with written notice not less than *
prior to the expiration of the Initial Term or any subsequent Renewal Term.
(b) EARLY TERMINATION AND DEFAULT. Microsoft may terminate this
Agreement immediately upon notice if StarTek: (i) fails to strictly comply with
Section(s) 5 or 9 of this Agreement, (ii) makes or attempts to make an
assignment in violation of Section 16(a) of this Agreement, or (iii) experiences
an Insolvency Event of Default, as defined below. In addition to the foregoing,
Microsoft or StarTek may terminate this Agreement without cause with * notice in
writing. The rights and remedies provided herein to the parties shall not be
exclusive and are in addition to any other rights and remedies provided by law.
In the event a non-defaulting party in its discretion elects not to terminate
this Agreement, such election shall not be a waiver of any claims of that party
for a default(s). Further, the non-defaulting party may elect to leave this
Agreement in full force and effect and to institute legal action against the
defaulting party for specific performance and/or damages suffered by such party
as a result of the default(s). For purposes of this Agreement, an "Insolvency
Event of Default" shall be deemed to have occurred in the event the applicable
party fails to formally dismiss the Insolvency Event of Default within * after
commencement of any of the following proceedings: (v) any party admits in
writing its inability to pay its debts generally or makes a general assignment
for the benefit of its creditors; (w) a proceeding is instituted, voluntarily or
otherwise, by or against any party seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement adjustment or composition of
it or its debt, which is not dismissed within *; (x) a proceeding is instituted
against any party seeking to appoint a receiver, trustee or similar official for
it or for any substantial part of its property; (y) a party ceases to pay its
debts as they become due; or (z) any party becomes Insolvent, as defined
elsewhere herein.
Notwithstanding the foregoing, Microsoft may, at its sole discretion,
immediately terminate this Agreement if, due to StarTek's lack of diligence,
StarTek engages in or permits its subcontractor(s) to engage in the unauthorized
replication and/or distribution of Product(s). StarTek will diligently attempt
to prevent any unauthorized replication and/or distribution of Product(s) by
StarTek employees or any subcontractor and will cooperate fully with Microsoft
to that end. Microsoft may, at its sole discretion, immediately terminate
StarTek's right to subcontract the replication and/or assembly of Product(s), in
accordance with Section 6 of this Agreement, if Microsoft determines that
StarTek's subcontractor is or has been involved in the unauthorized replication
and/or distribution of Product(s) or any third party products.
(c) OBLIGATIONS UPON TERMINATION/EXPIRATION OF THIS AGREEMENT. Within
*, or earlier as noted, after termination or expiration of this Agreement,
StarTek shall do all of the following:
(1) deliver to Microsoft any Finished Product Units built against a
Microsoft purchase order, but not yet delivered, at the Prices set forth in
Exhibit C. StarTek shall destroy all other Finished Product Units and shall,
upon request of Microsoft, issue a letter certifying that such destruction has
taken place.
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(2) StarTek shall, at Microsoft's election, either deliver to Microsoft
or destroy any other unused Inventory (excluding Finished Product Units), as
designated by Microsoft. Microsoft's payment obligation for such unused
Inventory shall be in accordance with Exhibit C.
(3) Subject to payment as set forth in Exhibit C, StarTek shall, at
Microsoft's request, provide Microsoft the opportunity to purchase any other
Product Components owned by StarTek (excluding unused Inventory).
(4) StarTek immediately shall deliver to Microsoft any Microsoft
Deliverables and any Confidential Information not covered by the foregoing.
StarTek shall not retain any copy or original of any Microsoft Deliverable or
Confidential Information in any way or form whatsoever.
StarTek shall work with Microsoft to terminate the Manufacturing and Supply and
Services in an orderly manner in the event of the termination of this Agreement.
Use of Intellectual Property in any manner by StarTek after expiration or
termination of this Agreement for any reason, whether or not incorporated in
Inventory, shall be deemed to be in violation of Microsoft's Intellectual
Property rights and shall entitle Microsoft to have all remedies provided by law
or equity (including injunctive relief); provided, however, this does not
preclude StarTek from continuing to use Products properly acquired outside of
this Agreement in accordance with the applicable license.
(d) EFFECT OF DEFAULT. If there is a Default, the parties shall have
all rights and remedies provided in this Agreement or otherwise available under
law as limited by this Agreement.
(e) SURVIVAL. Sections 2(d), 7, 8, 9, 12, 14 and 16(b) shall survive
termination or expiration of this Agreement. With respect to tax matters, the
provisions of Section 4(d) shall survive termination or expiration until the
expiration of any applicable statute of limitations or extension thereof.
12. RECORD KEEPING AND AUDIT REQUIREMENTS.
(a) RECORD KEEPING REQUIREMENTS. During the term of this Agreement,
StarTek agrees to keep all usual and proper production and delivery records and
books of account and all usual and proper entries relating to StarTek's (and any
subcontractor's) performance of this Agreement for a minimum period of * from
the date they are created. StarTek agrees to keep all usual and proper tax
records relating to StarTek's (and any Subcontractor's) performance of this
Agreement for a minimum period of * from the date they are created. Such
records, books of account, and entries shall be kept in accordance with
generally accepted accounting principles.
(b) DOCUMENTATION. During the term of this Agreement, StarTek agrees to
provide Microsoft with any and all information, as mutually agreed upon between
the parties, that Microsoft determines necessary for tax compliance and
statutory reporting purposes. The information required will include, but may not
be limited to, the data shown on Exhibit E. Unless Microsoft indicates
otherwise, StarTek shall provide such information in an electronic format, at an
agreed upon quarterly deadline. Microsoft shall specify the data requirements
and make every reasonable effort to assist StarTek in designing the report
format. All information should be based on the Microsoft fiscal year-to-date
basis. Such report shall also cover StarTek's subcontractor(s). Microsoft
reserves the right to modify the form of such reports by providing StarTek with
written notice of any such modifications.
(c) AUDIT. Notwithstanding the foregoing provisions, upon * written
notice if Microsoft reasonably believes a breach is occurring under this
Agreement (with such notice specifying the alleged breach) and otherwise upon
reasonable notice as agreed upon between the parties (but in no event shall such
reasonable notice exceed * and StarTek shall not unreasonably delay or withhold
its agreement), Microsoft may cause an audit to be made of StarTek's (and any
applicable subcontractor's) books and records, and/or an inspection of
replication, assembly, and
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distribution locations, including the Facility, in order to verify StarTek's
compliance with the terms of this Agreement and to verify financial reports
issued by StarTek. This right of audit extends beyond the termination of this
Agreement for a period of *. Any such audit shall be made by an independent
certified public accountant selected by Microsoft (other than on a contingent
fee basis) and/or a Microsoft internal audit team. Any audit and/or inspection
shall be conducted during regular business hours at StarTek's (or any applicable
subcontractor's) offices. StarTek agrees to provide Microsoft's designated audit
or inspection team access to relevant StarTek records and all replication and/or
assembly locations. Any such audit shall be paid for by Microsoft unless
material discrepancies are disclosed. *. If material discrepancies are
disclosed, StarTek agrees to pay Microsoft for the costs associated with the
audit. No unauthorized duplication or replication of Product will be permitted.
StarTek shall be liable for any Unaccounted Product discrepancies in excess of
the Shortage allowance in an amount equal to *. "Unaccounted Product(s)" shall
be defined as the number of Finished Product(s) Units that the audit and/or
inspection determines have been replicated and assembled by StarTek and/or one
of StarTek's subcontractors, but (i) have not been properly delivered in
accordance with the terms of this Agreement, (ii) are not in StarTek's
inventory, (iii) are not in transit in accordance with the terms of this
Agreement; (iv) have not been properly destroyed at Microsoft's direction; (v)
have not been otherwise accounted for as damaged or destroyed or lost by theft;
or (vi) are not lost or damaged as a result of the negligence or willful acts of
StarTek. StarTek shall also be liable for Unaccounted Products of its
subcontractor(s). StarTek's obligation to pay Microsoft for Unaccounted
Product(s) shall not be Microsoft's exclusive remedy and is in addition to any
other rights and remedies Microsoft may have as provided by law or this
Agreement.
(d) FACILITY INSPECTIONS. Microsoft may cause an inspection to be made,
with at least * prior notice, of the Facility to verify that StarTek and/'or any
subcontractor is providing Manufacturing and Supply and Services in compliance
with the terms of this Agreement. Any inspection conducted pursuant to this
Section 12(d) shall be conducted during regular business hours at the Facility.
StarTek agrees to provide Microsoft's designated inspection team access to
relevant records and the Facility. StarTek may designate a representative to
accompany the inspector or inspectors, and it may reasonably restrict access
from specific areas containing confidential information of StarTek or its other
customers. If material discrepancies from the provisions of this Agreement are
disclosed, StarTek agrees to implement agreed-upon corrective action. Nothing
herein shall preclude Microsoft from exercising any other rights or remedies it
has under law or other provisions of this Agreement.
(e) CONFIDENTIALITY. Notwithstanding the foregoing, StarTek may edit
its books and records to protect confidential information of StarTek that is
unrelated to the subject of a Microsoft record review, or to protect
confidential information of StarTek's customers.
13. EXPORT RESTRICTIONS. StarTek shall comply with U.S. export laws and
regulations. StarTek shall not, directly or indirectly, export, re-export or
transmit any Product (or any part thereof), technical data, process, or service
that is directly associated with a Product, to any country, person, entity,
Customer or end-user subject to U.S. export restrictions, including but not
limited to:
(a) any countries to which the U.S. has embargoed or that are subject
to U.S. export restrictions (including, but not limited to, the Federal Republic
of Yugoslavia (Serbia and Montenegro), Cuba, Iran, Iraq, Libya, North Korea,
Sudan and Syria) or to any national of any such country, wherever located, who
intends to transmit or transport the Product back to such country;
(b) any Customer or end-user whom StarTek knows or has reason to know
will utilize them in the design, development or production of nuclear, chemical
or biological weapons, or to any end-user who has been prohibited from
participating in U.S. export transactions by any federal agency of the U.S.
government;
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<PAGE> 19
(c) any other country to which such export of transmission is
restricted by the export control laws and regulations of the United States, and
any amendments thereof, without prior written consent, if required, of the
Bureau of Export Administration of the U.S. Department of Commerce, or such
other governmental entity as may have jurisdiction over such export or
transactions; and
(d) any exportable product (or portions thereof) regulated under
"Encryption Item (EI)" of the Export Administration Regulation (EAR, 15 CFR
730-744) of the U.S. Commerce Department, Bureau of Export Administration (BXA)
outside the U. S. or Canada.
StarTek warrants and represents that neither the BXA nor any other U.S.
Federal agency has suspended, revoked or denied its export privileges. StarTek
shall comply with the published Microsoft Global Trade Compliance Programs.
StarTek shall be responsible for acquiring program documentation and interacting
with Microsoft to ensure its full and successful implementation. Microsoft will
be responsible for communicating to StarTek any changes or updates to any of the
published Microsoft Global Trade Compliance Programs and StarTek will be allowed
appropriate time to implement the changes or updates. StarTek agrees that
Microsoft may audit StarTek's compliance with the published Microsoft Global
Trade Compliance Programs at any time, pursuant to Section 11 above.
14. NOTICES AND PRINCIPAL CONTACTS.
All notices, authorizations, and requests in connection with this
Agreement shall be deemed given on the day they are sent by air express courier,
charges prepaid; and addressed as follows:
STARTEK: StarTek Inc.
Attn: Mike Morgan
1205 H Street
Greeley, CO 80631
Telephone: 970-346-5303
Fax: 970-353-7652
With a copy to: StarTek General Counsel
Telephone:
Fax:
MICROSOFT: Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attn: *
Telephone: (425) 882-8080
Fax: (425) 936-7329
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<PAGE> 20
With a copy to: Law & Corporate Affairs
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Telephone: (425) 882-8080
Fax: (425) 936-7329
or such other person or address as each party, respectively, so designates by
written notice to the other parties.
15. ENTIRE AGREEMENT AND MODIFICATIONS.
(a) ENTIRE AGREEMENT. This Agreement, including all exhibits hereto,
constitutes the entire agreement between StarTek and Microsoft with regard to
the subject matter hereof and merge all prior and contemporaneous
communications. The Statements of Work, as may be modified pursuant to Section
14(b) below, is a part of this Agreement for all purposes.
(b) STATEMENTS OF WORK. The Statements of Work may be modified as
follows: each modification must be approved by Microsoft and StarTek, and such
approval must be documented with a confirming e-mail or other written
communication between authorized representatives of the two parties. In
addition, if Microsoft deems it necessary and appropriate, it shall prepare on a
* basis an updated version of the Statements of Work incorporating all
modifications made since the prior update and clearly setting forth the "Date of
Revision" on the front page. Microsoft shall circulate each such update to
StarTek. The most current revised version of the Statements of Work that has
been circulated in this manner to the parties, together with subsequent
modifications documented pursuant to this Section 15(b) shall constitute the
Statements of Work for the purposes of this Agreement. StarTek shall maintain
and make available to Microsoft upon request copies of all of its documentation
regarding modifications to the Statements of Work. For purposes of this
Agreement, references to Statements of Work includes any agreed modification
even if prior to the quarterly incorporation of such changes.
(c) AMENDMENT. This Agreement may be amended only in writing signed by
authorized representatives of both parties. Notwithstanding the foregoing,
Microsoft reserves the right to change, by * prior notice to StarTek, any
policies of Microsoft.
(d) OTHER. Except as provided in this Section 15, the provisions of
this Agreement may be modified only by written instrument signed by duly
authorized representatives of Microsoft and StarTek.
16. GENERAL.
(a) PROHIBITION AGAINST ASSIGNMENT. Except as expressly provided in
this Section 16(a), no party may assign its rights or obligations under this
Agreement (by actual assignment or by operation of law, including without
limitation through a merger, consolidation, exchange of shares, or sale or other
disposition of assets, including disposition on dissolution), without the prior
written consent of the other party, which consent shall not be unreasonably
withheld. Microsoft may, however, assign this Agreement to a Microsoft
subsidiary without the consent of StarTek. Notwithstanding the foregoing, this
is a contract for personal services and Microsoft relies upon the
qualifications, reputation and expertise of StarTek to perform all obligations
hereunder. In particular, Microsoft relies upon StarTek's history of performance
over more than * of operation,
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(b) CONTROLLING LAW. This Agreement shall be construed and controlled
by the laws of the State of Washington, and StarTek consents to jurisdiction and
venue in the state and federal courts sitting in the State of Washington.
Process may be served on any party in the manner set forth in Section 13 for the
delivery of notices or by such other method as is authorized by Washington law
or court rule.
(c) NO PARTNERSHIP/JOINT VENTURE/AGENCY/FRANCHISE. This Agreement shall
not be construed as creating a partnership, joint venture, employer-employee or
agency relationship or as granting a franchise.
(d) SEVERABILITY. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be illegal, invalid or unenforceable, the
remaining provisions shall remain in full force and effect.
(e) ATTORNEYS' FEES. If any party employs attorneys to enforce any
rights arising out of or relating to Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees, costs and other expenses.
(f) WAIVER. No waiver of any breach of any provision of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach of the
same or any other provisions hereof, and no waiver shall be effective unless
made in writing and signed by an authorized representative of the waiving party.
(g) SECTION HEADINGS. The Section headings used in this Agreement are
intended for convenience only and shall not be deemed to supersede or modify any
provisions.
(h) GOVERNMENTAL APPROVALS. Each party shall, at its own expense,
obtain and arrange for the maintenance in full force and effect of any and all
governmental approvals, consents, licenses, authorizations, declarations,
filings, and registrations as may be necessary or advisable for the performance
of all of the terms and conditions of this Agreement.
(i) FORCE MAJEURE.
(1) Except as otherwise provided in this Section 16(i), neither party
shall be in default by reason of any failure in performance of this Agreement,
if such failure arises out of causes beyond the control and without the fault or
negligence of the involving party including, but not restricted to, acts of God,
acts of the Government, fires, floods, epidemics, quarantine restrictions,
strikes, lock-outs, freight embargoes and unusually severe weather. This Section
shall also apply to StarTek's contractors where a contractor's failure arises
out of the same causes, except insofar as StarTek could have reasonably been
expected to obtain contractor supply from alternate sources.
(2) StarTek shall give a written notice to Microsoft within * after
StarTek becomes aware of any circumstances or event which may reasonably be
anticipated to cause or constitute, or which constitute a force majeure as
described in Section 16(i)(1), above. Such notice shall contain a detailed
description of the delay and of the affected portion of the Agreement. Within a
further * after such notice, StarTek shall deliver a detailed written
description of the work-around plan, alternative sources, and any other
reasonable means that StarTek shall, at its own cost, use to prevent such
further delay.
(3) If the delivery of any Products shall be delayed by reason of force
majeure for more than * beyond when delivery was scheduled, Microsoft may upon
written notice to StarTek with respect to the undelivered Products, either
terminate any or all this Agreement hereunder. In the event of such termination,
the parties shall comply with their obligations as specified in Section 11.
(j) EXHIBIT(S). The following exhibits, as amended from time to time,
are incorporated into this Agreement by this reference ("Exhibit(s)"):
21
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
A Statement of Work - Manufacturing
B Statement of Work - Distribution
C Component Pricing Matrix
D Insurance
E Required Tax Information
F Approved Subcontractor List
G Certificate of Material Destruction
H StarTek Facilities
I Subsidiary Agreement
</TABLE>
All references to the "Agreement" are references to this Agreement and all
Exhibits, all as amended from time to time. To the extent that any provision
contained in any Exhibit is inconsistent or conflicts with this Agreement
exclusive of the Exhibits, the provisions of this Agreement (exclusive of the
Exhibits) shall control.
(k) PRESS RELEASES/PUBLICITY. StarTek shall not issue any new press
releases or publicity that may relate or refer to this Agreement. Any press
statements shall only be released by joint agreement of the parties, except as
legally required by the SEC or NYSE. StarTek shall not use the name "Microsoft"
or "Microsoft Corporation" in any advertisements. StarTek may, however, with the
prior written consent of Microsoft, use the name "Microsoft Corporation" in
brochures, written response to requests for client lists as part of Requests for
Proposals, Requests for Information, etc. StarTek may also use the name
"Microsoft" or "Microsoft Corporation" in verbal client presentations.
(l) INSURANCE. Prior to the commencement of the Manufacturing and
Supply and Services to be performed hereunder and throughout the entire period
of performance by StarTek, StarTek shall procure and maintain the insurance
coverage set forth in Exhibit D. Such insurance shall be in a form and with
insurers acceptable to Microsoft, and shall comply with the minimum requirements
set forth in Exhibit D.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above. All signed copies of this Agreement shall be deemed originals.
MICROSOFT CORPORATION STARTEK INC.
/s/ Nick Macfee /s/ Michael W. Morgan
- ----------------------------- ----------------------------------
By By
Nick Macfee Michael W. Morgan
- ----------------------------- ----------------------------------
Name (Print) Name (Print)
President and Chief Executive
Vice President Officer
- ----------------------------- ----------------------------------
Title Title
August 4, 1999 July 20, 1999
- ----------------------------- ----------------------------------
Date Date
22
<PAGE> 23
State of Washington )
) ss:
County of King )
I certify that I know or have satisfactory evidence that
____________________________ is the person who appeared before me, and said
person acknowledged that (he/she) signed this instrument, on oath stated that
(he/she) was authorized to execute the instrument and acknowledged it as the
_______________________ of MICROSOFT CORPORATION to be the free and voluntary
act of such party for the uses and purposes mentioned in the instrument.
Dated: ______________
---------------------------------
Notary Public
[Seal or Stamp] ---------------------------------
[Printed Name]
My appointment expires
23
<PAGE> 24
Colorado )
) ss:
County of Weld )
I certify that I know or have satisfactory evidence that Michael W.
Morgan is the person who appeared before me, and said person acknowledged that
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Chief Executive Officer of StarTek Inc. to
be the free and voluntary act of such party for the uses and purposes mentioned
in the instrument.
Dated: July 20, 1999
/s/ Ruth Jenkins
-----------------------------------
Notary Public
Ruth Jenkins
[Seal or Stamp] -----------------------------------
[Printed Name]
My appointment expires May 17, 2001
------------
24
<PAGE> 25
EXHIBIT A
26
<PAGE> 26
EXHIBIT A
*
STARTEK, INC. * STATEMENT OF WORK
For purposes of this exhibit, "Company" shall mean StarTek USA. All other
capitalized terms not otherwise defined in this Exhibit shall have the same
meaning as set forth in the Agreement to which this is an Exhibit.
1. GENERAL:
1.1 PURPOSE AND REQUIREMENT SCOPE
This document describes the requirements that the Company must
meet as a manufacturer and service provider to Microsoft. The
general requirements under this agreement are:
1.1.1 Source and procure raw materials in accordance with
Microsoft specifications.
1.1.2 Build finished package product in accordance with
Microsoft specifications in the quantities ordered by
Microsoft pursuant to a Finished Goods Purchase
Order.
1.1.3 Make Finished Product units available to a Microsoft
designated distribution center or ship direct to
designated Microsoft customers as requested.
1.1.4 Make Less Than Finished Goods components available to
Microsoft at the locations specified in a Less Than
Finished Goods Purchase Order.
1.1.5 Provide information regarding production and delivery
as required.
2. SCOPE OF BUSINESS
Microsoft may elect to split the book of business between two or more
companies.
3. FORECASTS
3.1 * ROLLING FORECAST:
Microsoft will provide a * rolling forecast for * for all
Products anticipated to be built by the Company (reference
attachment 1). This forecast may be used by the Company at the
Company's discretion for planning and procuring raw materials.
Microsoft may change the forecast up to the issuance of a
frozen build signal, followed by a Microsoft Purchase Order,
with no penalty or responsibility for any raw materials,
Product Components, or Product acquired/built to such
forecast, with the exception that certain long lead-time
components may be procured in advance of the frozen build
signal with agreement by the VAM.
3.2 MANUFACTURING SYSTEMS
The company shall perform procurement, scheduling and
manufacturing activities on their own manufacturing system(s).
Microsoft will not be responsible for providing the Company
with any manufacturing system.
Exhibit A-Page 1
<PAGE> 27
4. PURCHASE ORDER PROCEDURES
4.1 PURCHASE ORDERS (PO)
During the term of the Agreement, Microsoft will issue a *
frozen build signal, in the form of an Excel spreadsheet, to
the Company by * for Finished Product Units for * (reference
attachment 2). * a PO will be issued that requires Finished
Product Units to be prepared and delivered to a distribution
center the * following the build * or direct to designated
customers on a scheduled agreed to by Microsoft and the
Company in advance of shipment. The purchase order will
include but not be limited to the SKU, quantity, price and
required delivery date. Microsoft may prioritize Products on
the PO so Company will be able to build more urgent
requirements first. The purchase order will officially
authorize the Company to manufacture Microsoft Products.
Microsoft accepts ownership and liability for only those
quantities of raw materials purchased, and finished goods
built, that meet the weekly frozen build signal, unless prior
arrangements have been made in writing and agreed to by both
parties.
4.2 Once Microsoft has issued a PO, Microsoft may change the build
requirements or issue engineering change notices (ECN)
corresponding to that PO, but raw materials procured by the
Company to fulfill such PO, in accordance with section 4.1,
that are left unused will be the responsibility of Microsoft.
Company may charge Microsoft for the storage of any such
unused raw materials remaining in Company's warehouse * days
after fulfillment of the PO at the rate of *. Microsoft will
reimburse Company for the cost of such raw materials if they
remain unused. In order to be reimbursed by Microsoft, the
Company must provide a raw material inventory age report for
which Microsoft owns liability upon expiration of the *
holding period. In case of an ECN that stops and/or starts a
component, the Company must notify Microsoft of the related
charges within * of the change order. Related charges will be
tracked and reviewed at * management meetings. This
notification must include the Microsoft ECN#, the component
part number and the quantity that Microsoft is liable for.
Microsoft will determine and communicate in writing whether or
not to scrap any raw material or finished goods and reimburse
the Company accordingly.
4.3 Microsoft intends to remit payment to the Company, * or via
the auto voucher process, for all Finished Product Units upon
receipt of the po quantity by the applicable distribution
turnkey vendor ("DTV") or from another Microsoft-authorized
entity in the event the shipment does not deliver to a DTV.
All error-free invoices submitted by the Company will be paid
within the payment terms of the Agreement. When invoice
discrepancies are found, invoices will be immediately returned
to the company for correction and re-submittal. Corrected
invoices submitted to Microsoft must reflect a revised invoice
date (not the original invoice date). It is in the Company's
best interest to submit error-free invoices to Microsoft for
prompt payment, as invoice errors will delay Microsoft payment
to the Company. Microsoft will make payments for services in
US dollars.
5. FINISHED GOODS TRANSACTION REPORT AND RECEIPTS
5.1 When production has been completed per the Microsoft Purchase
Order, the Company must notify DTV of the completed Finished
Product Units by sending an advance ship notice (ASN).
5.1.1 Company must notify Microsoft * of any inventory
movements that may required inventory adjustments.
Adjustments include but are not limited to quality
issues, cycle count adjustments, rework, and site to
site stock transfers.
Exhibit A-Page 2
<PAGE> 28
6. PROCUREMENT
6.1 Company will be responsible for procuring all raw materials
for assembly. Raw materials procured must meet Microsoft
Global Quality specifications for Full Packaged Product (FPP).
Microsoft may at times designate `Approved Subcontractors' for
certain raw material components such as security components,
third party pieces and hardware. Microsoft may at times supply
raw material to the Company. The Company will be notified o
the approved subcontractors. All raw materials that the
Company procures are subject to audit at the Company's
Facility for adherence to Microsoft Global Quality Standards
for Full Packaged Product located on *.
6.2 PRE-PRESS WORK, ENGINEERING, AND DIE CHARGES
These are costs associated with the output of electronic files
to plate ready film, color separations, proofs, prototypess,
and die charges and are not to be calculated in the unit or
component cost of the part. These are to be billed on a
separate invoice to Microsoft noting the Microsoft part number
to which the costs are related. Costs associated with
frequently performed services such as outputting postscript
files for manual text, preparing provided film for plate
imposition etc. shall be charged *. Charges for other
non-standard goods and services shall be billed * provided the
Company can demonstrate that these charges are competitive for
similar goods and services within the region.
7. SUBCONTRACTING
Any references to subcontractors in this Exhibit shall be subject to
the requirements for subcontractors set for in the Agreement.
8. PRINTING
8.1 PROCURE
Company must be capable of procuring printed materials per
Microsoft provided specifications and in quantities to meet
Microsoft's finished goods production requirements and Less
Than Finished Goods component order requirements.
8.2 PRINT SPECIFICATIONS
Printed materials must meet the quality standards and
specifications identified in Microsoft Print Specification
documentation and in the Microsoft Global Quality Standards.
For ongoing business, the Company will access all required
quality specifications using the Internet on *. From time to
time printed samples may be requested. The Company must supply
samples to Microsoft upon request.
8.3 MONITOR AND ORDER ARTWORK FOR PRINTING
It is the Company's responsibility to *.
8.3.1 IDENTIFY COMPONENTS
Company will pull a BOM from EDT based on demand seen
in *of the *. Company will review the Microsoft BOM
and determine whether or not artwork is needed.
Exhibit A-Page 3
<PAGE> 29
8.3.2 TRACK COMPONENTS
Company must have an internal mechanism to track
outstanding artwork and receipt dates for film. The
purpose of the tracking mechanism is to proactively
monitor whether outstanding artwork will impact
Product builds. Company will provide a * report of
all Microsoft film ordered and/or received in the
previous *.
8.3.3 MONITOR MICROSOFT ARTWORK RELEASE
Company will receive * reports via email from
Microsoft Product Information Release Services
(PIRS). It is the Company's responsibility to monitor
the * print release reports. These reports notify the
Company that the *.
8.3.4 PULLING AND PREPPING ELECTRONIC FILES
Electronic files include but are not limited to 1-2
color print components, print specifications, film
order forms and software images. It is the Company's
responsibility to pull electronic files posted to EDT
for parts required as soon as parts are released to
EDT, or SKU demand is seen in * of the *, whichever
is later. Electronic art files are to be sent to
Company's supplier to be converted to bluelines as
soon as they are pulled. Bluelines are to be sent to
Microsoft or its designated art agency as defined on
the Print Specifications documentation within * of
pulling the electronic files from EDT. Blueline
approval from Microsoft or its designated art agency
is required before the component can be used in
building Product.
8.3.5 ORDERING FILM
For film-based components (over 2 colors) it is the
Company's responsibility to pull film order forms
from EDT, complete all required information (film
requirements, ship-to address, required delivery
date, etc.) and send the order form via email
directly to the designated film house.
Company must report all printed material
discrepancies immediately to Microsoft through the *.
8.4 REGISTRATION/LICENSE CARD PRINTING
Company shall have the capability to have printed product part
numbers, product ID numbers or other Microsoft identified
information on Microsoft registration cards and Microsoft
license agreements.
8.5 CD COMPONENT PRINTING
Company shall procure printed components included in
replicated CD-ROMs. These components shall consistently meet
the quality requirements of Microsoft CD ROM Quality
Specifications found in the Microsoft Global Quality
Standards. For ongoing business with Microsoft, the Company
will access all required quality specifications in the *.
Exhibit A-Page 4
<PAGE> 30
9. DISK DUPLICATION
Duplicated disks may be produced or procured by the Company, as set
forth in the * PO.
9.1 DISK DUPLICATION CAPABILITIES
Company or Company's duplication subcontractor must be capable
of duplicating diskettes in accordance with the requirements
identified in Microsoft Global Quality Standards. Company or
Company's duplication subcontractor duplication equipment must
have the ability to control all aspects of the quality of the
duplication process including image integrity, bit placement,
window margin, and revolutions per minute (RPM) of the drive
spindle.
9.2 DISK DUPLICATION QUALITY CONTROL
Company or Company's duplication subcontractor must have *.
The * shall be used to ensure that the proper image is being
duplicated.
9.3 DISK DUPLICATION PROCESS
Company or Company's duplication subcontractor must have:
9.3.1 A preventive maintenance program or backup
subcontracting program in place capable of preventing
disk duplicating delays for finished goods
production.
9.3.2 A format training program in place for all
duplication operators and support personnel.
9.3.3 A staff technically capable of supporting all of
Microsoft's duplication requirements within the
weekly production variability range.
9.3.4 A write and verify process for all duplicated
Product.
9.3.5 The capability to utilize Microsoft * and other tools
when necessary.
9.4 VIRUS PROTECTION
To ensure that every possible avenue to preventing Microsoft
deliverable Product from being infected with a computer virus
is pursued, Company shall implement the following:
9.4.1 *.
*:
9.4.1.1. *.
9.4.1.2. *.
9.4.1.3. *.
9.4.1.4. *.
9.4.1.5. *.
*.
Exhibit A-Page 5
<PAGE> 31
9.5 DISKETTE QUALITY
Company or Company's duplication subcontractor must perform
quality checks on duplicated disks. Diskettes shall be
duplicated and verified in accordance with the Microsoft
Floppy Diskette workmanship specification (S000257). Company
must be capable of tracking and reporting duplication
performance data.
9.6 CUSTOMER MASTER DISK HANDLING
Company or Company's duplication subcontractor must have the
capability of receiving software master images *. Company or
Company's duplication subcontractor shall ensure proper
handling, storage, retrieval and control of the master disk(s)
provided or created to ensure the integrity of the software
images.
9.7 DISK COPY PROTECTION AND *
Company or Company's duplication subcontractor's disk
duplication process must be capable of supporting disk copy
protection and *.
9.8 DISK LABELING AND COLLATION
9.8.1 LABEL IMAGES
Microsoft will provide all label images *.
9.8.2 LABEL PRINTERS
Company or Company's duplication subcontractor shall
print *.
9.8.3 LABELERS
Company or Company's duplication subcontractor's
labeling equipment and/or procedures shall be capable
of consistently meeting or exceeding Microsoft's
label placement specification as described in the
Microsoft Quality Specifications (*). For ongoing
business with Microsoft the Company will access all
required quality specifications using the Internet *.
9.8.4 COLLATION
Company or Company's duplication subcontractor shall
have sufficient and appropriate process equipment to
seal collated disk sets into polyvinyl bags. Company
is responsible for ensuring that collation process
for diskettes meets Microsoft Floppy Diskette
workmanship specification (S000257).
10. CD AND DVD REPLICATION
CD's and DVD shall be procured by Company, as set forth in the
* PO's for Product and for Less Than Finished Goods. Company or Company's CD
subcontractor shall have documented processes and appropriate equipment to
effectively produce CD-ROM's, DVD and associated CD components which
consistently meet or exceed the requirements of the Microsoft Global Quality
Specifications for CD ROM. Company's CD subcontractor agrees to perform all
required maintenance on the equipment at its own cost. Company's CD
subcontractor shall have a * to hold CD-ROMs and DVD and material until they can
be rendered unusable or recycled. When Company procures CDs and DVD, the
following apply:
Exhibit A-Page 6
<PAGE> 32
10.1 CD ROM AND DVD PRODUCTION PROCESS
Company or Company's CD subcontractor shall have documented
processes for the following:
10.1.1 Company's CD subcontractor shall have a preventative
maintenance program in place capable of preventing
delays for finished goods production.
10.1.2 Company's CD subcontractor shall have a formal
training program in place for all CD and DVD
operations (Premastering, Mastering, and Replication)
and support personnel.
10.1.3 Company and Company's CD subcontractor shall have
staffs technically capable of supporting all of
Microsoft's CD and DVD requirements within the *
production variability range.
10.2 HANDLING OF CD ROM AND DVD MASTERS
Company or Company's CD subcontractor shall have documented
procedures in place, which ensure proper handling, storage,
and retrieval of Microsoft supplied CD master files.
10.3 CD AND DVD ANTI-PIRACY *
Company or Company's CD subcontractor shall be capable of
supporting Anti-Piracy initiatives and * applicable to CD-ROMs
and DVD upon Microsoft request.
10.4 CD ROM AND DVD QUALITY CONTROL
Company or Company's CD subcontractor shall have a documented
verification process in place to ensure the integrity of the
replicated CD-ROM matches the original supplied by Microsoft.
In addition, Company or Company's CD subcontractor of supply
shall have documented and implemented processes to verify *
parameters which ensure compliance to Microsoft Global
Specifications. The Company will access all required quality
specifications using the Internet on *. Company or Company's
CD subcontractor must be capable of tracking and reporting CD
quality data to Microsoft.
10.5 CD LABEL SCREEN PRINTING AND DVD PIT ART
Company or Company's CD subcontractor, should have a process
to receive CD or DVD label images *. Process must be
established to ensure the correct label image is applied to
the correct CD or DVD title. Processes must prevent any CD's
of DVD's used in the setup of the print processes *.
10.6 *
11. PRODUCTION
11.1 ASSEMBLY CAPABILITY
Company will establish and maintain an assembly process
capable of producing sufficient quantities of Product that
meet Microsoft's Purchase Order requirements, or minimum
capacity, whichever is lower. If Microsoft demand exceeds the
Company's capacity and subcontracting is necessary to meet
this demand, Microsoft must be notified prior to proceeding
with off-site builds. The Microsoft Global Quality
Specifications for full packaged Products as stated in the *
must be met.
Exhibit A-Page 7
<PAGE> 33
11.2 *.
Company shall have the proper equipment to make *.
11.3 SHRINKWRAPPING
Company shall be capable of shrink-wrapping all sizes of
Products, in accordance with *.
11.4 ASSEMBLY QUALITY
Company shall perform in-process and final verifications of
assembled Products to ensure compliance to the Microsoft
requirements and quality standards.
11.5 BUNDLING
Microsoft may notify the Company that a bundling operation is
required and will provide Company with SKU number, quantity
and specific bundling instructions. The Company shall provide
the Microsoft Vendor Account Manager (VAM) with a * for the
bundling effort within * in sufficient detail to allow
Microsoft to perform an analysis of the major cost elements.
The VAM will provide the Company with written authorization to
proceed at the agreed upon price. The Company shall be
responsible for bundling the Products in accordance with the
Microsoft provided bundling instructions and submitting an
invoice to the VAM at the agreed upon price. The Company may
be required to purchase finished goods and/or raw materials
from other Companies to fulfill the bundling requirement(s).
11.6 REWORK
Microsoft may notify the Company that rework is required and
will provide Company with SKU number, quantity and requested
completion date. The Company shall provide the Microsoft VAM
with a * for the rework effort within *, in sufficient detail
to allow Microsoft perform an analysis of the major cost
elements. The VAM will provide the Company with written
authorization to proceed at the *. The Company shall be
responsible for reworking the Products in accordance with the
Microsoft BOM and submitting an invoice to the VAM at the *. A
touch is defined as one activity per component for pricing
purposes.
11.7 ORDERS REQUESTED PRIOR TO NORMAL LEAD-TIME
There will be situations where Microsoft will request orders
to be built in less than the normal * lead-time. (Please
reference section 4.1 hereof). When Microsoft requests such an
order, the Company will reply with at least but not limited to
*. This will give Microsoft the opportunity to decide which
option best suits the situation. These orders will be
communicated to the Company by the Microsoft VAM in situations
where faster Product deliveries are required due to urgent
customer requests. The Microsoft VAM and Company shall
mutually agree that the option taken is acceptable and the
Microsoft VAM will provide authorization to proceed.
11.8 SCRAP PROCESS
Subcontractor must have written authorization from Microsoft
VAM prior to scrapping and/or disposing of Microsoft finished
goods or components (please reference attachment 3).
Exhibit A-Page 8
<PAGE> 34
12. DELIVERY REQUIREMENTS
12.1 PREPARATION
The Company is responsible for delivering the Finished Product
Units to the Distribution Center. This preparation includes
ensuring that finished goods are correctly palletized,
shrink-wrapped and ready for transit to the Distribution
Center.
12.2 PALLET LOADING
The Company shall adhere to the Microsoft Global
specifications for pallet configuration specifications when
stacking Product.
12.3 FINISHED GOODS HANDLING
The Company shall have proper handling procedures for finished
goods to prevent loss of damage between assembly and pick-up
by the Distribution Center.
12.4 ADVANCE SHIPMENT NOTIFICATION
The Company is responsible for providing * to the Distribution
Center.
12.5 SHIP DIRECTLY TO CUSTOMER
On regular basis, the manufacturing supplier will be requested
to prepare Product for direct shipment to the distributor. The
Company will invoice upon shipment. Upon doing any direct
shipment, company will provide Microsoft with electronic
notification containing all relevant shipment information.
13. REPORTING / COMMUNICATION REQUIREMENTS
13.1 MANUFACTURING DELAY
*
13.2 REPORTING
13.2.1 THE COMPANY SHALL PROVIDE:
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
Exhibit A-Page 9
<PAGE> 35
13.2.2 MICROSOFT SHALL PROVIDE
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
o *
14. QUALITY
14.1 ISO CERTIFICATION
Company shall remain ISO certified during the period of the
Agreement.
QUALITY RECORDS
Company shall maintain records of inspection, repairs, reworks
and tests for the term of the Agreement. Records shall be made
available to Microsoft upon request.
14.3 *
14.4 *
14.5 *
15. CONFIGURATION MANAGEMENT
15.1 BOM'S AND CAD'S
Company will use Microsoft supplied Bills of Material (BOM's)
and CAD's as a reference to ensure proper assembly of Product
as specified in *. Company must inspect and approve all new
releases and first time builds per first article process.
15.2 CHANGES TO BOM'S AND CAD'S
All changes to the configuration of Products will be managed
through the Microsoft Configuration group. The Company must
manage all resulting changes to Bills of Material accordingly.
Company may make no changes to Product configuration or
content without written authorization from Microsoft, however,
Company is encouraged to suggest changes that *or the Product.
Any discrepancies between Microsoft's BOM, CAD or Kit and
Company's BOM shall be resolved prior to each build.
Exhibit A-Page 10
<PAGE> 36
15.3 * RECORD RETENTION
Company shall maintain records of * used to assemble Product
for the term of the Agreement. All records will be made
available to Microsoft upon request.
16. INFORMATION TECHNOLOGY
16.1 INFRASTRUCTURE REQUIREMENTS
The Company Facility shall have an infrastructure capable of
supporting a variety of data communications required to
Manufacture Product. This includes the ability to connect to
Microsoft's external network. External network connections
will be used to transfer information about Product builds.
16.2 *
16.3 TECHNICAL PERSONNEL
The information technology requirements outlined above are
deemed mission critical. The Company shall have in-house or
readily available technical support at the Company's primary
facility. These Company personnel will work with Microsoft
personnel to ensure that the site is properly set up to
communicate with Microsoft. Microsoft will work with the
Company to establish competency with any non-commercially
available Microsoft-specific software that may be used in the
operation. Company will be responsible for on-going training
of replacement or additional personnel used to support the
operation.
16.4 DATA EXCHANGES
Data exchanges will be required throughout the term of the
Agreement. Exchanges will occur primarily through *, and may
include, but are not be limited to, * and routine information
required to Manufacture Product.
16.5 SYSTEM ALTERNATIVES
Microsoft may wish to employ any or all of the following
system alternatives:
o *
o *
o *
o *
16.6 *
17. MANAGEMENT
17.1 MEETINGS AND REVIEWS
Company will meet with designated Microsoft team members at
least * for * business reviews. These meetings will include a
Company performance review, pricing reviews, continuous
improvement projects, management status reviews, cost
reduction initiatives and other operational areas and issues.
* business reviews (*) may be held at Company's facility,
Microsoft's facility or by video teleconference (VTC).
Exhibit A-Page 11
<PAGE> 37
17.2 RISK MANAGEMENT
Comprehensive Outsource Risk Evaluation (C.O.R.E) is a
Microsoft tool which is used to assess the Company's
performance and ability to meet or exceed Microsoft customers
expectations. Company will agree to participate in a risk
management program to ensure Product availability. StarTek
North America will on occasion be requested to provide
information that will be used as input to the C.O.R.E. tool.
Microsoft will share the results of the C.O.R.E *.
17.3 METRICS
Microsoft may request that certain metrics be captured and
reported on a * basis.
18. MICROSOFT GLOBAL SPECIFICATIONS
Microsoft Global Specifications for Retail Full Packaged Products
include Workmanship and Engineering Specifications. For ongoing
business with Microsoft, the selected Company(s) will access all
required quality specifications using the Internet on *. Workmanship
and Engineering Specifications are available online at *. Changes to *
will be communicated to the Company as revisions occur.
19. ATTACHMENTS
The following Microsoft documents, which may be modified by Microsoft
from time to time, are hereby incorporated as part of this SOW in
Exhibit J:
<TABLE>
<CAPTION>
------------------- -----------------------------------------
ATTACHMENT NUMBER ATTACHMENT
NAME
------------------- -----------------------------------------
<S> <C>
1 * Forecast
------------------- -----------------------------------------
2 Frozen Build Signal *
------------------- -----------------------------------------
3 Procedure for Destruction/Scrap
------------------- -----------------------------------------
4 Approved Suppliers for COA and CD-Rom/DVD
------------------- -----------------------------------------
5 Metrics Reporting for Inventory Shrinkage
------------------- -----------------------------------------
</TABLE>
Exhibit A-Page 12
<PAGE> 38
20. COMMON MICROSOFT ACRONYMS:
<TABLE>
<S> <C> <C>
o ASN Advance Ship Notice
o ASAP As soon as possible
o BOM Bill of Materials
o CAD Computer Aided Drawing
o COGS Cost of Goods Sold
o CSP Customer Service Pack's
o DC Distribution Center
o DMF Distributed Media Format
o * *
o * *
o ECD Engineering Change Date
o ECN Engineering Change Notice
o ECR Engineering Change Request
o EDI Electronic Data Interchange
o EDT Electronic Delivery Tool
o FINOPS Financial Operations
o ISO International Organization of Standards
o ITG Microsoft Information Technology Group
o LTFG Less Than Finished Goods
o MLP Microsoft License Pack's
o * *
o * *
o NDA Non-Disclosure Agreement
o PDM Product Data Manager
o PID Product Identifier
o PO Purchase Order
o PST Pacific Standard Time
o * *
o RMA Returned Merchandise Authorization
o SOW Statements of Work
o UPC Universal Product Code
o VAM Vendor Account Manager
</TABLE>
Exhibit A-Page 13
<PAGE> 39
EXHIBIT B
STATEMENT OF WORK - DISTRIBUTION
27
<PAGE> 40
EXHIBIT B
*
STARTEK, INC. * STATEMENT OF WORK
1.0 GENERAL
1.1 PURPOSE AND REQUIREMENT SCOPE
This document describes the requirements that the Company must
meet as a logistics provider to Microsoft. The general
requirements under this agreement are:
1.1.1 Store varying quantities of finished goods until
needed for shipment, including providing variable
amounts of storage to meet the requirements of
inventory build-ups during certain times of the year.
1.1.2 Meet the information systems needs of Microsoft.
1.1.3 Build and distribute mixed pallets and retail display
units for merchandising and promotion purposes and
provide other value-added services as requirements
emerge.
1.1.4 Provide appropriate systems competency and agree to
work with Microsoft to modify warehousing and
transportation systems to adapt to changing or
emerging business requirements.
2.0 MICROSOFT CONTACTS
For further information regarding this Statement of Work (SOW), please
contact the Sr. Turnkey VAM.
3.0 NON-DISCLOSURE AGREEMENT
The information contained within this Statement of Work, the actual
contract, and any other information relating to this project provided
to you by Microsoft is considered private and confidential and subject
to the "MICROSOFT CORPORATION STANDARD NON-DISCLOSURE AGREEMENT". This
information may only be discussed between principals of your company
and Microsoft, and those transportation and warehouse companies
necessary to successfully complete this project. In addition, any
information you provide to Microsoft pursuant to this agreement shall
be considered private and confidential and subject to the attached
"MICROSOFT CORPORATION STANDARD NON-DISCLOSURE AGREEMENT".
4.0 DEFINITIONS
4.1 COMPANY OPERATIONS INFORMATION
Product will be built and shipped to the Company from several
contract manufacturers. The Company will potentially ship to *
locations in the United States and Canada *. Average
Exhibit B - Page 1
<PAGE> 41
shipment size to Microsoft's channel customers will be
approximately *. The majority of the shipments will be *. In
general, the Company must have the following capabilities:
4.1.1 CAPACITY AND EQUIPMENT
Company must provide facility capacity, equipment,
and staff to receive and ship finished goods within
the established timelines. The Company must process
orders, pick and ship to meet established shipping
schedules for major customers and provide a forty
eight (48) hour turnaround on all other shipments.
Equipment needed includes, (but is not limited to)
fork lifts, pallet wrappers, pallet jacks, storage
racks, etc.
4.1.2 STORAGE CAPACITY
Storage capacity to store up to * of finished goods
on an on-going basis with a * of up to *. New product
launches may occur at any time during the year and
may require additional storage space on a temporary
basis. Seasonal buildup of inventory for consumer
products will typically occur in *. It is expected
that the provider maintain relationships to provide
additional space when required. *
4.1.3 INVENTORY ACCURACY
Maintain 100% inventory accuracy. Differences greater
than * between book and physical inventories found
during cycle counting must be * reported, explained
and adjusted.
4.1.4 PICK OPERATIONS
Capability of picking between *, preparing shipments
for outbound transportation including stretch
wrapping, labeling pallets and printing pallet level
packing slips.
4.1.5 ORDER PROCESSING TURN-AROUND
Company must be able to ship orders within * of
receipt, if required. Typical turn-around
requirements will be *, however, in order to meet
customer shipping schedules with cost effective
transportation.
4.1.6 TRANSIT TIMES TO CUSTOMERS
The location of the facility is to be *.
4.1.7 SYSTEMS SUPPORT
A fully competent transportation and distribution
system which can *. Agreeing to work with Microsoft
to implement system modifications to adapt to
changing business requirements is essential.
Exhibit B - Page 2
<PAGE> 42
4.1.8 RE-PACKING CAPABILITIES
Re-packing operations must be available in the event
that orders are placed in less than master pack
quantities. Company must have suitable boxes, packing
material, and taping devices to handle less than
masterpack shipments, and the labor on hand to
perform the packing in all phases of this project.
4.1.9 * AND * SHIPPING
Volumes may dictate * shipping and receiving
availability at the Company facility, although it is
anticipated these requirements may be very
infrequent..
5.0 TRAFFIC SERVICES
The Company will dispatch shipments in accordance with Microsoft
routing guidelines, *. The provider's Traffic staff should consult
Microsoft's Transportation staff for determination on routings when the
mode or service level requires clarification. The following details
apply:
5.1 LAUNCH MODE
During product launches, Microsoft may require * shipments to
meet customer needs. Spreadsheets with shipment details and
routing instructions will be forwarded to the provider's
Traffic staff for dispatch.
5.2 FREIGHT TERMS
Freight terms are transmitted via * for each order. Care must
be taken to ensure proper routing of all shipments, whether
prepaid or collect.
o For all LTL shipments, Driver Load and Count (DL &C)
terms apply.
o For truckload shipments there are 2 options, the load
terms must be noted on the bill of lading.
o Shipper Load and Count (SL&C)
o Shipper Load and Driver Count (SL & DC)
5.3 CARTON COUNT
Using DL&C and SL&DC terms, the Carrier representative must
count and sign for the number of cartons picked up. The number
of pallets may be noted on the bill of lading, but the driver
must sign for the number of cartons (except under SL&C terms).
5.4 BLOCKING, BRACING AND SEALING
Carrier must supply proper blocking and bracing, and utilize
airbags when feasible, to ensure loads stay intact and do not
fall over or become damaged in transit. The provider is
responsible for ensuring that product is properly blocked and
braced before carriers leave the dock. All truckload
Exhibit B - Page 3
<PAGE> 43
shipments must be sealed with heavy-duty seals before leaving
the premises. For multi-stop truckload shipments, provider
must supply additional seals to secure the load after each
stop.
5.5 TRUCKLOAD CARRIER FREE TIME FOR LOADING
Truckload carriers free-time for live-loading is * from the
time of scheduled appointment.
5.6 CONSOLIDATED SHIP SCHEDULE
Allocations for major customers may be dispatched based on the
consolidated ship schedule issued by Microsoft's
Transportation staff. Regional consolidations of multiple LTL
shipments into multi-stop truckload shipments should be made
when possible to speed transit and minimize freight cost.
Microsoft's Traffic staff is available for consultation
regarding routings and appropriate combinations.
5.7 BILL OF LADING PREPARATION
Proper bills of lading must be filled out and supplied to
carriers, including all information to ensure billing and
shipment rating. All bills of lading must show "Microsoft c/o
Startek" as the shipper. The provider must be capable of
providing information about a particular bill of lading *.
Requests for copies of bills of lading must be addressed
within *.
o Bills of lading for truckload shipments must be
notated to show the loading terms - *
o All bills of lading must show *. For air freight
shipments using a manual airway bill, *.
o All bills of lading must detail *.
5.8 DAILY SHIPMENT CONSOLIDATIONS
The Company is responsible for consolidating all replenishment
packslips * into a single customer shipment and generating one
bill of lading per customer *. The exceptions to this rule
will occur *. In these situations, separate bills of lading
must be provided.
5.9 RATING SHIPMENTS
The *. A rate matrix will be supplied for truckload rates. A *
will be provided by Microsoft for rating all shipments not
rated by the vendor's host computer. Provider should use the
gross weight of the shipment to rate the bill of lading and
should pro-rate per packing slip using the gross charges.
Microsoft may also choose to employ the provider to *.
5.10 SHIPMENT CONFIRMATION
The provider must provide * confirmation and transmission of
all completed shipments via *. Standard expectation is that
shipments will be confirmed within *. A manual backup plan
must be available in the event that the transmission system
goes down, or trained personnel are not available. Care must
be taken to ensure confirmation accuracy, including changes in
SCAC codes. Key metrics will be reviewed each * for accuracy
of bill of lading number, freight rating, carrier coding,
carton count accuracy, and * confirmations.
Exhibit B - Page 4
<PAGE> 44
5.11 TRANSPORTATION COSTS
Freight expenses for all prepaid shipments are billed directly
to Microsoft by the carrier. To ensure proper application of
rates, all bills of lading for prepaid shipments must show the
shipper as "*". Microsoft may also choose to employ the
provider to secure the carriers and provide Microsoft with
line item freight invoicing
5.12 CANADA DOCUMENTATION
Copies of each bill of lading, airway bill and consolidated
bill of lading must be faxed to Microsoft for completion of
Customs Documentation by *.
5.13 WEEKEND AND AFTER HOURS TRANSPORTATION
Carriers will be selected that have weekend pick-up and
delivery capabilities to support rare occasions when pick-ups
and deliveries are required on weekends.
5.14 SMALL PACKAGE TRANSPORTATION EXPENSES
A copy of the daily UPS (small package) manifest and manifest
summary must be forwarded to Microsoft no less than *.
5.15 CLAIMS LIABILITY
On all outbound LTL and TL prepaid shipments to customers,
released value of * (unless otherwise stated). Freight claims
are filed by Microsoft.
5.16 DOCUMENTATION REQUESTS
Requests for copies of packing slips and bills of lading for
tracing and claims preparation must be faxed to Microsoft
within *.
6.0 FINISHED GOODS RECEIVING
6.1 FINISHED GOODS RECEIVING PROCEDURE
Mutually agreed upon finished goods receiving and quality
verification procedures must be followed. These procedures may
vary depending on the source of the inventory being received.
Microsoft personnel will work with the provider to clearly
outline requirements.
6.2 PICK-UP TIMING
Finished goods must be system received real-time at the
Company distribution site making inventory immediately
available for shipment to Microsoft's customers. During * or
when shipping *, Microsoft may request * on receipts. As a
rule, finished goods should be put away into allocable
locations within * of receipt.
Exhibit B - Page 5
<PAGE> 45
6.3 HANDLING BILLING AND CHARGES
The preferred method for handling charges is a one-time
receiving/shipping handling fee per case accumulated and
charged at the end of the month.
6.4 LOT CONTROL
Provider must be capable of receiving, storing and shipping
inventory using a lot controlled system. The ability to
receive and consolidate partial receipts (i.e. lots of 1,000
units coming in off of purchase orders of 10,000 units) is
desired. The ability to provide Microsoft with specific lots
of inventory shipped to customers is essential.
7.0 STORAGE
Finished goods inventory will be shipped from Microsoft manufacturing
facilities to the Company distribution site *. This inventory will be
stored by the Company for an unspecified amount of time before being
shipped to customer sites, although Microsoft will attempt to turn
inventory on all SKUs as quickly as possible. The following are the
storage requirements:
7.1 DOUBLE STACKING
In the absence of pallet racking, pallets may be double
stacked during storage. The exception to this rule would be
short-term overstock situations where express consent is
provided by the Microsoft Vendor Account Manager. Pallets will
be placed in * to allow systematic allocation of specific
inventory.
7.2 PALLET DIMENSIONS
Standard GMA four-way 40" wide x 48" long pallets, not
exceeding 52" in height including pallet height will be used.
Maximum weight will not exceed 2,400 pounds.
7.3 LIABILITY AND INSURANCE
The Company will assume contractual liability against all loss
and damage during storage and will pay Microsoft for *.
Overages remain the property of Microsoft. Company will
maintain insurance coverage as specified in the contract.
7.4 SEPARATE INVENTORY
*. During temporary storage situations, the Microsoft Vendor
Account Manager may approve *. These situations are expected
to be extremely rare.
7.5 INVENTORY CYCLE COUNTING
Cycle counts must be performed on a daily basis, with all SKUs
and storage locations counted at least monthly. Discrepancies
must be resolved * period to maintain * inventory accuracy by
Exhibit B - Page 6
<PAGE> 46
location. Discrepancies in excess of * must be * reported to
Microsoft and reconciled. A * cycle count report should be
available to Microsoft on request.
8.0 DISTRIBUTION SERVICES
Bulk distribution order drops from Microsoft will occur *. The
provider's system will receive transactions and will be required to
location assign picks and handle all subsequent functions required in
order to send Microsoft a completed transaction via * after order
shipment. There may be times when immediate order drops will be made to
meet customer shipping requirements. These may or may not be made via
*. The following are requirements for distribution services:
8.1 ORDER CYCLE
Orders must be shipped to meet required shipping schedules or
delivery appointments. This may require * for some portion of
the total daily order transmission.
8.2 * AND * SHIPPING
* shipping hours may be required due to volumes or special
customer requirements. Microsoft will work with the provider
to keep these situations to a minimum.
8.3 FINISHED GOODS SHIPPING PROCEDURES
Mutually agreed upon finished goods shipping and quality
verification procedures will be followed. Shipping of split
case quantities will be required, particularly in the prepaid
order business.
8.4 STORE LEVEL DISTRIBUTION
It is very possible that *. This will mean *. Store level pick
and pack operations that will include split case picking,
special labeling * and associated *, and package
transportation capabilities may be required.
8.5 PALLET AND DISPLAY BUILDS
The Company must be able to build mixed SKU pallets as well as
multi-product displays from standing inventory. Other value
added services such as bundling products and light re-work
will also be performed at the provider's site.
8.6 PALLET STRETCH-WRAPPING
Finished goods must be securely stretch-wrapped to the
pallets, with a minimum of 3 wraps around the bottom
(including to the pallet) and wrapped continuously around the
pallet, finished by three around the top. Mechanical wrapping
devices are preferred as they provide a more secure wrap.
Exhibit B - Page 7
<PAGE> 47
8.7 PALLET LABELING AND PACK SLIP
Proper labeling of pallets will include *. Each pallet must
have a computer generated packing list detailing those
products and quantities contained on that pallet.
8.8 VOLUMES
The Company may be responsible for volumes up to *. On
average, this location is expected to ship * which would
equate to approximately * with an average case value of *.
Month to month volumes could range from a low of * to a high
of *, both with an average case value of *. Product launches
will drive the bulk of the variability and Microsoft and the
provider must ensure solid communication regarding upcoming
requirements.
8.9 SHIPMENT ATTRIBUTES
Based on historical data, the average channel shipment size is
* built onto * with an average weight of *. The average number
of lines, which represents individual SKUs per packing slip,
has been *. It should be noted that shipment sizes vary across
a wide range and the numbers above represent *. Up to *
packing slips will be printed daily. Due to inventory
situations and customer ordering patterns, it is not unusual
to see large numbers of shipments in less than pallet
quantities. If store level distribution is required in the
future, all of the averages presented here will change and a
new Statement of Work will be issued outlining the detailed
business requirements.
9.0 SYSTEMS
Microsoft's long term interests will be best served with standard *
possibly supplemented by *, throughout the day. As previously
mentioned, Microsoft and the provider must be willing to co-participate
in modifications to the provider's system to adapt to changing business
requirements.
Microsoft may wish to employ any or all of the following system
alternatives:
o *
o *
o *
o *
Exhibit B - Page 8
<PAGE> 48
The following sections describe Microsoft's current systems environment
and the required information exchanges.
9.1 *
9.2 *
9.3 *
9.4 *
9.5 *
9.6 INVENTORY SYSTEM REQUIREMENTS
Key items include lot control, the ability to track inventory
lots by date received/moved and work order number, and the
ability to designate individual pallet locations as being on
hold.
Exhibit B - Page 9
<PAGE> 49
RATES AND FEES
*
Invoices will be submitted to Microsoft for volume based on Microsoft's *
Exhibit B - Page 10
<PAGE> 50
EXHIBIT C
PRICE AND PAYMENT TERMS
28
<PAGE> 51
EXHIBIT C
COMPONENT PRICING MATRIX
PRICING AND PAYMENT TERMS FOR MANUFACTURING STATEMENT OF WORK
PRICE AND PAYMENT TERMS OF PRODUCT COMPONENTS
1.0 During the term of this Agreement, Microsoft will issue * Purchase
Orders (P.O.'s) for Finished Product Units to StarTek. All receipts to
the P.O. entered by the Shipping Location will be paid via *, which
will result in the issuance of payment.
2.0 For each P.O. issued under this Agreement for Product Components,
Microsoft agrees to pay StarTek a per Product Component price (e.g.,
per each Jewel Case Component ordered) to be calculated as follows:
*
*
*
*
3.0 *
Definitions:
*
*
*
Exhibit C - Page 1
<PAGE> 52
PRICE AND PAYMENT TERMS FOR PRODUCT COMPONENTS
*
*
4.0 StarTek may be required to produce Product Components for new Microsoft
Product SKUs at any time during the term of this Agreement. Pricing for
any such Product Components will be determined by using the formula set
forth in Section 2 above. StarTek agrees to make all reasonable effort
to provide Microsoft with Product Component pricing for new Microsoft
Product SKUs within * of receiving the Microsoft Product SKU
specification and BOM information from Microsoft.
5.0 From time to time BOM changes occur that may add or delete components
from the Microsoft Product SKU. These additions or deletions to the
Microsoft Product * shall be reflected accordingly in the material and
labor *.
Exhibit C - Page 2
<PAGE> 53
PRICE AND PAYMENT TERMS FOR ASSEMBLY SERVICES
1.0 If assembly services are ordered as part of the P.O., each P.O. so
issued shall require delivery of the finished Products within * of the
Frozen Build Signal. StarTek will build and ship according to the
Shipping Location identified on the P.O.
2.0 For the assembly of the Product CD ROMs, Disk Set Component, Jewel Case
Component, and the Assembled Box Component into a finished Product
including shrink-wrap, Microsoft agrees to pay StarTek for materials
and labor on a * for each Unit Delivered to be calculated as follows
*
*
Exhibit C - Page 3
<PAGE> 54
EXHIBIT D
INSURANCE
This Exhibit "D" is a continuation of that certain Microsoft Manufacturing and
Supply and Services Agreement dated _______________ between Microsoft
Corporation ("Microsoft") and StarTek Inc. ("StarTek"). Capitalized terms not
otherwise defined in this Exhibit shall have the same meaning as set forth in
the Agreement to which this document is an Exhibit.
1. INSURANCE
Prior to the commencement of the work to be performed hereunder and throughout
the entire period of performance by StarTek, StarTek shall procure and maintain
insurance coverage as will reasonably respond to claims and liabilities that
StarTek may encounter in the course of its business. Such insurance shall be in
a form and with insurers acceptable to Microsoft, and shall comply with the
following minimum requirements:
1.1 INSURANCE FOR LOSS OR DAMAGE TO PROPERTY. StarTek shall maintain
policies of insurance covering loss or damage to Products and any Microsoft
property in its possession or control, including but not limited to loss or
damage that results from the fraudulent, dishonest, or criminal acts of StarTek,
its subcontractors, or employees of StarTek and its subcontractors. Such
policies shall be written with insurers and on policy forms reasonably
acceptable to Microsoft and shall provide limits adequate to cover the Full
Value of Product(s) at risk, and proceeds of such policies shall be payable in
*. For purposes of this Exhibit, "Full Value" shall be defined as *. StarTek
shall cause its insurers to endorse the policies as follows:
a) Microsoft shall be named as loss payee to the extent of Microsoft's
interest in Product(s),
b) coverage provided by the policy shall be primary to and not
contributory with coverage maintained by Microsoft,
c) rights of subrogation against Microsoft are to be waived, and
d) such policy may not be canceled or materially altered to the
detriment of Microsoft without * advance notice to Microsoft.
Coverage under this policy shall provide the broadest protection available at
reasonable cost.
Upon request StarTek shall provide Microsoft with a current certificate of
insurance and certified copies of policy endorsements evidencing compliance with
the requirements set forth in this section.
1.2 COMPREHENSIVE GENERAL LIABILITY. StarTek shall obtain and maintain
a policy of "general", "public", or "commercial" liability insurance written on
an "occurrence form" with limits of not less than * each occurrence for bodily
injury and property damage. The policy shall provide coverage for worldwide
defense, premises and operations, contractual liability (including specifically
the insurable contractual liability assumed in this Agreement), and products and
completed operations.
StarTek shall also obtain and maintain a policy of "general", "public",
or "commercial" liability insurance written on an "occurrence form" with limits
of not less than * each occurrence for bodily injury and property damage. Such
policy shall provide coverage for defense, premises and operations, contractual
liability (including specifically the insurable contractual liability assumed in
this Agreement), and products and completed operations.
1.3 WORKERS' COMPENSATION. StarTek shall at all times comply to the
full extent with the Worker's Compensation Act of 1985, reenactments thereof,
and any regulations made thereunder.
1.4 EMPLOYERS LIABILITY. StarTek, in addition to complying with the
provisions of section 1.3 above, shall maintain coverage for employers liability
with a policy limit of not less than *.
1.5 CERTIFICATES OF INSURANCE. Upon request by Microsoft, StarTek shall
provide to Microsoft certificates of insurance evidencing full compliance with
the insurance requirements contained herein. Such
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certificates shall be kept current throughout the entire period of performance,
and shall provide for at least * advance notice to Microsoft if the coverage is
to be canceled or materially altered so as not to comply with the foregoing
requirements.
Failure by StarTek, to furnish certificates of insurance or failure by
Microsoft to request same shall not constitute a waiver by Microsoft of the
insurance requirements set forth herein. In the event of such failure on the
part of StarTek or its subcontractors to provide the certificates as required
herein, Microsoft expressly reserves the right to enforce these requirements,
and in the event of liability or expense incurred by Microsoft as a result of
such failure by StarTek or any subcontractor, StarTek hereby agrees to indemnify
Microsoft for all liability and expense (including reasonable attorney's fees
and expenses associated with establishing the right to indemnity), incurred by
Microsoft as a result of such failure by StarTek or its subcontractors.
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<PAGE> 56
EXHIBIT E
REQUIRED TAX INFORMATION
During the term of this Agreement, StarTek agrees to provide Microsoft with such
information, as mutually agreed upon between the parties, that Microsoft
determines necessary for tax compliance and statutory reporting purposes. Such
information shall include, but may not be limited to the following:
A listing of all transactions, showing for each invoice:
- Invoice Number
- Date of Invoice
- Purchase Order Number(s)
- Total Charges Before *
- *
- Total Amount Due
The data provided in electronic format should agree with the information shown
on actual invoices issued to Microsoft.
If there are any transactions that are exempt from *, such transactions should
be reported separately (but the information required will still be listed as set
forth above, except that * will be *).
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EXHIBIT F
APPROVED SUBCONTRACTOR LIST
32
<PAGE> 58
EXHIBIT F
APPROVED SUBCONTRACTOR LIST
There are no approved subcontractors as of July 1, 1999.
Exhibit F - Page 1
<PAGE> 59
EXHIBIT G
CERTIFICATE OF MS MATERIAL DESTRUCTION
By signatory exercise of this Exhibit G, StarTek asserts that it has fulfilled
its obligations under Section 2(h) of the Agreement (Safe Storage and Security)
by destroying, or having destroyed by a Microsoft authorized StarTek
Sub-contractor, all Microsoft material in its possession or under its control.
COMPANY asserts that the MS Material was destroyed in its entirety at the
location cited below:
Site
----------------------------------------
Address
----------------------------------------
----------------------------------------
Destruction Date
----------------------------------------
If COAs, list part number and number range.
IF MS Material, list specifics, including all quantities.
If MS Product, list Product Category, Language, Dialect, and Item/Number,
including all quantities.
COMPANY Officer's authorized signature:
- -----------------------------------------------------------
By (Sign)
- -----------------------------------------------------------
Name (Print)
- -----------------------------------------------------------
Title
- -----------------------------------------------------------
Date
Exhibit to __________________________ Agreement dated ________________, between
MS and COMPANY.
33
<PAGE> 60
EXHIBIT H
STARTEK FACILITIES
34
<PAGE> 61
EXHIBIT H
STARTEK MANUFACTURING AND DISTRIBUTION FACILITIES
*
*
Exhibit H - Page 1
<PAGE> 62
EXHIBIT I
SUBSIDIARY AGREEMENT
For good and valuable consideration, ______________________________, a
corporation of ("StarTek Subsidiary") hereby covenants and agrees with
Microsoft Corporation, a Washington, U.S.A. corporation that StarTek Subsidiary
will comply with all obligations of StarTek, Inc., a corporation of Colorado
("StarTek") pursuant to that certain Manufacturing and Distribution Agreement
between Microsoft and StarTek dated _________________________ (the "Agreement").
StarTek Subsidiary acknowledges that its agreement herein is a
condition for StarTek Subsidiary to exercise any of the rights sub-licensed by
StarTek to StarTek Subsidiary pursuant to the terms of the Agreement.
Capitalized terms used herein and not otherwise defined shall have the
same meaning as in the Agreement.
IN WITNESS WHEREOF, StarTek Subsidiary has executed this agreement as of the
date set forth below. All signed copies of this Agreement shall be deemed
originals.
- --------------------------------------------------------------------------------
(StarTek Subsidiary)
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Name (Print)
- --------------------------------------------------------------------------------
Title
- --------------------------------------------------------------------------------
Date
35
<PAGE> 63
EXHIBIT J
ATTACHMENTS
1
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ATTACHMENT 1
SAMPLE OF * FROZEN FORECAST
*
2
<PAGE> 65
ATTACHMENT 2
SAMPLE OF FROZEN BUILD SIGNAL *
*
3
<PAGE> 66
ATTACHMENT 3
PROCEDURE FOR DESTRUCTION/SCRAP
Circumstances may arise which require the destruction of Raw Material or
Finished Product. These include but are not limited to:
1. Microsoft requesting destruction for a specific need.
2. StarTek requesting destruction for a raw material (excluding consigned
hardware) which has exceeded * storage.
3. Either party requesting destruction for a material that has damage or
quality defects making it unusable.
Once the request for destruction has been approved by Microsoft, destruction
shall take place in accordance approved procedures and Exhibit G shall be
completed by StarTek and sent to the Microsoft Vendor Account Manager.
The cycle time from approval to completion of destruction will normally be one
week, unless alternate arrangements have been made in email.
4
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ATTACHMENT 4
APPROVED SUPPLIERS FOR COA AND CD-ROM/DVD
AS OF JULY 1, 1999
*
*
*
*
5
<PAGE> 68
ATTACHMENT 5
METRICS REPORTING FOR INVENTORY SHRINKAGE
The calculation that is used to determine inventory accuracy is included below.
Calculation 1- *
Inventory adjustments are defined as *.
6
<PAGE> 1
EXHIBIT 10.26
PORTIONS OF THIS EXHIBIT MARKED WITH AN "*" HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT.
MICROSOFT IRELAND OPERATIONS LIMITED
MANUFACTURING AGREEMENT
THIS MICROSOFT IRELAND OPERATIONS LIMITED MANUFACTURING AGREEMENT (the
"Agreement") is made and entered into as of February 1, 1999 (the "Effective
Date"), by and between MICROSOFT IRELAND OPERATIONS LIMITED, a limited liability
company incorporated in Ireland with registered number 256796 and whose
principle place of business is at Blackthorn Road, Sandyford Industrial Estate,
Dublin 18, Ireland ("MICROSOFT") and STARTEK EUROPE. ("StarTek").
RECITALS
WHEREAS, MICROSOFT and StarTek intend to create a formal relationship
by which StarTek shall provide certain manufacturing services with respect to
orders for Microsoft software products.
WHEREAS, the parties intend in this Agreement to set forth specific
terms and conditions governing the performance of certain manufacturing services
by StarTek for MICROSOFT; and
NOW, THEREFORE, in consideration of the covenants and conditions set
forth below, the adequacy of which is agreed to and hereby acknowledged, the
parties agree as follows:
AGREEMENT
1. DEFINITIONS.
The following terms, whenever initially capitalized, shall have the following
meanings for the purposes of this Agreement:
(a) "BOM" shall mean the bill of materials document provided by
MICROSOFT to StarTek, which bill of materials identifies all components
comprising a given Product or Product Component. BOMs may be modified in writing
prospectively from time to time by MICROSOFT at its sole discretion.
(b) "CUSTOMERS" shall mean customers designated by MICROSOFT, including
MICROSOFT internal customers and distribution vendors, to whom MICROSOFT
authorizes StarTek to deliver Product pursuant to the terms and conditions of
this Agreement and the Statement of Work.
(c) "DELIVERABLES" shall mean and include all code material, source
material, software masters or replicative material or other such documented
material, of any kind or description and in any form including compact disk,
other disks or diskettes, tape, text or any electronic or other medium supplied
by MICROSOFT or at its direction. It does not include such materials if held
under an independent contractual relationship with an OEM (original equipment
manufacturer) which contract contains the requisite license. Nor does it include
Products acquired for office purposes and used by StarTek in its offices.
(d) "FACILITY" shall mean the manufacturing facility operated, owned,
subcontracted or leased by StarTek at *.
(e) "FINISHED PRODUCT UNIT" shall mean fully packaged Microsoft
Product, which includes all requisite Product Components and Microsoft software,
ready for delivery to a Customer.
(f) "INSOLVENT" shall mean a financial condition such as to make the
sum of a party's debts greater than all of the party's assets, at fair
valuation; or, when a party has incurred debts beyond that party's ability to
pay
<PAGE> 2
such debts as they mature; or, when a party is engaged in a business or
transaction for which the party has unreasonably small capital.
(g) "INTELLECTUAL PROPERTY" shall mean any and all trademarks,
copyrights, patents and other proprietary rights comprising or encompassing a
given Product.
(h) "INVENTORY" includes Finished Product Units, work in process,
Product Components or raw materials pertaining to the Products that contain
Microsoft software, trademarks, copyrighted material, logos or other proprietary
materials.
(i) "MANUFACTURE" OR "MANUFACTURING" shall mean the manufacture and
supply of Product Components and assembly of Products as described in the
Statement of Work.
(j) "PRODUCTS LIST" shall mean a list provided to StarTek by Microsoft
from time to time that will list the Products to be manufactured by StarTek
pursuant to the terms of this Agreement.
(k) "MICROSOFT AUTHORISED REPLICATOR" shall mean an authorised
replicator of the Products, Products Components and associated Product material
components (including without limitation, Microsoft registration card, Microsoft
certificate of authenticity, a Microsoft end user license agreement, Microsoft
manuals, cartons, labels, software distribution media etc.), with whom MICROSOFT
has entered into a replication agreement (a "MICROSOFT Replication Agreement")
(which Agreement is still subsisting), as notified to StarTek by MICROSOFT from
time to time and who carries out replication services for and on behalf of
StarTek pursuant to a written agreement between StarTek and such authorised
replicator.
(l) "PRODUCT(S)" shall mean the copyrighted and/or patented Microsoft
software products, including Product Components, Microsoft software, and any
associated documentation, packaging and other written materials, including,
where applicable, the specified user documentation, which MICROSOFT may request
StarTek to Manufacture pursuant to this Agreement, by the issuance of a purchase
order.
(m) "PRODUCT COMPONENTS" shall mean each individual component listed on
a BOM as comprising a Product, such as, for example, disks, polyvinyl disk
baggies, documentation, boxes, retail package shrink wrap, or retail bar-code
labels.
(n) "SERVICES" shall mean the manufacturing services to be performed by
StarTek under this Agreement and any Statement of Work.
(o) "STATEMENT OF WORK" shall mean the attached Exhibit A, including
any modifications made thereto pursuant to Section 15(b).
(p) "TERRITORY" shall mean the European Community.
2. MANUFACTURING AND SERVICES.
(1) GENERAL. StarTek hereby agrees to Manufacture Products on
the Products List at the Facility pursuant to the terms and conditions set forth
in this Agreement, including without limitation, the Statement of Work. StarTek
shall not conduct Manufacturing at or from any location other than the Facility
without MICROSOFT's prior written approval. In the event of any conflict between
the terms contained in this Agreement and terms contained in the Statement of
Work, the terms contained in this Agreement shall control.
(2) OTHER MANUFACTURING/SERVICES. In addition to Manufacturing
services, the parties may identify other manufacturing and/or services to be
provided under this Agreement through an addendum signed by the parties hereto.
(3) INVENTORY. All of the Inventory shall at all times be held
exclusively for assembly and delivery to Customers within the Territory as
authorized by MICROSOFT (or as otherwise authorized by
2
<PAGE> 3
MICROSOFT in writing) and for no other purpose, use or disposition, except as
may be directed in writing by MICROSOFT. StarTek shall at all times cause the
Inventory to be free and clear of any and all liens, encumbrances and other
claims of its creditors. StarTek grants MICROSOFT the option, assignable to any
affiliated corporation, to acquire by purchase all of the Inventory (less
Finished Product Units which have already been purchased by MICROSOFT) upon *
notice, and payment as would apply for unused Inventory in the case of
termination as stated in Section 12, at the price set forth at in Exhibit B. At
any time, upon MICROSOFT's request, StarTek shall take all necessary steps and
shall execute such documents as may be necessary or advisable under the local
law where the Inventory is located, in order to effect the sale of such
Inventory to MICROSOFT and to document MICROSOFT's title to Inventory owned by
MICROSOFT. Use of Intellectual Property in any manner by StarTek after
expiration or termination of this Agreement for any reason, whether or not
incorporated in Inventory, shall be deemed to be in violation of MICROSOFT's
Intellectual Property rights and shall entitle MICROSOFT to have all remedies
provided by law or equity (including injunctive relief); provided, however, (i)
this does not preclude StarTek from continuing to use in its offices Microsoft
Products legally acquired for that purpose; and (ii) it does not preclude
StarTek's performance of independent contractual relationships with MICROSOFT or
an OEM (original equipment manufacturer) or other party, which contract contains
the requisite Microsoft product replication license.
(4) AGREEMENT NOT TO SELL. StarTek acknowledges that, under
the terms of this Agreement, that both during and after the term of this
Agreement it has no rights within the licenses pertaining to software or other
Microsoft proprietary materials or Products which would allow StarTek to be a
seller or distributor of any Products. Whenever requested by MICROSOFT and from
time to time, it will sign separate mutually acceptable agreements to this
effect.
(5) SAFE STORAGE *. StarTek agrees not to store any other
goods near or in such relation to the Products or Product Components as to cause
injury to those Products or Product Components through contamination by strong
odors, leakage, or otherwise. *
(6) NON-EXCLUSIVITY. StarTek's engagement under this Agreement
is not exclusive as to any type of service, Product, customer or prospective
customer or any geographic area. StarTek acknowledges and agrees that MICROSOFT
makes no representation or commitment that the scope of level of services or
other terms and conditions for any one turnkey manufacturer will be the same as
or similar to any of them for any other MICROSOFT turnkey manufacturer in any
respect and that StarTek is entering into this Agreement without any expectation
of any such similar or same treatment. StarTek further acknowledges that
MICROSOFT reserves to itself the right to manufacture Products and/or Product
Components. In the event that MICROSOFT manufactures Products and/or Product
Components which StarTek is authorised or required to manufacture pursuant to
this Agreement and any Statement of Work then StarTek, if so required by
MICROSOFT shall purchase from MICROSOFT such part of its requirements of such
Products and/or Product Components as is notified to StarTek by MICROSOFT. In
such case, the terms applicable to the supply by MICROSOFT of such Products
and/or Product Components, including any amendments to the terms of this
Agreement, shall be documented in a separate agreement between MICROSOFT and
StarTek.
(7) COMBINING SERVICES. In the event that MICROSOFT at any
time wishes to combine or centralise, through one or more MICROSOFT turnkey
manufacturers or MICROSOFT, any services previously carried out by all or any
other MICROSOFT turnkey manufacturers, including StarTek, StarTek shall provide
all reasonable assistance and cooperation to MICROSOFT for the orderly and
timely combination or centralisation of such services through such MICROSOFT
turnkey manufacturers or MICROSOFT.
(8) FINANCIAL INFORMATION. Within * after StarTek learns that
it has become or will become Insolvent, StarTek shall submit financial
statements to MICROSOFT in sufficient detail to allow MICROSOFT to determine
whether StarTek shall be capable of continuing to perform its obligations
hereunder. The financial statements shall include, but shall not be limited to,
balance sheets and related statements of income and retained earnings and
statements of changes in financial condition. To the extent those statements are
audited, the audit report of the certified public accountant performing the
audit shall also be made available to MICROSOFT.
(9) RETURN OF DELIVERABLES. StarTek will have possession of
Deliverables and replicable material for certain Products and other property for
purposes of the replication to be done under this Agreement. Upon termination of
this Agreement and at any early time whenever requested by MICROSOFT to do so,
StarTek
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<PAGE> 4
shall immediately deliver, at MICROSOFT's cost, to MICROSOFT all of such
Deliverables (provided that in no event shall such a request by MICROSOFT for
StarTek's return of the Deliverables prejudice StarTek's right to full
performance by MICROSOFT under this Agreement), replicable materials and all and
any other Microsoft proprietary materials ever received by it and it shall not
retain any copy or original of the same in any way whatsoever.
(10) QUALITY REQUIREMENTS. StarTek shall ensure that in
performing its obligations under this Agreement, it shall operate in accordance
with the quality guidelines as posted on Microsoft's Website, which can be found
at * (the "Microsoft Website") and as set forth in the Statement of Work.
(11) PRODUCTION. StarTek covenants and agrees to meet
MICROSOFT's demands for Product related to the Territory, as such demands may be
adjusted from time to time. Additional measurement procedures may be implemented
as mutually agreed upon by MICROSOFT and StarTek.
(12) NON-CONFORMING PRODUCT. StarTek shall promptly replace
and deliver, within * from notification, at no charge to MICROSOFT or its
Customers, any non-conforming Product if any delivery of Product, or any portion
of it, to any Customer fails to meet the quality standards specified in the
Statement of Work. In the event MICROSOFT determines that a Product recall is
necessary due to a breach of StarTek's warranties hereunder, or due to a
manufacturing defect, StarTek shall cooperate with MICROSOFT in all respects to
conduct such recall at StarTek's expense; provided that if StarTek has given
prior notice of the possible defect and recommended against delivery and the
Product is nonetheless delivered at MICROSOFT's direction, or if the recall is
necessary because of a MICROSOFT error, the recall on account of that defect
shall be at MICROSOFT's expense, but StarTek shall still cooperate with it, and
in such a case, MICROSOFT shall reimburse StarTek for the costs of Manufacturing
the replacement Products.
3. PRICE AND PAYMENT.
(1) GENERAL. MICROSOFT and StarTek agree that StarTek shall be
compensated for the Manufacturing services pursuant to the Price and Payment
terms and conditions set forth in Exhibit B. MICROSOFT shall be liable for
payment to StarTek for raw materials and Finished Product Units that have been
purchased and/or built in support of the weekly purchase order(s) issued by
MICROSOFT. StarTek will use all reasonable efforts to provide competitive
pricing to MICROSOFT within the region. All payments due by MICROSOFT to StarTek
under this Agreement shall be * from MICROSOFT's receipt of an invoice from
StarTek.
(2) QUANTITY. The quantity of Product to be used in
calculating MICROSOFT's obligation to pay StarTek with regard to any particular
purchase order shall be the lesser of (1) the number of Finished Product Units
delivered to a Customer in response to such purchase order, or (2) the quantity
indicated on the original purchase order.
(3) COST CONTAINMENT. The parties agree that they will, in
good faith, strive to contain and reduce Manufacturing costs where reasonable
and without compromising Product quality standards.
(4) TAXES. In the event income taxes are required to be
withheld by MICROSOFT on payments to StarTek required hereunder, MICROSOFT
agrees to provide StarTek with reasonable notice in advance of the first such
withholding, and MICROSOFT may deduct such income taxes from the amounts owed
and timely pay such taxes, when required, to the appropriate taxing authority.
MICROSOFT shall in turn promptly secure and deliver to StarTek an official
receipt for any income taxes withheld. MICROSOFT agrees to pay all applicable
goods and services or other applicable consumption taxes (other than income
taxes) levied on it by a duly constituted and authorized taxing authority on the
Manufacturing services. To the extent required by any such taxing authority,
StarTek may collect such taxes, if any, from MICROSOFT, and, in such case, shall
remit to MICROSOFT official tax receipts indicating that such taxes have been
collected by StarTek and remitted to the appropriate tax authorities, to the
extent such receipts are available, and StarTek shall show such taxes as
separate line items on invoices to MICROSOFT. StarTek agrees to take such steps
as are reasonably requested by MICROSOFT to minimize such taxes in accordance
with all relevant laws and to cooperate with and assist MICROSOFT, in
challenging the validity of any taxes applicable to the Manufacturing services
and collected from MICROSOFT by StarTek or otherwise paid by MICROSOFT. Except
as required by law or where expressly agreed
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<PAGE> 5
to, in writing, by MICROSOFT pursuant to Exhibit B, MICROSOFT shall not pay any
taxes other than those described above, including, without limitation (1) taxes
on or with respect to or measured by any net or gross income or receipts of
StarTek, (2) any franchise taxes, taxes on doing business, gross receipts taxes
or capital stock taxes (including any minimum taxes and taxes measured by any
item of tax preference), (3) any taxes imposed or assessed for work performed
without the written authorization by MICROSOFT after the date upon which this
Agreement is terminated, (4) taxes based upon or imposed with reference to
StarTek's real and personal property ownership, (5) taxes incurred by StarTek on
all goods and services purchased from other related or unrelated parties, and/or
(6) any taxes similar to or in the nature of those taxes described in (1), (2),
(3), (4) or (5) above. StarTek agrees to make available to MICROSOFT any and all
records necessary to comply with any and all tax obligations as provided herein,
including but not limited to reports necessary for goods and services tax
compliance and audit purposes. The contents and form of such reports shall be
mutually agreed to between the parties.
(5) CURRENCY FOR INVOICING AND PAYMENT. StarTek shall invoice
MICROSOFT for the Prices in *. All payments made by MICROSOFT to StarTek for
Products delivered hereunder shall be in *. In computing the monthly payment due
for Manufacturing services and in rendering invoices. * will be adjusted monthly
based on *.
4. INTELLECTUAL PROPERTY RIGHTS, ETC.
(A) IMAGE AND IPRS. StarTek shall perform its obligations
hereunder and conduct its business arising herefrom so as to protect and
safeguard the image of MICROSOFT and the intellectual property rights owned by
MICROSOFT and Microsoft Corporation and any of its or their affiliates and/or
any of its or their licensors.
(B) Where, in connection with the provision of Services,
StarTek has to develop a new IT system or, StarTek has to modify its existing IT
system(s) so as to facilitate and accommodate such Services, such development
and modification shall be done pursuant to a "Technical Design Document" which
shall be prepared by StarTek on the basis of a MICROSOFT "Requirements
Document". The "Technical Design Document" shall be subject to the approval of
MICROSOFT prior to use. Ownership of the MICROSOFT "Requirements Document",
shall vest in MICROSOFT and shall comprise "MICROSOFT Confidential Information"
within the meaning of Section 9 and shall be treated accordingly. Ownership of
the "Technical Design Document" and any software written by StarTek to implement
same shall vest in StarTek and each shall comprise "StarTek Confidential
Information" within the meaning of Section 9 and shall be treated accordingly.
(C) Where, as part of the Services, StarTek has to create
and use a database, MICROSOFT shall own all data which is entered on such
database by StarTek during the provision of the Services, but StarTek shall own
all intellectual property rights otherwise subsisting in such created database.
At its own expense, StarTek shall at the request at any time of MICROSOFT,
whether before or after the termination of this Agreement or any Statement Of
Work, furnish MICROSOFT forthwith with the data entered on such database in such
format as MICROSOFT may specify to enable MICROSOFT to take data entered on the
database and load it onto another database and StarTek shall cooperate fully
with MICROSOFT in having such data loaded on such other database.
(D) RESTRICTED USE OF TRADEMARKS, LOGOS AND TRADENAMES.
StarTek shall not use the name "Microsoft" or any other trademark or tradename
or logo of MICROSOFT or Microsoft Corporation or any of its or their affiliates
and/or any of its or their licensors otherwise than in connection with the
Services and in accordance with this Agreement. StarTek is not entitled either
by implication or otherwise to any title, right or interest in the trademarks,
tradenames, logos or symbols of MICROSOFT, Microsoft Corporation or any of its
or their affiliates or any of its or their licensors. StarTek agrees not to form
a company, commercial organisation, firm or legal entity with a name
incorporating as part of its name the word "Microsoft" or any similar word and
not to apply for any registration of the word "Microsoft" or any similar word as
a trademark.
(E) PERMITTED USE OF TRADEMARKS, LOGOS AND TRADENAMES.
StarTek is granted permission to use, during the term of this Agreement, the
trademarks, logos and tradenames and Microsoft * of MICROSOFT or Microsoft
Corporation for the sole purposes of the Services and in accordance with this
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Agreement. StarTek agrees to comply with all guidelines for the use of
"Microsoft" trademarks, logos, tradenames and Microsoft * prescribed by
MICROSOFT from time to time, and in particular but without limitation agrees to
use the Microsoft *, trademarks, tradenames, logos and symbols of MICROSOFT, or
Microsoft Corporation in all media and materials relating to the services
together with an acknowledgement of ownership of relevant trademarks by
MICROSOFT or Microsoft Corporation (as appropriate). The appropriate trademark
symbol (either "TM" or "R" in a superscript following the product name) shall be
used whenever the name of a Microsoft Product is first mentioned in any
advertisement, brochure or other material circulated or displayed by StarTek.
(F) PROTECTION OF TRADEMARKS, LOGOS AND TRADENAMES.
StarTek agrees to report to MICROSOFT as soon as possible after it comes to
StarTek's notice, any suspected infringement of Microsoft certificates of
authenticity, the "Microsoft" tradename or any tradenames, trademark, logo or
symbol owned by MICROSOFT or Microsoft Corporation and any of its or their
affiliates and/or any of its or their licensors.
(G) RESERVATION OF RIGHTS. Except as expressly granted by
and in accordance with this Agreement, StarTek is granted no rights in relation
to copyright or other rights of whatever nature subsisting in any Microsoft
Product. All rights not expressly granted are expressly reserved by MICROSOFT.
(H) LIMITED LICENCE, REVERSE ENGINEERING, ETC. Any
software, source code, Microsoft *, Microsoft * labels, replicating kits, CD
masters, CD stampers, CD serialisation files and labels, all software media on
disk, CD-R masters, CD-ROM masters, glass masters, electronic files, film
masters, electronic and physical artwork files, PID files and labels, disk
masters, label masters, label art, labels, user guide masters, packaging masters
or other masters made available by MICROSOFT or Microsoft Corporation or any of
its or their affiliates to StarTek and the intellectual property rights therein
or relating thereto are and remain the property of MICROSOFT. StarTek is given a
revocable non-exclusive limited licence to use the same solely for the purposes
of performing the Services. StarTek shall not reverse engineer, decompile or
disassemble any Microsoft Product except as expressly permitted herein or by
law.
(I) NO DISTRIBUTION OF COUNTERFEITS. StarTek agrees it
will not engage in the manufacture or use of counterfeit, pirated or illegal
software; it will not knowingly engage in the distribution or supply or transfer
of counterfeit, pirated or illegal software; and it will not knowingly supply
any Microsoft Product to any dealer who engages in the use, manufacture,
distribution or other supply or transfer of counterfeit, pirated or illegal
software.
(J) ANTI-PIRACY EFFORTS. StarTek agrees to reasonably
co-operate with MICROSOFT in the investigation of counterfeit, pirated or
illegal software.
(K) PROTECTION OF MICROSOFT COPYRIGHTS. StarTek agrees to
report to MICROSOFT as soon as possible after it comes to StarTek's notice, any
suspected counterfeiting, piracy or other infringement of copyright in computer
programs, manuals, marketing materials, Microsoft certificates of authenticity
or other copyrighted materials owned by MICROSOFT, Microsoft Corporation and any
of its or their affiliates and/or any of its or their licensors.
5. SUB-CONTRACTING.
(1) TO THIRD PARTIES. StarTek shall not subcontract any of its
rights or obligations under this Agreement, with respect to the Services, except
as follows:
(i) StarTek may only sub-contract the Services to
such third parties as MICROSOFT shall first approve in writing on the basis that
such sub-contractor must upon request by MICROSOFT, agree in writing to
undertake the same obligations and/or abide by the same restrictions to which
StarTek is subject under Sections 4 (IPR), 7 (Year 2000 Compliance), 9
(Confidentiality), 10 (Title), Exhibit C (Insurance and Risk of Loss) and 13
(Record Keeping; Record Review). If such sub-contracting relates to the purchase
of Product Components, then StarTek may only sub-contract with a MICROSOFT
Authorised Replicator;
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(ii) Neither MICROSOFT, Microsoft Corporation nor
any of its and/or their affiliates and its and/or their licensors shall have any
liability to StarTek or otherwise in the event of the alteration or termination
of any such relationship between the independent third parties concerned.
StarTek shall indemnify MICROSOFT, Microsoft Corporation and any of its and/or
their affiliates and its and/or their licensors against any claim, cost,
liability, damages, expenses or proceedings brought against or incurred by
MICROSOFT arising out of the alteration or termination of any such relationship
to which StarTek is a party;
(iii) In the event that StarTek has entered into a
sub-contract pursuant to Section 5(a) and Section 16(a), StarTek shall
immediately notify MICROSOFT of the termination or expiration for whatever
reason of such sub-contract, and shall at StarTek's expense recover and
repossess any stocks of Products, Product Components and other MICROSOFT
materials and goods including without limitation all replication lists and all
CD masters, CD stampers, CD serialisation files and labels, all software on
disk, CD-R masters, CD-ROM masters, glass masters, electronic files, film
masters, electronic and physical artwork files, PID files and labels, disk
masters, label masters, label art, labels, user guide masters, packaging masters
or other masters, Microsoft certificates of authenticity, Microsoft certificate
of authenticity labels, raw disks and source code in the possession or control
of such sub-contractor.
(iv) In the event that MICROSOFT notifies StarTek of
the termination or expiration for whatever reason of a MICROSOFT Replication
Agreement, StarTek shall immediately cease to sub-contract in respect of the
Services with the MICROSOFT Authorised Replicator in respect of which the
MICROSOFT Replication Agreement has been terminated or has expired; and StarTek
shall recover and repossess any stocks of Products, Product Components and other
MICROSOFT materials and goods including without limitation all replication lists
and all CD masters, CD stampers, CD serialisation files and labels, all software
on disk, CD-R masters, CD-ROM masters, glass masters, electronic files, film
masters, electronic and physical artwork files, PID files and labels, disk
masters, label masters, label art, labels, user guide masters, packaging masters
or other masters, Microsoft *, Microsoft * labels, raw disks and source code in
the possession or control of such MICROSOFT Authorised Replicator
(v) StarTek guarantees its subcontractor's
fulfillment of the applicable obligations imposed on StarTek by this Agreement;
(vi) StarTek shall indemnify, defend and hold
MICROSOFT harmless for all damages and/or costs of any kind, including without
limitation, those incurred by MICROSOFT and caused by a subcontractor and/or
subcontractor's failure to fulfill the applicable obligations imposed on StarTek
by this Agreement, including, but not limited to, StarTek's payment of any
monetary judgments awarded to MICROSOFT by a court of competent jurisdiction and
any costs and fees relating thereto, not paid by subcontractor, resulting from
subcontractor's unauthorized replication and/or distribution of Product(s); and
(vii) Upon execution of this Agreement and
thereafter prior to a subcontractor performing any Services under this
Agreement, StarTek shall provide MICROSOFT with a written certification, signed
by a StarTek officer, representing and warranting that StarTek is in compliance
with the provisions of Section 6 of this Agreement; and
(viii) MICROSOFT, in its reasonable discretion, will
provide an approved CD and * supplier list as seen in Exhibit F which may be
updated by MICROSOFT from time to time. If a supplier used by StarTek as a
subcontractor is removed from such list by MICROSOFT, MICROSOFT acknowledges
that StarTek may not be able to immediately discontinue use of subcontractor. In
such case, subject to other rights and obligations of enforcement as set forth
in the Agreement, MICROSOFT and StarTek will mutually agree to a transition
plan.
(2) RIGHTS PASS THROUGH. It is the intention of this section
that StarTek be able to subcontract, provided StarTek fully maintains quality
standards and protects MICROSOFT's property rights in MICROSOFT's Intellectual
Property and Deliverables such that, in addition to MICROSOFT's recourse to
StarTek under this Agreement, MICROSOFT shall also have rights enforceable
directly against the subcontractor. The
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responsibility and liability of StarTek under this Agreement is not diminished
on account of any subcontract and StarTek shall be fully responsible for the
subcontractor's performance and work.
(3) EXPORT RESTRICTIONS. StarTek hereby agrees that in
subcontracting portions of the Services to third parties pursuant to Section
5(a) or (b) above, StarTek shall not, directly or indirectly, export or transmit
(i) any Product Component, Product and/or technical data or (ii) any Product (or
any part thereof), process, or service that is the direct product of a Product,
to (a) any countries that are subject to U.S. export restrictions (including as
of the Effective Date, but not limited to, the Federal Republic of Yugoslavia
(Serbia and Montenegro), Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria);
(b) any end-user whom StarTek knows or has reason to know will utilize such
Product Component, Product and/or technical data in the design, development or
production of nuclear, chemical or biological weapons; or (c) any other country
to which such export or transmission is restricted by the export control laws
and regulations of the United States, and any amendments thereof, without prior
written consent, if required, of the Bureau of Export Administration of the U.S.
Department of Commerce, or such other governmental entity as may have
jurisdiction over such export or transactions, unless Microsoft specifically
directs StarTek in writing to do so.
(4) ENFORCEMENT. StarTek agrees that it will diligently and
timely enforce all rights against or obligations of any subcontractor(s) in
order to enforce compliance with the applicable terms of this Agreement and/or
to otherwise cure a subcontractor breach.
6. REPRESENTATIONS & WARRANTIES.
(A) BY STARTEK. StarTek represents and warrants to
MICROSOFT as follows:
a) StarTek is a corporation duly organised
and validly existing under the laws of * and has full
capacity and authority to enter into this Agreement
and to perform the Services required of it under this
Agreement;
b) this Agreement has been duly and validly
authorised, executed and delivered on behalf of
StarTek and is a valid and binding agreement of
StarTek enforceable in accordance with its terms and
that neither the execution of this Agreement nor the
performance of the Services required of it hereunder
will constitute a breach of any agreement or
arrangement to which StarTek is a party;
c) the Manufacturing, including any portion
done by any subcontractor as contemplated in Section
5, will strictly comply with all applicable laws, as
well as the terms and conditions of this Agreement,
including without limitation the Statement of Work;
d) the Products (including the raw
materials, reproduction quality, Product Components
and Finished Product Unit quality) will satisfy the
quality workmanship standards and service levels set
forth in the Microsoft Website (*) and Statement of
Work and StarTek shall further protect MICROSOFT's
property rights in MICROSOFT's Intellectual Property
and Deliverables from unauthorized use within the
scope of this Agreement;
e) StarTek shall at all times comply with
its commitments and obligations as stated in this
Agreement;
f) StarTek's performance of Manufacturing,
pursuant to the rights granted under this Agreement,
does not infringe any third party's patent,
copyright, trade secret and/or any other intellectual
property right with respect to StarTek's replication,
assembly, and/or distribution processes;
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g) StarTek will, at all times relevant to
this Agreement, keep any and all license agreement
with third parties relevant to Manufacturing the
Products in force and in good standing;
h) StarTek shall promptly replace, at no
charge to MICROSOFT or the Customers, any
non-conforming Products, and all transportation,
customs, and/or taxes relating thereto, if any
delivery of Products to MICROSOFT or Customers, or
any portion of it, breaches any of the warranties of
Section 6(a). In the event MICROSOFT determines that
a Product recall is necessary, StarTek shall
cooperate with MICROSOFT in all respects to conduct
such recall at StarTek's expense, provided that if
the recall is necessary because of a MICROSOFT error,
the recall on the account of that defect shall be at
MICROSOFT's expense, but StarTek shall still
cooperate with it, and in such a case, MICROSOFT
shall reimburse StarTek for the costs of producing
and distributing the replacement Products;
i) that all services on its part to be
performed under this Agreement will be performed with
all reasonable skill and care by competent staff and
in a timely manner. In addition to the foregoing, in
the event that service levels are set out in any
Statement of Work as to any particular services,
StarTek undertakes to meet such service levels;
j) to ensure that all information received
or generated through the Services (including without
limitation about any Products or about potential or
existing customers and their requirements) ("Data")
is captured, processed and transmitted accurately by
StarTek completely and in accordance with MICROSOFT's
instructions from time to time;
k) that all Data and information collected,
processed, created and managed by StarTek on behalf
of MICROSOFT will belong exclusively to MICROSOFT.
StarTek agrees not to disclose, divulge, offer,
supply, licence, rent, exchange, re-sell or re-use
any such Data and information at any time in the
future;
l) to maintain a telecommunications and
computer system to standards set by MICROSOFT from
time to time and having the functionality and
capacity necessary for StarTek to comply with its
obligations under this Agreement;
m) to work with MICROSOFT to provide and
install all necessary interface and bridging devices
required to successfully connect to either the Data
communications network or MICROSOFT or the Data
communications network of a nominated third party to
a standard set by MICROSOFT from time to time.
StarTek agrees to work with MICROSOFT to establish
such Data connectivity such that any telephone or
postal transaction undertaken by StarTek on behalf of
MICROSOFT is immediately reflected in the main
MICROSOFT customer Data base;
n) to fully cooperate with MICROSOFT in
implementing the programmes, policies, directions,
requests and instructions or MICROSOFT relating to
the services;
o) to pay and discharge all royalties,
licence fees or other payments payable to or claimed
by a third party in respect of any patent or other
intellectual property right of that third party
arising from the use of the subject matter of such
patent or other intellectual property by StarTek or
by any
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approved sub-contractors, suppliers or MICROSOFT
Authorised Replicators in performing the Services or
arising from the subsequent sale or supply by
MICROSOFT (anywhere in the world) of any Product or
component manufactured by StarTek or by any approved
sub-contractors, suppliers or MICROSOFT Authorised
Replicators and/or supplied by StarTek to MICROSOFT
and whether or not such obligation arises at the time
the Services are provided by StarTek or subsequently;
and
(B) The representations and warranties in Section 6(a) of
this Agreement shall continue during the term of this Agreement and if at any
time during the term of this Agreement any event occurs which would make any of
such representations or warranties untrue or inaccurate in any material respect,
StarTek shall promptly notify MICROSOFT of such event in writing and of the
facts related thereto and of any remedial action taken by StarTek in respect
thereof.
(C) BY MICROSOFT. MICROSOFT hereby represents and
warrants to StarTek as follows:
a) MICROSOFT has the full and exclusive
right and power to enter into and perform according
to the terms of this Agreement;
b) MICROSOFT has and will have, at all
relevant times, sufficient rights in the Products to
grant StarTek the rights granted in this Agreement;
c) that at all times relevant to this
Agreement, MICROSOFT will keep any and all license
agreements with third parties relevant to the
reproduction and manufacture of the Products in force
and in good standing; and
(D) DISCLAIMER OF WARRANTY. THE WARRANTIES SET FORTH IN
SECTIONS 6(A) AND 6(B) ABOVE ARE THE ONLY WARRANTIES MADE BY THE PARTIES AND ARE
IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, OR STATUTORY, INCLUDING BUT
NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND/OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE PRODUCTS.
7. YEAR 2000
(A) YEAR 2000 COMPLIANCE In this Section 7 the expression
"Year 2000 Compliant" (and like expressions) shall mean that no operational,
financial, data transmission, communication or process is affected or
interrupted by dates prior to, during or after the Year 2000, and in particular,
but without prejudice to the generality of the foregoing that:-
1) *
2) *
3) *
4) *
(B) *
(C) *
(D) *
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8. INDEMNITIES.
(A) STARTEK INDEMNITY OBLIGATIONS. StarTek agrees to
indemnify and hold harmless MICROSOFT (and each of its directors and officers)
from and against all Claims (as hereinafter defined) directly or indirectly
arising out of or in connection with or relating to:
a) any actions or omissions of
StarTek in connection with the performance
of the Services or any other of its duties
and obligations hereunder;
b) any breach of StarTek
obligations, warranties or representations
under or pursuant to this Agreement;
c) all wages, holiday pay,
employment benefit costs, redundancy costs
and unfair dismissal costs and awards in
respect of its employees and former
employees and arising whether before or
during the term of the Agreement or SOW for
whatever reason or following or resulting
from the termination of the Agreement or any
SOW for whatever reason;
d) any and all royalties, licence
fees or other payments payable to or claimed
by a third party in respect of any patent or
other intellectual property right of that
third party arising from the use of the
subject matter of such patent or other
intellectual property by StarTek or by any
approved sub-contractors, suppliers or
MICROSOFT Authorised Replicators in
performing the Services or arising from the
subsequent sale or supply by MICROSOFT
(anywhere in the world) of any product or
component manufactured by StarTek or by any
approved sub-contractors, suppliers or
MICROSOFT Authorised Replicators and/or
supplied by StarTek to MICROSOFT, and
whether or not such obligation arises at the
time the Services are provided by StarTek or
subsequently; and
e) any Claim attributable to
StarTek's and/or its approved
sub-contractors', suppliers' or MICROSOFT
Authorised Replicators' performance of the
Services pursuant to the rights granted
under this Agreement including, but not
limited to, StarTek's and/or its approved
sub-contractors', suppliers' or MICROSOFT
Authorised Replicators' replication,
manufacturing and assembly processes or any
Claim by any third party that StarTek's
and/or its approved sub-contractors',
suppliers' or MICROSOFT Authorised
Replicators' performance of the Services,
pursuant to the rights granted under this
Agreement, infringes such third party's
patent, copyright, trade secret and/or any
other intellectual property right with
respect to StarTek's and/or its approved
sub-contractors', suppliers' or MICROSOFT
Authorised Replicators' replication,
manufacturing and assembly processes.
(B) Council Directive of 14 February 1977 on the
approximation of the laws of the Member States relating to the safeguarding of
employees' rights in the event of transfers of undertakings, businesses or parts
of businesses (77/187/EEC) as amended by Council Directive 98/50/EC of 29 June
1998
MICROSOFT and StarTek hereby agree and acknowledge that:
(1) to the extent the entering into of this Agreement and
any/or Statement of Work hereunder or pursuant hereto, or the
commencement by StarTek of providing or performing the
Services is deemed to amount to, or results in, the transfer
of a business or part of a business within the meaning of the
Council Directive of 14 February 1977 on the approximation of
the laws of the Member States relating to the safeguarding of
employees' rights in the event of transfers of
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undertakings, businesses or parts of businesses (77/187/EEC)
(as amended by Council Directive 98/50/EC of 29 June 1998)
(together and individually the "Directive") or any applicable
national laws or regulations implementing the same
("Regulations"); and
(2) to the extent the termination of this Agreement and/or any
Statement of Work hereunder or pursuant hereto, or the
cessation by StarTek of the provision or the performance of
the Services, or the combination or centralisation of the
Services through one or more MICROSOFT turnkey manufacturers,
is deemed to amount to, or results in, the transfer of a
business or part of a business within the meaning of the
Directive and/or the Regulations:
then StarTek shall in such circumstances be fully liable and
responsible for all obligations and liabilities whatsoever
arising as a result of such deemed or resulting application of
the Directive and/or the Regulations and whether in respect of
any contracts of employment, employment relationships or
collective agreements (whether or not relating to employees of
MICROSOFT or another party) or pursuant to any enactments or
statutory provisions (or orders or regulations made
thereunder) relating to employees in force at any time, and
that StarTek shall at all times fully and effectually
indemnify and hold harmless MICROSOFT against all claims,
judgments, decrees, orders, awards, costs, liabilities and
expenses howsoever arising under or by virtue thereof,
including without limitation all wages, holiday pay,
employment benefit costs, redundancy costs and unfair
dismissal costs, and awards in respect of such, together with
legal or other costs, and whether arising before or during the
term of the Agreement or Statement of Work. This indemnity
will extend to all costs and expenses incurred in defending
any such claims or actions or complying with any such award or
awards of any court or tribunal of competent jurisdiction.
(C) MICROSOFT INDEMNITY OBLIGATIONS. MICROSOFT agrees to
indemnify StarTek from all Claims made against StarTek arising out of breach of
MICROSOFT's obligations, warranties or representations contained at Section 6(c)
(2).
(D) DEFINITIONS. In relation to any obligation to
indemnify undertaken in this Agreement "Claim" includes any cost, claim,
liability, proceeding, action, demand, damages and expense (including reasonable
attorney's fees and costs).
(E) SURVIVAL. StarTek and MICROSOFT agree that the
indemnities set forth in this Section 8 shall survive and shall be enforceable
beyond the or completion of this Agreement.
(F) LIMITATION ON LIABILITY. STARTEK'S TOTAL LIABILITY AS
TO MATTERS ARISING UNDER THIS AGREEMENT SHALL BE LIMITED TO *, WITH THE
EXCEPTION THAT STARTEK'S LIABILITY SHALL BE UNLIMITED AS TO: (i) ANY
INDEMNIFICATION OBLIGATION FOR PERSONAL INJURY, DEATH OR PROPERTY DAMAGE TO THE
EXTENT SUCH CLAIM IS BASED UPON STRICT LIABILITY, NEGLIGENCE, GROSS NEGLIGENCE,
INTENTIONAL ACT OR OTHER FAULT OF STARTEK OR ITS SUBCONTRACTOR(S); (ii) ANY
MATTER ARISING UNDER SECTION 8 OF THIS AGREEMENT; (iii) FOR THE COST OF ANY
RECALL INCLUDING THE COST OF PRODUCING REPLACEMENT PRODUCT(S); (iv) ANY FAILURE
TO RETURN ANY DELIVERABLES AS IS OTHERWISE PROVIDED FOR IN THIS AGREEMENT; OR
(v) ANY COPYRIGHT, PATENT, TRADEMARK OR TRADE SECRET INFRINGEMENT(S) (ALL OF THE
FOREGOING BEING COLLECTIVELY REFERRED TO AS THE "STARTEK EXCLUDED MATTERS").
MICROSOFT'S TOTAL LIABILITY AS TO MATTERS ARISING UNDER THIS AGREEMENT SHALL
ALSO BE LIMITED TO *, EXCEPT FOR ANY MATTERS ARISING UNDER SECTION 8 OF THIS
AGREEMENT. EXCEPT WITH REGARD TO STARTEK EXCLUDED MATTERS (WHICH TERM FOR THE
PURPOSES OF THIS SENTENCE SHALL NOT INCLUDE ANY LIABILITY AS TO RECALL) AND
MATTERS ARISING UNDER SECTIONS 7 and 11, NO PARTY HERETO SHALL BE LIABLE TO
ANOTHER FOR ANY INDIRECT, CONSEQUENTIAL, PUNITIVE OR INCIDENTAL DAMAGES ARISING
OUT OR RELATED TO THIS AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THE OTHER
PROVISIONS OF THIS AGREEMENT RELY UPON THE INCLUSION OF THIS SECTION 8(f).
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9. CONFIDENTIALITY.
(A) DEFINITIONS. In this Section:
1) "StarTek Confidential Information" means
information that StarTek designates as being
proprietary and/or confidential or which, under the
circumstances surrounding its disclosure or the
manner whereby it was acquired or obtained or
otherwise ought to be treated as proprietary or
confidential and includes without limitation,
information relating to StarTek's organisation,
affairs, plans, transactions, proposals, projections,
strategies, finances, prices, costs, accounts,
products, customers, suppliers (other than suppliers
used in the provision of the services), data systems,
software or activities and information received from
others that StarTek is obligated to treat as
confidential, but specifically excluding any
information within the definition of "MICROSOFT
Confidential Information" as defined below, or which
StarTek is obliged or required to furnish to
MICROSOFT pursuant to the terms of or in connection
with this Agreement.
2) "MICROSOFT Confidential Information"
means information that MICROSOFT or Microsoft
Corporation designates as being proprietary and/or
confidential or which, under the circumstances
surrounding its disclosure or the manner whereby it
was acquired or obtained or otherwise ought to be
treated as proprietary or confidential and includes,
without limitation, the terms of this Agreement, *
and information received from others that MICROSOFT
and/or Microsoft Corporation are obligated to treat
as confidential.
Neither "StarTek Confidential Information" nor "MICROSOFT
Confidential Information" shall include that information
defined as StarTek Confidential Information or MICROSOFT
Confidential Information (as the case may be) above that: (i)
entered or subsequently enters the public domain without
breach by either party of any obligation owed to the other or
to Microsoft Corporation; (ii) became known to either party
prior to the disclosure by the other party of such information
to that party or that party's acquisition or obtaining
thereof; (iii) became known to either party from a source
other than the other party, other than by the breach of an
obligation of confidentiality owed to that other party or
Microsoft Corporation; (iv) is disclosed by either party to a
third party without restrictions on its disclosure; or (v) is
independently developed by either party.
3) "Confidential Materials" shall mean all
materials and media containing or comprising
MICROSOFT Confidential Information or StarTek
Confidential Information (as the case may be), or on
which MICROSOFT Confidential Information or StarTek
Confidential Information (as the case may be) is
stored or resides, including without limitation
written or printed documents and computer disks, CDs,
CD-Rs, CD-ROMs, tapes or other media, masters and
whether machine or user readable.
4) "Public Domain Information" means
information or know-how that can be acquired from
MICROSOFT or Microsoft Corporation or StarTek (as the
case may be), or other sources upon request by a
member of the general public, free of charge or for
the cost of copying.
(B) MICROSOFT RESTRICTIONS AND OBLIGATIONS. MICROSOFT
shall not disclose or permit the disclosure of any StarTek Confidential
Information or Confidential Materials to third-parties (other than an Associated
Company) for * following the date of its disclosure by StarTek to MICROSOFT or
MICROSOFT's acquisition or obtaining thereof.
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(C) STARTEK RESTRICTIONS AND OBLIGATIONS. Subject to
sub-Section (d) below, StarTek shall not disclose or permit the disclosure of
any MICROSOFT Confidential Information or Confidential Materials to third
parties including, but not limited to, any Associated Company for * years
following the date of its disclosure by MICROSOFT or Microsoft Corporation to
StarTek or StarTek's acquisition or obtaining thereof.
(D) For the purposes of this Section 9(d) and of Section
16(a), "Associated Company" means:-
a) any company which is related to MICROSOFT
or StarTek (as the case may be), within the meaning
of Section 140 of the Companies Act 1990 or which
would be so related if it was incorporated in
Ireland; or
b) any person or body of persons or any
company, partnership, consortium or joint venture
related or affiliated to or controlled or managed by
MICROSOFT or StarTek (as the case may be) or by any
person or group of persons connected to any director
of MICROSOFT or StarTek (as the case may be) within
the meaning of Section 26 of the Companies Act 1990
or by any company which is related to MICROSOFT or
StarTek (as the case may be) within the meaning of
Section 140 of the Companies Act 1990 or which would
be so related if it was incorporated in Ireland.
(E) StarTek may disclose MICROSOFT Confidential Information and/or
Confidential Materials to any of its authorised employees or agents,
consultants or sub-contractors authorised by MICROSOFT pursuant to
Sections 5(a) and 16(a) who have a need to know the same for the
purpose of this Agreement. StarTek shall procure that each such
employee, agent, consultant or sub-contractor having access to or
otherwise receiving any MICROSOFT Confidential Information and/or
Confidential Materials, shall enter into confidentiality agreements in
the form or substantially in the form set out in Exhibit F hereto in
respect of any MICROSOFT Confidential Information and/or Confidential
Materials that may be disclosed or released to or otherwise received by
such employee, agent, consultant or sub-contractor. Immediately upon
StarTek becoming aware of or suspecting any breach or threatened breach
of any of the said confidentiality agreements StarTek shall:-
a) forthwith notify MICROSOFT in writing of
such breach or threatened breach and give to
MICROSOFT such information as MICROSOFT may in its
sole discretion require and is reasonably available
to StarTek in relation to such breach or threatened
breach and MICROSOFT may in the name of StarTek take
such action at the cost and expense of MICROSOFT as
MICROSOFT may at its sole discretion consider
necessary or desirable to avoid or resist the breach
or threatened breach and to enforce the said
confidentiality agreements or any of them subject
only to notifying StarTek to the extent considered
practicable by MICROSOFT prior to taking any such
action; and
b) do and permit to be done all things which
may be required to be done at the cost and expense of
MICROSOFT to minimise, avoid or diminish the actual
or potential loss to any or all of MICROSOFT and
Microsoft Corporation and any of its or their
affiliates as a result of such breach or threatened
breach and to enable MICROSOFT to enforce the said
confidentiality agreements or any of them in the name
of StarTek and StarTek shall not be entitled to
withdraw, compromise or settle any such enforcement
action without the prior written consent of MICROSOFT
save as required by the legally binding obligation
imposed on it by a court of final appeal and of
competent jurisdiction, or by a court of competent
jurisdiction where a stay of execution is refused
pending appeal.
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(F) StarTek may nto reverse engineer, decompile or
disassemble any software made available to COMPANY by or acquired from MICROSOFT
or Microsoft Corporation except as expressly permitted by applicable law. In
addition, StarTek may not unlawfully copy or distribute any such software.
(G) MICROSOFT RIGHTS AND REMEDIES
a) StarTek shall notify MICROSOFT
immediately upon discovery of any
unauthorised use or disclosure of MICROSOFT
Confidential Information or Confidential
Materials, or any other breach of this
Agreement by StarTek, and will cooperate
with MICROSOFT in every reasonable way to
help MICROSOFT regain possession of the
MICROSOFT Confidential Information or
Confidential Materials and prevent its
further unauthorised use.
b) StarTek shall return all
originals, copies, reproductions and
summaries of MICROSOFT Confidential
Information or Confidential Materials (in
whatever form whether tangible, electronic
or other) at MICROSOFT's' request or, at
MICROSOFT's option, certify destruction of
the same.
c) StarTek acknowledges that
monetary damages may not be a sufficient
remedy for unauthorised disclosure of
MICROSOFT Confidential Information or
Confidential Materials and that MICROSOFT
shall be entitled, without waiving any other
rights or remedies, to such injunctive or
equitable relief as may be deemed proper by
a court of competent jurisdiction.
d) MICROSOFT may visit StarTek's
premises, with reasonable prior notice and
during normal business hours, to review
StarTek's compliance with the terms of this
Agreement.
(H) STARTEK RIGHTS AND REMEDIES
a) MICROSOFT shall notify StarTek
immediately upon discovery of any
unauthorised use or disclosure of StarTek
Confidential Information or Confidential
Materials, or any other breach of this
Agreement by MICROSOFT, and will cooperate
with StarTek in every reasonable way to help
StarTek regain possession of the StarTek
Confidential Information or Confidential
Materials and prevent its further
unauthorised use.
b) MICROSOFT shall return all
originals, copies, reproductions and
summaries of StarTek Confidential
Information or Confidential Materials (in
whatever form whether tangible, electronic
or other) at StarTek's request or, at
StarTek's option, certify destruction of the
same.
c) MICROSOFT acknowledges that
monetary damages may not be a sufficient
remedy for unauthorised disclosure of
StarTek Confidential Information or
Confidential Materials and that StarTek
shall be entitled, without waiving any other
rights or remedies, to such injunctive or
equitable relief as may be deemed proper by
a court of competent jurisdiction.
(I) MISCELLANEOUS
a) All MICROSOFT Confidential
Information and Confidential Materials are
and shall remain the property of MICROSOFT
and/or Microsoft Corporation. By disclosing
MICROSOFT Confidential Information and
Confidential Materials to StarTek, MICROSOFT
and/or Microsoft Corporation
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do not grant any express or implied right to
StarTek to or under any MICROSOFT and/or
Microsoft Corporation patents, copyrights,
trademarks or other intellectual property
rights or trade secret information.
b) All StarTek Confidential
Information and Confidential Materials are
and shall remain the property of StarTek. By
disclosing StarTek Confidential Information
and Confidential Materials to MICROSOFT,
StarTek does not grant any express or
implied right to MICROSOFT to or under any
StarTek patents, copyrights, trademarks or
other intellectual property rights or trade
secret information.
c) Notwithstanding the foregoing
either party may disclose the terms of this
Agreement to its outside legal and financial
advisers in the ordinary course of its
business. Either party may disclose
MICROSOFT Confidential Information and/or
StarTek Confidential Information and/or
Confidential Materials (as the case may be)
if required to do so by government or
judicial order provided that:-
i) it shall have given the
other party prompt written notice
prior to the disclosure;
ii) it shall comply with
any protective order or equivalent
imposed on such disclosure, and
iii) it shall provide the
other party with the option of
either seeking a protective order
or having such MICROSOFT
Confidential Information and/or
StarTek Confidential Information
and/or Confidential Materials (as
the case may be) made subject to
the same protective order as may
apply to the information of that
party subject to the government or
judicial order.
d) StarTek undertakes that any
information relating to customers of
MICROSOFT, Microsoft Corporation or any of
its or their affiliates, distributors,
agents or resellers, that either has been or
is provided to StarTek by any of the
aforementioned in order to perform the
services or its obligations under this
Agreement, or that is otherwise acquired by
StarTek whether before or after the date
hereof, shall be treated as MICROSOFT
Confidential Information and shall be held
by StarTek in the strictest of confidence
and shall not be utilised by StarTek for any
purpose (including but not limited to its
dissemination to or utilisation by any
Associated Company of StarTek whether
involved in the reselling of software and/or
computer hardware products or not) other
than the provision of the services.
10. TITLE
(A) StarTek acknowledges and agrees that
notwithstanding delivery or the passing of risk or any other provision of this
Agreement the property and title to all materials, goods and components used or
to be used in the Services:
a) delivered to StarTek's Facility
or to the facility of any of its approved
sub-contractors (whether originating from
MICROSOFT, an approved supplier or other
third party) shall vest in MICROSOFT with
effect from the time of delivery to
StarTek's Facility or to the facility of any
of its approved
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<PAGE> 17
sub-contractors to the extent (if any) that
MICROSOFT does not hold title to them before
such time;
b) created or originating at
StarTek's Facility or to the facility of any
of its approved sub-contractors shall vest
in MICROSOFT with effect from the moment of
their creation;
And StarTek acknowledges and agrees that neither the
title nor the property in any materials, goods and
components as aforesaid vests in or will vest in
StarTek or in any of its approved sub-contractors,
notwithstanding that MICROSOFT shall have no
obligation to pay StarTek's approved sub-contractors,
and StarTek shall be solely liable and responsible to
its approved sub-contractors for payment, for such
materials, goods and components delivered to or
created or originating at StarTek's approved
sub-contractors' facilities.
(B) For the avoidance of doubt, the property and
title in each unit of finished Microsoft Products delivered to or manufactured
by StarTek and/or any of its approved sub-contractors shall be and remain vested
in MICROSOFT and shall not at any time pass to StarTek.
(C) StarTek shall not create, or permit, suffer or
allow to arise, over or in relation to any unit of Microsoft Products or any
materials, goods or components used or to be used in the Services any charge,
lien, encumbrance or other security interest of whatever nature.
(D) StarTek shall store all materials, goods and
components used or to be used in the Services as well as finished Microsoft
Products such that they remain at all times separately identifiable as the
property of MICROSOFT and StarTek shall return any and all such materials,
goods, components and finished Microsoft Products to MICROSOFT on request.
(E) StarTek hereby grants an irrevocable right and
licence to MICROSOFT, its servants and agents to enter with or without notice
upon all or any of its premises with or without vehicles during normal business
hours for the purposes of verifying that the provisions of this Section are
being complied with and/or taking possession of any and all such materials,
goods, components, and finished Microsoft Products and this provision shall
continue in force notwithstanding termination of this Agreement howsoever
caused.
11. RISK OF LOSS.
(A) StarTek shall assume the risk of loss or damage
to materials and goods which are the subject of this Agreement, or the product
of any Services, including but not limited to raw materials, components and
finished goods as follows: StarTek risk for incoming materials, goods and
components shall commence with effect from the earlier of the moment of their
delivery to or creation at StarTek's Facility or the authorised locations of all
StarTek's approved sub-contractors, suppliers and MICROSOFT Authorised
Replicators engaged by StarTek. Nothing herein shall prevent StarTek and the
approved sub-contractors, suppliers and/or the Authorised Replicators which
StarTek engages allocating such risk between them pursuant to the transfer of
risk terms contained in any agreement entered into between them, provided
however that StarTek shall assume sole responsibility for risk of loss at the
latest at the moment of the delivery of materials, goods or components to
StarTek's Facility. StarTek's responsibility for risk of loss shall continue
through manufacture, assembly, storage and shipment of finished goods. StarTek's
responsibility for risk of loss shall terminate upon the receipt by StarTek by
EDI from the MICROSOFT turnkey warehouser and/or distributor, or other recipient
pursuant to MICROSOFT directions, to which StarTek has shipped finished goods of
confirmation of receipt of the finished goods. StarTek shall remain responsible
for adequately packing the finished goods and shipping them to the MICROSOFT
turnkey warehouser and/or distributor or other recipients pursuant to
MICROSOFT's directions. In the event of loss or damage to any of the goods for
which StarTek assumes risk of loss, StarTek shall, or shall procure that its
insurers shall indemnify MICROSOFT for the value of goods as follows:
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<PAGE> 18
(A) for raw materials and goods in
the course of manufacture owned by
MICROSOFT, MICROSOFT's * plus any or all *;
(B) for finished goods, MICROSOFT *
for such goods to the extent that MICROSOFT
receives orders for such finished goods that
would otherwise have been fulfilled through
the Services or, where such finished goods
are excess inventory owned by MICROSOFT, the
cost of goods sold;
(C) for all other property owned by
MICROSOFT, the current *.
(B) To the extent that any loss to MICROSOFT owned
property or inventories is covered by insurance maintained by StarTek, MICROSOFT
shall be permitted to participate in the adjustment of the loss and shall be
made loss payee on StarTek's insurance to the extent of its interest in the
lost, damaged or destroyed property. StarTek shall and shall procure that its
insurers shall waive all rights of subrogation against MICROSOFT in connection
with any payment made for loss or damage to MICROSOFT owned property.
(C) ON PREMISES RISK. StarTek shall be responsible
for all risk of loss or damage to all MICROSOFT property while located at
StarTek's or its subcontractor's facilities. StarTek shall be responsible for
the full amount of the loss or damage and shall reimburse MICROSOFT for such
loss or damage. Reimburseable amount for any loss or damage shall be as set
forth in Section 11(d) below.
(D) LIABILITY FOR THEFT, PILFERAGE, SHRINKAGE, ETC.
Notwithstanding the provisions of Section 10 (Title) and the foregoing
provisions of this Section 11, StarTek shall be fully liable to MICROSOFT for
the theft, pilferage, shrinkage or otherwise unexplained disappearance of any
and all Microsoft Products, Microsoft certificates of authenticity, CDs, discs
and other finished products whilst in its possession or under its control or
management during the period that StarTek is responsible for same. This period
runs from the time StarTek assumes risk of loss pursuant to this Section 11
until the documented delivery to and the documented receipt by or on behalf of
the MICROSOFT turnkey warehouser and/or distributor or other recipient as
designated by MICROSOFT. For the avoidance of doubt, this period covers the time
during which any of the aforementioned items are in the possession or under the
control or management of any of StarTek's approved sub-contractors, suppliers or
MICROSOFT Authorised Replicators engaged by StarTek. In the event that any of
the aforesaid items are stolen, lost or otherwise unaccounted for, StarTek
agrees to pay to MICROSOFT forthwith on demand the Microsoft distributor price
therefor (or, in the case of a Microsoft *.
(E) The foregoing is the best estimate of the parties
as to the likely loss and damage that MICROSOFT will suffer as a result of
theft, pilferage, shrinkage or otherwise unexplained disappearance of all
Microsoft Products, Microsoft certificates of authenticity, CDs, discs or other
finished products as aforesaid whilst in the possession, control or management
of StarTek.
(F) NOTICE OF LOSS - Upon discovery of the theft,
pilferage, shrinkage or otherwise unexplained disappearance of any and all
Microsoft Products (including components of Microsoft Products), Microsoft
certificates of authenticity, Microsoft certificate of authenticity labels, CDs,
CD masters, CD stampers, CD serialisation files, film, film masters, electronic
and physical artwork files, discs, disc masters, label masters, label art,
labels, user guides, user guide masters, packaging masters or other masters or
other products and finished products *, whilst in its possession or under its
control or management as aforesaid, StarTek shall as soon as reasonably
practical and in any event not more than * following discovery, notify MICROSOFT
of such loss along with sufficient details to enable MICROSOFT to make a
reasonable investigation of any loss involving the aforesaid items or other
MICROSOFT property.
(G) For the avoidance of doubt, the obligation of
StarTek under Section 11(d) to pay MICROSOFT * for damaged Microsoft Products
(including raw materials and components thereof) shall not apply
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<PAGE> 19
where such items are damaged during the course of or as a result of the
provision of the Services PROVIDED ALWAYS that StarTek physically accounts for
all such damaged Microsoft Products (including raw materials and components
thereof) and for all Microsoft certificates of authenticity, CDs, discs, other
finished products which are damaged whilst in its possession or under its
control or management, to the satisfaction of MICROSOFT including where
necessary verified evidence of destruction.
12. TERM AND TERMINATION.
(A) DURATION. The term of this Agreement shall
commence on the Effective Date and terminate on * (the "Initial Term") unless
terminated earlier as provided below. In the event that either party wishes to
continue this Agreement for a further period of * beyond the Initial Term, such
party shall * give written notice to this effect to the other party. The other
party may (and will not be obliged to) agree to such an extension of this
Agreement on receipt of such notice. In the event that neither party gives such
notice, or either party does not agree to an extension as outlined, this
Agreement shall terminate on the expiry of the Initial Term, unless terminated
earlier as provided below.
(B) EARLY TERMINATION AND DEFAULT. MICROSOFT may
terminate this Agreement immediately upon notice if StarTek: (i) fails to
strictly comply with Sections 4 and/or 9 of this Agreement, (ii) makes or
attempts to make an assignment in violation of Section 16(a) of this Agreement,
or (iii) experiences an Insolvency Event of Default, as defined below. In
addition to the foregoing, MICROSOFT may terminate this Agreement without cause
with * notice in writing. The rights and remedies provided herein to the parties
shall not be exclusive and are in addition to any other rights and remedies
provided by law. In the event a non-defaulting party in its discretion elects
not to terminate this Agreement, such election shall not be a waiver of any
claims of that party for a default(s). Further, the non-defaulting party may
elect to leave this Agreement in full force and effect and to institute legal
action against the defaulting party for specific performance and/or damages
suffered by such party as a result of the default(s). For purposes of this
Agreement, an "Insolvency Event of Default" shall be deemed to have occurred in
the event the applicable party fails to formally dismiss the Insolvency Event of
Default within * after commencement of any of the following proceedings: (x) any
party admits in writing its inability to pay its debts generally or makes a
general assignment for the benefit of creditors; (y) any affirmative act of
insolvency by any party or the filing by or against any party of any petition or
action under any bankruptcy, reorganization, insolvency arrangement,
liquidation, dissolution or moratorium law, or any other law or laws for the
relief of, or relating to, debtors; or (z) the subjection of a material part of
any party's property to any levy, seizure, assignment or sale for or by any
creditor, third party or governmental agency.
Notwithstanding the foregoing, MICROSOFT may, at its sole discretion,
immediately terminate this Agreement if, due to StarTek's lack of diligence,
StarTek engages in or permits its subcontractor(s) to engage in the unauthorized
replication and/or distribution of Product(s). StarTek will diligently attempt
to prevent any unauthorized replication and/or distribution of Product(s) by
StarTek employees or any subcontractor and will cooperate fully with MICROSOFT
to that end. MICROSOFT may, at its sole discretion, immediately terminate
StarTek's right to subcontract the replication and/or assembly of Product(s), in
accordance with Section 5 of this Agreement, if MICROSOFT determines that
StarTek's subcontractor is or has been involved in the unauthorized replication
and/or distribution of Product(s) or any third party products.
In addition, MICROSOFT may terminate this Agreement by notice in writing to
StarTek if StarTek shall change its organisation or methods of doing business so
as in MICROSOFT's sole opinion to be able less effectively to carry out its
duties hereunder or if there is a change of control of StarTek. For the purposes
of this Agreement an entity is "controlled" by another if that other either
directly or through its control of another company or legal entity: (1) holds
the majority of voting rights in it; (2) is a member of it and has the right to
appoint or remove a majority of its board of directors; or (3) is a member of it
and controls alone, under an agreement with other shareholders or members, the
majority of the voting rights in it.
(C) HIERARCHY. In the event that MICROSOFT is
entitled to terminate this Agreement pursuant to any of the provisions of
sub-Sections (a) or (b) above, MICROSOFT shall be entitled (but not required) to
terminate all or any Statements of Work and/or the Agreement as it chooses.
Termination of the
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<PAGE> 20
Master Agreement shall automatically terminate all Statements of Work.
Termination of all or any Statements of Work shall not of itself terminate the
Agreement.
(D) RIGHTS UPON TERMINATION OR EXPIRATION. Upon the
termination or expiration of this Agreement:
(E) MICROSOFT shall have the right to recover and
repossess any stocks of Microsoft Products or other MICROSOFT materials, goods,
components including without limitation all replication lists and all
replicating kits, CD masters, CD stampers, CD serialisation files and labels,
all software on disk, CD-R masters, CD-ROM masters, glass masters, electronic
files, film masters, electronic and physical artwork files, PID files and
labels, disk masters, label masters, label art, labels, user guide masters,
packaging masters or other masters, Microsoft certificates of authenticity,
Microsoft certificate of authenticity labels, raw disks and source code in
StarTek's possession or under its control, including all Microsoft Products and
other Microsoft materials, goods and components as aforesaid in the possession
or under the control of StarTek's approved sub-contractor;
(F) STARTEK will return to MICROSOFT upon demand all
Data and any price lists, literature, manuals and any other material supplied or
owned by MICROSOFT which StarTek or its approved sub-contractors may have in its
or their possession or under its or their control and whether in paper,
electronic or other form;
(G) STARTEK will, and will procure that its approved
sub-contractors will, destroy and expunge from its or their computers any and
all MICROSOFT materials, goods, components, software (including without
limitation replicating kits, CD masters, CD stampers, CD serialisation files and
labels, all software on disk, CD-R masters, CD-ROM masters, glass masters,
electronic files, film masters, electronic and physical artwork files, PID files
and labels, disk masters, label masters, label art, labels, user guide masters,
packaging masters or other masters, raw disks, source code and the like) which
are held in electronic form and shall certify in writing under the hand of an
authorised officer of StarTek that same has been done.
(H) MICROSOFT shall not be liable to make or pay any
compensation to StarTek or its approved sub-contractors for loss of profits,
goodwill, or otherwise, arising as a result of the termination of this
Agreement;
(I) STARTEK shall remove and discontinue the use of
all signs, stationery, advertising and other material that would make it appear
to the public that StarTek is still providing services in relation to Microsoft
Products; and
(J) STARTEK shall cease, and shall procure that its
approved sub-contractors shall cease, to use the tradenames, trademarks, logos
or symbols owned by MICROSOFT or Microsoft Corporation or any of its or their
affiliates and/or any of its or their licensors.
(K) STARTEK shall co-operate with MICROSOFT to ensure
that there is an orderly and expeditious winding down of all Services then being
performed by StarTek and/or its approved sub-contractors, and where MICROSOFT
has arranged for such Services to be performed by another party, that there be
an orderly and expeditious transfer and transition to such third party.
(L) EFFECT OF DEFAULT. If there is a Default, the
parties shall have all rights and remedies provided in this Agreement or
otherwise available under law as limited by this Agreement.
(M) SURVIVAL. Sections 2, 3, 4, 5, 6, 7, 8, 9, 10,
11, 12 and 13 shall survive termination or expiration of this Agreement.
(N) ACCRUED RIGHTS. Any termination of this Agreement
by any party shall be without prejudice to any other rights or remedies that
party might be entitled to hereunder or at law and shall not effect any accrued
rights or liabilities of either party nor the coming into or continuance in
force of any provision
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hereof which is expressly or by implication intended to come into or continue in
force on or after such termination including without prejudice to the generality
of the foregoing, the provisions of Sections 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12
and 13 which shall survive any termination of this Agreement.
13. RECORD KEEPING, RECORD REVIEW, ETC
(A) GENERAL. The provisions of this Section 13 are
subject to any detailed provisions relating to records, review, reporting,
inspection and audit in any executed and/or signed Statement of Work.
(B) RECORD KEEPING REQUIREMENTS.
a) RECORD KEEPING REQUIREMENTS
During the term of this Agreement, StarTek
agrees to keep all usual and proper books of
account and all usual and proper entries
relating to the Services and StarTek's
performance of this Agreement and to
maintain them for a minimum period of * from
the date they are created. Such records,
books of account, and entries shall be kept
in accordance with generally accepted
accounting principles.
b) FINANCIAL STATEMENTS StarTek
shall provide MICROSOFT with quarterly
Financial Statements within * after the end
of each calendar quarter. Furthermore,
within * of the financial year end of
StarTek, StarTek shall furnish MICROSOFT
with a complete copy of its Audited Accounts
for such financial year.
In this Section 13 "Financial Statement" shall mean a
Balance Sheet and Profit & Loss Account both made up
as of the last day of the calendar quarter, together
with a Cash Flow Statement for the calendar quarter
in question and the calendar year to date, duly
prepared in accordance with US Generally Accepted
Accounting Principles ("US GAAP"). Any deviation from
US GAAP in the quarterly Financial Statements must be
clearly noted.
In this Section 13 "Audited Accounts" shall mean the
Balance Sheet, Profit & Loss Account, both made up as
of the last day of the financial year, together with
a Cash Flow Statement for the financial year in
question duly prepared in accordance with US GAAP.
(C) AUDIT. MICROSOFT may cause an audit and/or
inspection and/or review to be made of the applicable StarTek records, books of
account and entries at any warehouse or storage location of StarTek or any other
location from which StarTek is performing the Services in order to verify
StarTek's compliance with the terms of this Agreement and to verify statements
issued by StarTek at any time during the term of this Agreement and for a period
of * thereafter. Any such audit shall be made by an independent qualified
accountant selected by MICROSOFT (other than on a contingent fee basis). Any
such inspection shall be made by MICROSOFT or a third party designated by
MICROSOFT. Any audit and/or inspection shall be conducted during regular
business hours at the relevant StarTek location with * prior notice (no such
notice shall be required where MICROSOFT suspects that there has been a breach
of security). StarTek agrees to provide MICROSOFT's designated audit or
inspection team access to relevant MICROSOFT related StarTek records, books of
account and entries and to all warehouse and storage locations of StarTek and
all other locations from which StarTek is performing the Services. Any such
audit shall be paid for by MICROSOFT unless material discrepancies are
disclosed. "Material" shall mean * of the transactions (costs borne by or income
due to MICROSOFT) within the audit period. IF MATERIAL DISCREPANCIES ARE
DISCLOSED:
(1) STARTEK AGREES TO REIMBURSE MICROSOFT FOR ALL OVER-CHARGED AMOUNTS THAT
ARE DISCLOSED PLUS INTEREST ON SUCH AMOUNTS ON A DAY TO DAY BASIS (AS
WELL AFTER AS BEFORE ANY JUDGMENT) FROM THE DATE THAT THE COST WAS
INCURRED AND CHARGED TO MICROSOFT OR THE INCOME PAID TO MICROSOFT, TO
THE
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DATE OF ACTUAL PAYMENT (BOTH DATES INCLUSIVE) AT THE RATE OF * (OR SUCH
OTHER DUBLIN CLEARING BANK AS MICROSOFT MAY NOMINATE) FROM TIME TO TIME
IN FORCE (OR IF THERE IS NO SUCH RATE, THE NEAREST EQUIVALENT RATE AS
DETERMINED BY MICROSOFT COMPOUNDED QUARTERLY) AND IN SUCH CIRCUMSTANCES
STARTEK ALSO AGREES TO PAY THE COSTS ASSOCIATED WITH THE AUDIT; AND
(2) MICROSOFT AGREES TO REIMBURSE STARTEK FOR ALL UNDER-CHARGED AMOUNTS
THAT ARE DISCLOSED PLUS INTEREST ON SUCH AMOUNTS ON A DAY TO DAY BASIS
(AS WELL AFTER AS BEFORE ANY JUDGMENT) FROM THE DATE THAT THE COST WAS
INCURRED AND CHARGED TO MICROSOFT OR THE INCOME PAID TO MICROSOFT, TO
THE DATE OF ACTUAL PAYMENT (BOTH DATES INCLUSIVE) AT THE RATE OF * (OR
SUCH OTHER DUBLIN CLEARING BANK AS MICROSOFT MAY NOMINATE) FROM TIME TO
TIME IN FORCE (OR IF THERE IS NO SUCH RATE, THE NEAREST EQUIVALENT RATE
AS DETERMINED BY MICROSOFT COMPOUNDED QUARTERLY) AND IN SUCH
CIRCUMSTANCES MICROSOFT ALSO AGREES TO PAY THE COSTS ASSOCIATED WITH
THE AUDIT.
The foregoing is the best estimate of the parties as to the likely loss and
damage that MICROSOFT will suffer as a result of such material discrepancies.
StarTek shall procure the right for MICROSOFT to carry out audits and/or
inspections of the facilities of StarTek's sub-contractors on terms equivalent
to those set out in this Section 13.
(D) RECORD REVIEW
a) RELEVANT RECORDS. Where
MICROSOFT causes a review of StarTek's
records , books of account and entries to be
made, then without prejudice to the
generality of the information and records
that MICROSOFT may require from StarTek
pursuant to this Section 13:
(i) where StarTek bills MICROSOFT on a PRICE PER UNIT
OR PRICE PER ACTIVITY, StarTek shall provide copies
of shipping, production or other relevant records to
support invoices and copies of third party invoices
to support price adjustments based on changes in the
cost of third party materials and services including,
without limitation, paper, media, packaging
materials, postage and freight; StarTek shall not be
obligated, however, to provide any internal
documentation on StarTek's costs or returns related
to such invoices;
ii) where StarTek bills MICROSOFT a SERVICE FEE, as
opposed to a price per unit or per activity, StarTek
shall make available to MICROSOFT any and all
supporting materials, records and documentation
relevant to such service fee.
b) REVIEW PROCESS. Any record
review conducted pursuant to this Section 13
shall be made by an independent qualified
accountant selected by MICROSOFT (other than
on a contingent fee basis) at StarTek's
office or such other reasonable location as
MICROSOFT may request. If accounting
discrepancies, inconsistencies or errors in
statements issued by StarTek are disclosed
as a result of a record review, StarTek
agrees (without prejudice to StarTek's
obligations pursuant to this Section 13) to
implement and/or require outside contractors
to implement promptly agreed-upon corrective
action. Nothing herein shall preclude
MICROSOFT from exercising any other rights
or remedies it has under law or other
provisions of this Agreement.
(E) FACILITY INSPECTIONS. MICROSOFT may cause an
inspection to be made with * prior notice (no such notice shall be required
where MICROSOFT suspects that there has been a breach of security) of any
Facility to verify that StarTek is providing the Services in compliance with the
terms of this Agreement. Any inspection conducted pursuant to this Section 13
shall be conducted during regular business hours at the Facility. StarTek agrees
to provide MICROSOFT's designated inspection team access to all relevant
records, books of account and entries and the Facility. If material
discrepancies or departures from the provisions of this Agreement are disclosed,
StarTek agrees to implement promptly agreed-upon corrective action. Nothing
herein shall preclude MICROSOFT from exercising any other rights or remedies it
has under law or other provisions of this Agreement.
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14. NOTICES AND PRINCIPAL CONTACTS.
All notices, authorizations, and requests in connection with this
Agreement shall be deemed given on the day they are sent by air express courier,
charges prepaid; and addressed as follows:
STARTEK: StarTek Inc.
Attn: Mike Morgan
1250 H St.
Greeley, CO 80631
Telephone: 970-346-5303
Fax: 970-353-7652
With a copy to: StarTek General Counsel
Blair Lockwood
Otten, Johnson, Robinson, Neff and Ragonetti, PC
950 Seventeenth Street,
Suite 1600
Denver
Colorado 80202
Telephone: 303 825 8400
Fax: 303 825 6525
MICROSOFT: Microsoft European Operations Centre
Blackthorn Road
Sandyford Industrial Estate
Dublin 18 Ireland
Attn: *
Telephone: 353 1 706 4149
Fax: 353 1 706 4294
With a copy to: Law & Corporate Affairs
Microsoft Corporation
Microsoft Europe Services
Tour Pacific
92977 Paris La Defense Cedex - France
Attn: Steven D. McLamb
Telephone: 33 01 46 35 10 28
Fax: 33 01 46 35 10 32
or such other person or address as each party, respectively, so designates by
written notice to the other parties.
15. ENTIRE AGREEMENT AND MODIFICATIONS.
(1) ENTIRE AGREEMENT. This Agreement is the entire agreement
between the parties relating to its subject matter and supersedes and cancels
any previous or existing agreement or other arrangement between MICROSOFT and
StarTek. Any statements or representations or agreement made by either party
shall not be binding on that party unless contained in writing and signed by an
authorised representative of that party.
(2) STATEMENT OF WORK. The Statement of Work may be modified
as follows: each modification must be approved by MICROSOFT and StarTek, and
such approval must be documented with a confirming e-mail or other written
communication between authorized representatives of the two parties. In
addition, if MICROSOFT deems it necessary and appropriate, it shall prepare on a
* basis an updated version of the
23
<PAGE> 24
Statement of Work incorporating all modifications made since the prior update
and clearly setting forth the "Date of Revision" on the front page. MICROSOFT
shall circulate each such update to StarTek. The most current revised version of
the Statement of Work that has been circulated in this manner to the parties,
together with subsequent modifications documented pursuant to this Section 15(b)
shall constitute the Statement of Work for the purposes of this Agreement.
StarTek shall maintain and make available to MICROSOFT upon request copies of
all of its documentation regarding modifications to the Statement of Work. For
purposes of this Agreement, references to Statement of Work includes any agreed
modification even if prior to the quarterly incorporation of such changes.
(3) AMENDMENT. This Agreement may be amended only in writing
signed by authorized representatives of both parties. Notwithstanding the
foregoing, MICROSOFT reserves the right to change, by * prior notice to StarTek,
any policies of MICROSOFT.
(4) OTHER. Except as provided in this Section 15, the
provisions of this Agreement may be modified only by written instrument signed
by duly authorized representatives of MICROSOFT and StarTek.
16. GENERAL.
(1) PROHIBITION AGAINST ASSIGNMENT. Except as expressly
provided in this Section 16(a), no party may assign its rights or obligations
under this Agreement (by actual assignment or by operation of law, including
without limitation through a merger, consolidation, exchange of shares, or sale
or other disposition of assets, including disposition on dissolution), without
the prior written consent of the other party, which consent shall not be
unreasonably withheld. MICROSOFT may, however, assign this Agreement to a
MICROSOFT subsidiary without the consent of StarTek. For the avoidance of doubt,
for the purposes of this Section 16(a) "subsidiary" means any company in which
Microsoft Corporation holds or controls directly or indirectly 51% of the issued
share capital or voting rights. Notwithstanding the foregoing, this is a
contract for personal services and MICROSOFT relies upon the qualifications,
reputation and expertise of StarTek to perform all obligations hereunder. In
particular, MICROSOFT relies upon StarTek's history of performance over more
than * of operation,
(2) GOVERNING LAW AND JURISDICTION. This Agreement shall be
governed by and construed in accordance with the laws of Ireland and StarTek
hereby agrees for the benefit of MICROSOFT and without prejudice to MICROSOFT's
right to take proceedings in relation hereto before any other court of competent
jurisdiction that the courts of Ireland shall have jurisdiction to hear and
determine and suit, action or proceedings that may arise out of or in connection
with this Agreement and for such purposes StarTek hereby irrevocably submits to
the jurisdiction of such courts. StarTek hereby irrevocably authorises and
appoints JOHN DOCKRELL OF DOCKRELL FARRELL SOLICITORS, EMBASSY HOUSE, HERBERT
PARK LANE, BALLSBRIDGE, DUBLIN 4 (or such other person resident in Ireland as it
may by notice to MICROSOFT substitute) (the "Process Agent") to accept service
of all legal process arising out of or in connection with this Agreement and
service on the Process Agent (or such substitute as aforesaid) shall be deemed
service on StarTek. StarTek agrees that failure by its Process Agent to notify
it of the process will not invalidate the proceedings concerned.
(3) MICROSOFT CORPORATION, AFFILIATES - THIRD PARTY
BENEFICIARY. StarTek acknowledges and agrees that the benefit of certain of the
provisions of this Agreement are expressed to be for not only MICROSOFT but also
for Microsoft Corporation, affiliates of Microsoft Corporation, licensors of
Microsoft Corporation and/or MICROSOFT and any of its of their officers or
directors. StarTek further acknowledges that each and any of the foregoing shall
be entitled, in its or their own right, to require by StarTek the due
performance of each such provision as aforesaid and to this end that MICROSOFT
is entering into this Agreement not only in its own right, but also as trustee
and agent for each of Microsoft Corporation, its affiliates, licensors of
Microsoft Corporation and/or MICROSOFT and any of its or their officers or
directors.
(4) NO PARTNERSHIP/JOINT VENTURE/AGENCY/FRANCHISE. This
Agreement shall not be construed as creating a partnership, joint venture,
employer-employee or agency relationship or as granting a franchise.
(5) SEVERABILITY. If any provision of this Agreement shall be
held by a court of competent jurisdiction to be illegal, invalid or
unenforceable, the remaining provisions shall remain in full force and effect.
24
<PAGE> 25
(6) ATTORNEYS' FEES. If any party employs attorneys to enforce
any rights arising out of or relating to Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys' fees, costs and other expenses.
(7) WAIVER. No waiver of any breach of any provision of this
Agreement shall constitute a waiver of any prior, concurrent or subsequent
breach of the same or any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized representative of
the waiving party.
(8) SECTION HEADINGS. The Section headings used in this
Agreement are intended for convenience only and shall not be deemed to supersede
or modify any provisions.
(9) GOVERNMENTAL APPROVALS. Each party shall, at its own
expense, obtain and arrange for the maintenance in full force and effect of any
and all governmental approvals, consents, licenses, authorizations,
declarations, filings, and registrations as may be necessary or advisable for
the performance of all of the terms and conditions of this Agreement.
(10) FORCE MAJEURE.
a) Except as otherwise provided in this
Section 16(j), neither party shall be in default by
reason of any failure in performance of this
Agreement, if such failure arises out of causes
beyond the control and without the fault or
negligence of the involving party including, but not
restricted to, acts of God, acts of the Government,
fires, floods, epidemics, quarantine restrictions,
strikes, lock-outs, freight embargoes and unusually
severe weather. This Section shall also apply to
StarTek's contractors where a contractor's failure
arises out of the same causes, except insofar as
StarTek could have reasonably been expected to obtain
contractor supply from alternate sources.
b) StarTek shall give a written notice to
MICROSOFT within * after StarTek becomes aware of any
circumstances or event which may reasonably be
anticipated to cause or constitute, or which
constitute a force majeure as described in Section
16(j)(1), above. Such notice shall contain a detailed
description of the delay and of the affected portion
of the Agreement. Within a further * after such
notice, StarTek shall deliver a detailed written
description of the work-around plan, alternative
sources, and any other reasonable means that StarTek
shall, at its own cost, use to prevent such further
delay.
c) If the delivery of any Products shall be
delayed by reason of force majeure for more than *
beyond when delivery was scheduled, MICROSOFT may
upon written notice to StarTek with respect to the
undelivered Products, either terminate any or all
this Agreement hereunder. In the event of such
termination, the parties shall comply with their
obligations as specified in Section 12.
(11) EXHIBIT(S). The following exhibits, as amended from time
to time, are incorporated into this Agreement by this reference ("Exhibit(s)"):
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
A Statement of Work
B Price and Payment Terms
C Insurance
D Required Tax Information
E Approved Subcontractor List
</TABLE>
25
<PAGE> 26
All references to the "Agreement" are references to this Agreement and all
Exhibits, all as amended from time to time. To the extent that any provision
contained in any Exhibit is inconsistent or conflicts with this Agreement
exclusive of the Exhibits, the provisions of this Agreement (exclusive of the
Exhibits) shall control.
(12) PRESS RELEASES/PUBLICITY. StarTek shall not issue any new
press releases or publicity that may relate or refer to this Agreement. Any
press statements shall only be released by joint agreement of the parties,
except as legally required by the SEC or NYSE. StarTek shall not use the name
"Microsoft" or "Microsoft Corporation" in any advertisements. StarTek may,
however, with the prior written consent of MICROSOFT, use the name "Microsoft
Corporation" in brochures, written response to requests for client lists as part
of requests for proposals, requests for information, etc. StarTek may also use
the name "Microsoft" or "Microsoft Corporation" in verbal client presentations.
(13) INSURANCE. Prior to the commencement of the Services to
be performed hereunder and throughout the entire period of performance by
StarTek, StarTek shall procure and maintain the insurance coverage set forth in
Exhibit C. Such insurance shall be in a form and with insurers acceptable to
MICROSOFT, and shall comply with the minimum requirements set forth in Exhibit
C.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above. All signed copies of this Agreement shall be deemed originals.
MICROSOFT IRELAND OPERATIONS LIMITED STARTEK INC.
/s/ Kevin Dillon /s/ Michael W. Morgan
- -------------------------------------- ----------------------------------------
By By
Kevin Dillon Michael W. Morgan
- -------------------------------------- ----------------------------------------
Name (Print) Name (Print)
General Manager President and Chief Executive Officer
- -------------------------------------- ----------------------------------------
Title Title
June 10, 1999 June 10, 1999
- -------------------------------------- ----------------------------------------
Date Date
26
<PAGE> 27
EXHIBIT A
STARTEK EUROPE, INC. TURNKEY
STATEMENT OF WORK
FEBRUARY 3, 1999
27
<PAGE> 28
EXHIBIT A
STARTEK EUROPE MFG. TURNKEY STATEMENT OF WORK
For purposes of this Exhibit, "MS" shall mean Microsoft Ireland Operations
Limited and "Company" shall mean StarTek Europe, Inc.. All other capitalized
terms not otherwise defined in this Exhibit shall have the same meaning as set
forth in the Agreement to which this is an Exhibit.
1. GENERAL:
1.1 Purpose and Requirement Scope:
This document describes the requirements that Company must
meet as a manufacturer and service provider to MS. The general
requirements under this agreement are:
1.1.1 Source and procure raw material in accordance with MS
specifications.
1.1.2 Build finished package product in accordance with MS
specifications in the quantities ordered by MS
pursuant to a Purchase Order.
1.1.3 Make Finished Product Units available to a MS
designated distribution center.
1.1.4 Provide information regarding production and delivery
as required.
2. SCOPE OF BUSINESS:
2.1 MS MAY ELECT TO SPLIT THE BOOK OF BUSINESS BETWEEN TWO OR MORE
COMPANIES.
3. FORECASTS:
3.1 * Rolling Forecast:
MS will provide a * rolling forecast for * for all Products
anticipated to be built by Company. This forecast may be used
by Company at Company's discretion for planning and procuring
raw materials and Company relies on such forecast entirely at
its own risk. MS may change the forecast up to the issuance of
a purchase order with no penalty or responsibility for any raw
materials, Product Components, or Product acquired/built to
such forecast.
3.2 Manufacturing Systems:
Company shall perform procurement, scheduling and
manufacturing activities on their own manufacturing system(s).
MS will not be responsible for providing Company with any
manufacturing system.
4. PURCHASE ORDER PROCEDURES:
4.1 Purchase Orders (PO):
During the term of the Agreement, MS will issue a * Purchase
Order (PO) for Finished Product Units to Company on * for *.
Each PO so issued shall require Finished Product Units to be
prepared and delivered to the distribution center * from the
PO issue date. The purchase order will include but not be
limited to the SKU, quantity, price and required delivery
date. MS may prioritize Products on the PO so Company will be
able to build more urgent requirements first. The purchase
order will officially authorize Company to manufacture MS
Products. MS accepts ownership and liability for raw materials
and finished goods inventory that have been purchased and/or
built in support of the * PO.
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<PAGE> 29
4.2 ONCE MS HAS ISSUED A PO, MS MAY CHANGE THE BUILD REQUIREMENTS
OR ISSUE ENGINEERING CHANGE NOTICES (ECN) CORRESPONDING TO
THAT PO, BUT RAW MATERIALS PROCURED BY COMPANY TO FULFILL SUCH
PO THAT ARE LEFT UNUSED WILL BE THE RESPONSIBILITY OF MS.
COMPANY MAY CHARGE MS FOR THE STORAGE OF ANY SUCH UNUSED RAW
MATERIALS REMAINING IN COMPANY'S WAREHOUSE * AFTER FULFILLMENT
OF THE PO. MS WILL REIMBURSE COMPANY FOR THE COST OF SUCH RAW
MATERIALS IF THEY REMAIN UNUSED. IN ORDER TO BE REIMBURSED BY
MS, COMPANY MUST PROVIDE A RAW MATERIAL INVENTORY AGE REPORT
FOR WHICH MS OWNS LIABILITY UPON EXPIRATION OF THE * HOLDING
PERIOD. IN CASE OF AN ECN THAT STOPS AND/OR STARTS A
COMPONENT, COMPANY MUST NOTIFY MS OF THE RELATED CHARGES
WITHIN * OF THE CHANGE ORDER. RELATED CHARGES WILL BE TRACKED
AND REVIEWED AT THE QUARTERLY BUSINESS REVIEW ("QBR"). THIS
NOTIFICATION MUST INCLUDE THE MS ECN#, THE COMPONENT PART
NUMBER AND THE QUANTITY THAT MS IS LIABLE FOR. MS WILL
DETERMINE AND COMMUNICATE IN WRITING WHETHER OR NOT TO SCRAP
ANY RAW MATERIAL OR FINISHED GOODS AND REIMBURSE COMPANY
ACCORDINGLY.
MS intends to remit payment to Company, * or via the autovoucher process, for
all Finished Product Units upon receipt of the advanced ship notice from the
applicable distribution turnkey vendor ("DTV"). All invoices shall be expressed
in Euros. All error-free invoices submitted by Company will be paid within the
payment terms of the Agreement. When invoice discrepancies are found, invoices
will be immediately returned to Company for correction and re-submittal.
Corrected invoices submitted to MS must reflect a revised invoice date (not the
original invoice date). It is in Company's best interest to submit error free
invoices to MS for prompt payment, as invoice errors will delay MS payment to
Company. Microsoft will make payments for services in Euros.
5. FINISHED GOODS TRANSACTION REPORT AND RECEIPTS:
5.1 WHEN PRODUCTION HAS BEEN COMPLETED PER THE MS PURCHASE ORDER,
COMPANY MUST NOTIFY DTV OF THE COMPLETED FINISHED GOODS.
5.1.1 Company will send a * build order report to the DTV .
When finished goods have been built, Company will
provide the DTV with an ASN in accordance with MS
specifications. The DTV plans to scan the product
into its system within * of arrival and send a
receipt confirmation to MS and Company by * . Company
will review the receipt confirmation and resolve any
discrepancies with the DTV within *
5.1.2 Company must notify MS * of any inventory movements
that may require inventory adjustments. Adjustments
include but are not limited to quality issues, cycle
count adjustments, first article sample, rework and
site to site stock transfers.
6. PROCUREMENT:
6.1 COMPANY WILL BE RESPONSIBLE FOR PROCURING ALL RAW MATERIALS
FOR ASSEMBLY. RAW MATERIALS PROCURED MUST MEET MS GLOBAL
QUALITY SPECIFICATIONS FOR FULL PACKAGED PRODUCT. MS MAY AT
TIMES DESIGNATE `APPROVED SUBCONTRACTORS' FOR CERTAIN RAW
MATERIAL COMPONENTS SUCH AS SECURITY COMPONENTS, THIRD PARTY
PIECES AND HARDWARE. WHERE MS HAS MADE SUCH A DESIGNATION IN
RESPECT OF A PARTICULAR RAW MATERIAL COMPONENT, COMPANY SHALL
OBTAIN THAT RAW MATERIAL COMPONENT FROM THE SOURCE THAT HAS
BEEN DESIGNATED BY MS ONLY AND SHALL NOT OBTAIN THAT RAW
MATERIAL COMPONENT FROM ANY OTHER SOURCE WITHOUT THE PRIOR
EXPRESS WRITTEN APPROVAL OF MS. MS MAY AT TIMES SUPPLY RAW
MATERIAL TO COMPANY. COMPANY WILL BE NOTIFIED OF THE APPROVED
SUBCONTRACTORS. ALL RAW MATERIALS THAT COMPANY PROCURES ARE
SUBJECT TO AUDIT WITHOUT NOTICE AT COMPANY'S FACILITY FOR
ADHERENCE TO MS GLOBAL QUALITY STANDARDS FOR FULL PACKAGED
PRODUCT *.
6.2 Pre-Press Work, Engineering, and Die Charges:
These are costs associated with the output of electronic files
to plate ready film, color separations, proofs prototype, die
charges and are not to be calculated in the unit or component
cost of the part.
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<PAGE> 30
These are to be billed on a separate invoice to MS noting the
MS part number to which the costs are related to. Costs
associated with frequently performed services such as
outputting post-script files for manual text, preparing
provided film for plate imposition etc. shall be charged at
agreed to rates. Charges for other more non-standard goods and
services above and beyond agreed rates shall be billed *
provided Company can demonstrate that these charges are
competitive for similar goods and services within the region.
Where these services are provided to or on behalf of Company
by a sub-contractor, approval supplier and/or MS authorised
replicator, Company shall bill MS for these services at the
same rate that Company was charged without additional cost or
mark up.
7. SUBCONTRACTING:
7.1 ANY REFERENCES TO SUBCONTRACTORS IN THIS EXHIBIT SHALL BE
SUBJECT TO THE REQUIREMENTS FOR SUBCONTRACTORS SET FORTH IN
THE AGREEMENT.
8. PRINTING:
8.1 Print and/or Procure:
Company must be capable of printing and/or procuring printed
materials per MS provided specifications and in quantities to
meet MS's finished goods production requirements.
8.2 Print Specifications:
Printed materials must meet the quality standards and
specifications identified in MS Print pecifications and in the
MS Quality Standards. For ongoing business Company will access
all required quality specifications using the Internet on *.
From time to time printed samples may be requested. Company
must supply samples to MS upon request.
8.3 Disposal of Printed Materials:
Company shall, or shall procure that the MS authorised
replicator, replicating printed material on behalf of Company,
shall ensure that all obsolete printed material is shredded
prior to disposal.
8.4 Monitor and Order Artwork For Printing:
It is Company's responsibility to *.
8.4.1 IDENTIFY COMPONENTS:
Company will receive a Bill of Materials (BOM) via
Electronic Delivery Tool (future) or email/fax * in
an Excel spreadsheet. Company will review the MS BOM
and determine whether or not artwork is needed.
8.4.2 TRACK COMPONENTS:
Company must have an internal mechanism to track
outstanding artwork and receipt dates for film. The
purpose of the tracking mechanism is to proactively
monitor whether outstanding artwork will impact
Product builds. It will also provide MS visibility to
ensure that MS deliverables are on schedule for
Product release.
8.4.3 MONITOR MS ARTWORK RELEASE:
Company will receive a * report via email from MS
print release lab. It is Company's responsibility to
monitor the * print release report. This report
notifies Company that the printed components have
been released to manufacturing.
8.4.4 PULLING ELECTRONIC FILES:
It is Company's responsibility to pull the electronic
files using Microsoft's Electronic Delivery Tool
(EDT). Electronic files include: 1-2 color print
components, print specifications, film order forms
(see below) and software images.
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<PAGE> 31
8.4.5 ORDERING FILM:
For film-based components (over 2 colors) it is
Company's responsibility to pull film order forms
from EDT. Once the form is pulled, Company completes
all required information (film requirements, ship-to
address, required delivery date and MS PO# etc.) and
sends the film order via email directly to the
designated film house.
Company (or their print subcontractor) must report
all printed material discrepancies immediately to MS
* using an MS discrepant art report form.
8.5 Registration / License Card Printing:
Company shall have the capability to imprint or have printed
product part numbers; product ID numbers or other MS
identified information on MS registration cards and MS license
agreements.
8.6 CD Component Printing:
Company shall have the capability to print or shall approve a
subcontractor of supply of printed components included in
CD-ROMs. These components shall consistently meet the quality
requirements of MS CD ROM Quality Specifications *. For
ongoing business with MS Company will access all required
quality specifications using the Internet on *.
9. DISK DUPLICATION:
9.1 DUPLICATED DISKS MAY BE PRODUCED OR PROCURED BY COMPANY, AS
SET FORTH IN THE * PO.
9.2 Disk Duplication Capabilities:
Company or Company's duplication subcontractor must be capable
of duplicating diskettes in accordance with the requirements
identified in MS Global Quality standards. Company or
Company's duplication subcontractor duplication equipment must
have the ability to control all aspects of the quality of the
duplication process including image integrity, bit placement,
window margin, and revolutions per minute (RPM) of the drive
spindle.
9.3 Disk Duplication Quality Control:
Company or Company's duplication subcontractor must have *.
*shall be used to ensure that the proper image is being
duplicated.
9.4 Disk Duplication Processes:
Company or Company's duplication subcontractor must have:
9.4.1 A preventive maintenance program or backup
subcontracting program in place capable of preventing
disk-duplicating delays for finished goods
production.
9.4.2 A formal training program must be in place for all
duplication operators and support personnel.
9.4.3 A staff technically capable of supporting all of MS's
duplication requirements within the * production
variability range.
9.4.4 A write and verify process for all duplicated
Product.
9.4.5 The capability to utilize MS DMF, PID and other tools
when necessary.
9.5 Virus Prevention:
To ensure that every possible avenue to prevent MS deliverable
Product from being infected with a computer virus, Company
shall implement the following:
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<PAGE> 32
9.5.1 *
*
9.5.1.1 *
9.5.1.2 *
9.5.1.3 *
9.5.1.4 *
9.5.1.5 *
9.6 Diskette Quality:
Company or Company's duplication subcontractor must perform
quality checks on duplicated disks. Diskettes shall be
duplicated and verified in accordance with the MS Floppy
Diskette workmanship specification (S000257). Company must be
capable of tracking and reporting duplication performance
data.
9.7 Customer Master Disk Handling:
Company or Company's duplication subcontractor must have the
capability of receiving software master images *. Company or
Company's duplication subcontractor shall ensure proper
handling, storage, retrieval and control of the master disk(s)
provided or created to ensure the integrity of the software
images.
9.8 Disk Copy Protection and Serialization:
Company or Company's duplication subcontractor disk
duplication process must be capable of supporting disk copy
protection and *.
9.9 Disk Labeling and Collation:
9.9.1 LABEL IMAGES:
MS will provide all label images *.
9.9.2 LABEL PRINTERS:
Company or Company's duplication subcontractor shall
print *.
9.9.3 LABELERS:
Company or Company's duplication subcontractor's
labeling equipment and/or procedures shall be capable
of consistently meeting or exceeding MS's label
placement specification as described in the *. For
ongoing business with MS Company will access all
required quality specifications using the Internet on
*.
9.9.4 COLLATION:
Company or Company's duplication subcontractor shall
have sufficient and appropriate process equipment to
seal collated disk sets into polyvinyl bags. Company
is responsible for ensuring that collation process
for diskettes meets MS Floppy Diskette workmanship
specification (S000257).
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<PAGE> 33
10. CD REPLICATION:
10.1 CDs MAY BE PRODUCED OR PROCURED BY COMPANY, AS SET FORTH IN
THE * PO. COMPANY OR COMPANY'S CD SUBCONTRACTOR SHALL HAVE
DOCUMENTED PROCESSES AND APPROPRIATE EQUIPMENT TO EFFECTIVELY
PRODUCE CD-ROM'S AND ASSOCIATED CD COMPONENTS WHICH
CONSISTENTLY MEET OR EXCEED THE REQUIREMENTS OF THE MS GLOBAL
QUALITY SPECIFICATIONS FOR CD ROM. COMPANY OR COMPANY'S CD
SUBCONTRACTOR AGREES TO PERFORM ALL REQUIRED MAINTENANCE ON
THE EQUIPMENT AT ITS OWN COST. COMPANY OR COMPANY'S CD
SUBCONTRACTOR SHALL HAVE A SECURE PROCESS AND LOCATION TO HOLD
CD-ROMS AND MATERIAL UNTIL THEY CAN BE RENDERED UNUSABLE OR
RECYCLED. WHEN COMPANY PRODUCES OR PROCURES CDs, THE FOLLOWING
APPLY:
10.2 CD-ROM Production Processes:
Company or Company's CD subcontractor shall have documented
processes for the following:
10.2.1 A preventative maintenance program or backup
subcontracting program in place capable of preventing
delays for finished goods production.
10.2.2 A formal training program in place for all CD
operations (Premastering, Mastering, and Replication)
and support personnel.
10.2.3 A staff technically capable of supporting all of MS's
CD requirements within the * production variability
range.
10.3 CD Handling of CD-ROM Masters:
Company or Company's CD subcontractor shall have documented
procedures in place, which ensure proper handling, storage,
and retrieval of MS supplied CD master files.
10.4 CD Anti-Piracy and * :
Company or Company's CD subcontractor shall be capable of
supporting Anti-Piracy initiatives and * applicable to CD-ROMs
upon MS request.
10.4.1 Company shall procure that the MS authorised
replicator replicating CD-ROMs on behalf of Company
shall maintain records of all PID numbers assigned at
SKU, CD-ROMs set and CD-ROMs assembly level. Company
shall maintain such records in electronic format for
a period of * from the relevant Purchase Order and
shall make such records available to MS within * of a
request from MS. Company shall procure that the MS
authorised replicator replicating CD-ROMs on behalf
of Company shall comply with the provisions of this
Section 10.3.2.
10.4.2 Company shall, and shall procure that the MS
authorised replicator replicating CD-ROMs on behalf
of Company, ensure that PID numbers are always
unique, never duplicated and never misallocated.
10.5 CD-ROM Quality Control:
Company or Company's CD subcontractor shall have a documented
verification process in place to ensure the integrity of the
replicated CD-ROM matches the original supplied by MS. In
addition, Company or Company's CD subcontractor of supply
shall have documented and implemented processes to verify *
parameters which ensure compliance to MS Global
Specifications. Company will access all required quality
specifications using the Internet on *. Company or Company's
CD subcontractor must be capable of tracking and reporting CD
quality data to Ms
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<PAGE> 34
10.6 CD LABEL Screen Printing:
Company or Company's CD subcontractor, should have a process
to receive CD label images *. Process must be established to
ensure the correct label image is applied to the correct CD
title. Processes must prevent any CD's used in the setup of
the print processes *.
10.7 *
11. PRODUCTION:
11.1 Assembly Capability:
If MS demand exceeds Company's capacity and subcontracting is
necessary to meet this demand, MS must be notified prior to
proceeding with off-site builds. The MS Global Quality
Specifications for full packaged Products as stated in the *
directory must be met.
11.2 *
Company shall have the proper equipment to make * for retail
products and shippers in accordance with MS specifications *.
11.3 Shrink-Wrapping:
Company shall be capable of shrink-wrapping all sizes of
Products, in accordance with *.
11.4 Assembly Quality:
Company shall perform in-process and final verifications of
assembled Products to ensure compliance to the MS requirements
and specifications. The standards included in First Article
Inspection Standards for Assembled Product will be used for
initial build of each Product.
11.5 Bundling:
MS may notify Company that a bundling operation is required
and will provide Company with SKU number, quantity and
specific bundling instructions. Company shall provide the MS
Vendor Account Manager (VAM) with a firm fixed price quotation
for the bundling effort within *in sufficient detail to allow
MS to perform an analysis of the major cost elements. The VAM
will provide Company with written authorization to proceed at
the agreed upon price. Company shall be responsible for
bundling the Products in accordance with the MS provided
bundling instructions and submitting an invoice to the VAM at
the agreed upon price. Company may be required to purchase
finished goods and/or raw materials from other Companies to
fulfill the bundling requirement(s).
11.6 Rework:
MS may notify Company that rework is required and will provide
Company with SKU number, quantity and requested completion
date. Company shall provide the MS VAM with a firm fixed price
quotation for the rework effort within *, in sufficient detail
to allow MS perform an analysis of the major cost elements.
The VAM will provide Company with written authorization to
proceed at the agreed upon price. Company shall be responsible
for reworking the Products in accordance with the MS BOM and
submitting an invoice to the VAM at the agreed upon price. A
touch is defined as one activity per component for pricing
purposes.
11.7 Orders Requested Prior to Normal Lead-Time:
There will be situations where MS will request orders to be
built in less than the normal * lead-time. (Please reference
section 4.1 hereof). When MS requests such an order, Company
will reply with at least but not limited to two options. One
option will be the best date based on a non-cost impact to the
production schedule. The second option will be the best date
with additional costs incurred. This will give MS the
opportunity to decide which option best suits the situation.
These orders will be communicated to Company by the MS VAM in
situations where
34
<PAGE> 35
faster Product deliveries are required due to urgent customer
requests. The MS VAM and Company shall mutually agree that the
option taken is acceptable and the MS VAM will provide
authorization to proceed.
11.8 Scrap Process:
Sub-contractors must have written authorization from MS VAM
prior to scrapping and/or disposing of MS finished goods or
components.
12. DELIVERY REQUIREMENTS:
12.1 Preparation:
Company is responsible for making the Finished Product Units
and shipment to the Distribution Center. This preparation
includes ensuring that finished goods are correctly
palletized, shrink-wrapped and ready for transit to the
Distribution Center.
12.2 Pallet Loading:
Company shall adhere to the MS Global specifications for
pallet configuration specifications when stacking Product.
12.3 Finished Goods Handling:
Company shall have proper handling procedures for finished
goods to prevent loss of damage between assembly and pick-up
by the Distribution Center.
12.4 Advance Shipment Notification:
Company is responsible for providing an electronic
notification to the Distribution Center as soon as shipment is
in transit.
12.5 Ship Direct:
On occasion, the manufacturing supplier will be requested to
prepare Product for direct shipment to the distributor. MS
designated carrier will pick up Product for direct shipment.
Company will invoice upon shipment. Upon doing any direct
shipment, company will provide MS with electronic notification
containing all relevant shipment information.
13. REPORTING / COMMUNICATION REQUIREMENTS:
13.1 Manufacturing Delay
*.
13.2 Reporting:
In addition, Company shall provide MS with the reports
specified herein (each a "Report") with respect to all
Products which Company manufactures. All Reports shall be
timely, complete, accurate and comply with generally accepted
accounting principles (where applicable). Each Report, whether
in electronic or paper format, shall meet the standard report
requirements identified for the Report by MS and shall be
delivered *, as specified herein. Company shall use its best
efforts to correct any errors in a Report the next day
following MS's notice specifying the item in respect of which
an error may have occurred. Company shall deliver each Report,
and all supporting documentation therefor, by the time and on
the Business Day specified below. A "Business Day" means each
day on which Company or MS is open for business.
13.3 Company shall provide:
(a) *
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<PAGE> 36
13.4 MS shall provide:
(a) *
14. QUALITY:
14.1 ISO Certification:
Company shall remain ISO certified during the period of the
Agreement.
14.2 Quality Records:
Company shall maintain records of inspection, repairs, reworks
and tests for the term of the Agreement. Records shall be made
available to MS upon request
14.3 *
14.4 *
*
14.5 Environmental Policy
Company shall implement and maintain, and shall procure that
its sub-contractors, approved suppliers and MICROSOFT
Authorised Replicators implement and maintain, an
environmental policy which complies with all applicable
environmental legislation. MS shall be furnished with written
copies of all environmental policies to which this Section
14.6 applies.
15. * MANAGEMENT:
15.1 *
Company will use MS supplied Bill of Materials (BOM's) and
CAD's as a reference to ensure proper assembly of Product as
specified in MS Global Quality Specifications web site *.
Company must inspect and approve all new releases and first
time builds per first article process and shall retain its
inspection records for a period of * and shall retain its
first-off samples for a period of *. Company shall make all
inspection records and first-off samples available to MS
within * of a request from MS.
15.2 Changes TO BOM's and CAD's:
All changes to the configuration of Products will be managed
through the MS Configuration group. Company must manage all
resulting changes to Bills of Material accordingly. Company
may make no changes to Product configuration or content
without written authorization from MS, however, Company is
encouraged to suggest changes that * or the Product. Any
discrepancies between MS's BOM, CAD or Kit and Company's BOM
shall be resolved prior to each build.
15.3 Configuration Record Retention:
Company shall maintain records of * used to assemble Product
for a period of *. All records will be made available to MS
upon request.
16. INFORMATION TECHNOLOGY:
16.1 Infrastructure Requirements:
Company's Facility shall have an infrastructure capable of
supporting a variety of data communications required to
Manufacture Product. This includes the ability to connect to
MS's
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<PAGE> 37
external network. External network connections will be used to
transfer information about Product builds.
16.2 ELECTRONIC DATA INTERCHANGE (EDI):
The following EDI transactions may be required for ongoing
business with MS:
(a) 846 Inventory Advice
(b) 850 Build PO
(c) 856 Pre-Receipt Notification (ASN)
(d) 888 SKU Master Update
(e) 944 Receipt Advice
(f) Advanced Ship Notice (EDI 856)
(g) PO Receipt (EDI 861)
16.3 Technical Personnel:
The information technology requirements outlined above are
deemed mission critical. Company shall have in-house or
readily available technical support at Company's Facility.
These Company personnel will work with MS personnel to ensure
that the Facility is properly set up to communicate with MS.
MS will work with Company to establish competency with any
non-commercially available MS-specific software that may be
used in the operation. Company will be responsible for
on-going training of replacement or additional personnel used
to support the operation.
16.4 Data Exchanges:
Data exchanges will be required throughout the term of the
Agreement. Exchanges will occur primarily through * and may
include, but are not be limited to, * and routine information
required to Manufacture Product. EDI capability is desired but
is not required at startup of Company operation. MS may
support EDIFACT transactions in the future.
16.5 System Alternatives:
MS may wish to employ any or all of the following system
alternatives:
(a) *
(b) *
(c) *
(d) *
16.6 *
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<PAGE> 38
17. MANAGEMENT:
17.1 Meetings and Reviews:
Company will meet with designated MS team * for business
reviews. These meetings will include a Company performance
review, pricing reviews, continuous improvement projects,
management status reviews, cost reduction initiatives and
other operational areas and issues. * business reviews (QBR)
may be held at Company's Facility, MS's facility or by video
teleconference (VTC).
17.2 Metrics:
Unit Fill Rate%: Goal = *
Number of actual units completed on or before the p.o. due
date, divided by total number of units ordered
Line Fill Rate%: Goal = *
Number of lines completed at *% on or before the p.o. due
date, divided by total number of lines on the p.o. .
(NOTE: Lines with orders exceeding * units count as completed
if filled at *% or greater. Lines with order quantities of
less than * units need to be filled at *%).
EXAMPLE: If you have a PO for * line items for * units each,
and * of the * lines shipped the * units, but the * line item
shipped * units only - the Unit Fill Rate = *% (*) Line Fill
rate = *% (*). No credit would be given for the * line. If *
lines out of the * lines shipped * units = Line Item Fill Rate
= *%.
DPPM
Applies to functional errors only. Goal: *
18. MICROSOFT GLOBAL SPECIFICATIONS:
18.1 MICROSOFT GLOBAL SPECIFICATIONS FOR RETAIL FULL PACKAGED
PRODUCTS INCLUDE WORKMANSHIP AND ENGINEERING SPECIFICATIONS.
FOR ONGOING BUSINESS WITH MS, THE SELECTED COMPANY(S) WILL
ACCESS ALL REQUIRED QUALITY SPECIFICATIONS USING THE INTERNET
ON *. WORKMANSHIP AND ENGINEERING SPECIFICATIONS ARE AVAILABLE
ONLINE AT *. CHANGES TO * WILL BE COMMUNICATED MONTHLY TO
COMPANY AND AS MAJOR REVISIONS OCCUR.
19. COMMON MICROSOFT ACRONYMS:
(a) BOM Bill of Materials
(b) CAD Computer Aided Drawing
(c) COGS Cost of Goods Sold
(d) CSP Customer Service Pack's
(e) DC Distribution Center
38
<PAGE> 39
(f) DMF Distributed Media Format
(g) DTV Distribution Turnkey Vendor
(h) ECD Engineering Change Date
(i) ECN Engineering Change Notice
(j) ECR Engineering Change Request
(k) EDI Electronic Data Interchange
(l) EDT Electronic Delivery Tool
(m) FINOPS Financial Operations
(n) ISO International Organization of Standards
(o) ITG Microsoft Information Technology Group
(p) MLP Microsoft License Pack's
(q) MS Microsoft
(r) MTV Manufacturing Turnkey Vendor
(s) NDA Non-Disclosure Agreement
(t) PDM Product Data Manager
(u) PID Product Identifier
(v) PO Purchase Order
(w) RMA Returned Merchandise Authorization
(x) UPC Universal Product Code
(y) VAM Vendor Account Manager
39
<PAGE> 40
EXHIBIT B
PRICE AND PAYMENT TERMS
PRICE AND PAYMENT TERMS FOR PRODUCT COMPONENTS
(i) During the term of this Agreement, MS will issue
* Purchase Orders (P.O.'s) for Product Components to StarTek
on each *. Each P.O. so issued shall require delivery of the
Product Components within * of the P.O. date. If assembly
services are also ordered (see Exhibit C) as part of the P.O.,
each P.O. so issued shall require delivery of the Product
Components so ordered as part of the finished Products within
* of the P.O. date. All receipts to the P.O. entered by the
Shipping Location by close of business * will be paid via the
MS autovoucher process.
(ii) For each P.O. issued under this Agreement for
Product Components, MS agrees to pay StarTek a per Product
Component price (e.g., per each Jewel Case Component ordered)
to be calculated as follows:
*
Per Product Component Price =
*
(iii) *
Definitions:
* *
* *
* *
* *
* *
* *
* *
* *
(iv) StarTek may be required to produce Product
Components for new MS Product SKUs at any time during the term
of this Agreement. Pricing for any such Product Components
will be determined by using the formula set forth in Section 2
above. StarTek agrees to make all reasonable effort to provide
MS with Product Component pricing for new MS Product SKUs
within * of receiving the MS Product SKU specification and BOM
information from MS.
(v) From time to time BOM changes occur that may add
or delete components from the MS Product SKU. These additions
or deletions to the MS Product * shall be reflected
accordingly in the material and labor *.
40
<PAGE> 41
EXHIBIT C
INSURANCE
This Exhibit "C" is a continuation of that certain Manufacturing Agreement dated
_______________ between MICROSOFT IRELAND OPERATIONS LIMITED ("MICROSOFT") and
StarTek Inc. ("STARTEK"). Capitalized terms not otherwise defined in this
Exhibit shall have the same meaning as set forth in the Agreement to which this
document is an Exhibit.
1. INSURANCE
Prior to the commencement of the work to be performed hereunder and
throughout the entire period of performance by STARTEK, STARTEK shall
procure and maintain insurance coverage as will reasonably respond to
claims and liabilities that STARTEK may encounter in the course of its
business. Such insurance shall be in a form and with insurers
acceptable to MICROSOFT, and shall comply with the following minimum
requirements:
1.1 Insurance for loss or damage to property.
STARTEK shall obtain and maintain "All Risks" Property
Insurance and marine insurance coverages covering it's
liability for loss or damage to Products and any Microsoft
property as detailed in Section 11 of this Agreement in its
possession or control, including but not limited to loss or
damage that results from the fraudulent, dishonest, or
criminal acts of STARTEK, its subcontractors, or employees of
STARTEK and its subcontractors. Such policies shall be written
with insurers and on policy forms reasonably acceptable to
MICROSOFT and shall provide limits adequate to cover the full
value of Product(s) at risk, and proceeds of such policies
shall be payable in *. STARTEK shall cause its insurers to
endorse the policies as follows:
a) MICROSOFT shall be named as loss payee to the extent
of MICROSOFT's interest in Product(s),
b) coverage provided by the policy shall be primary to
and not contributory with coverage maintained by
MICROSOFT,
c) rights of subrogation against Microsoft are to be
waived, and
d) such policy may not be canceled or materially altered
to the detriment of MICROSOFT * advance notice to
MICROSOFT.
1.2 Comprehensive General Liability.
STARTEK shall obtain and maintain a policy of "general",
"public", or "commercial" liability insurance written on an
"occurrence form" with limits of not less than * each
occurrence for bodily injury and property damage. The policy
shall provide coverage for worldwide defense, premises and
operations, contractual liability (including specifically the
insurable contractual liability assumed in this Agreement) and
products and completed operations. THE POLICY SHOULD NOT
EXCLUDE COVERAGE FOR THE LATERAL SUPPORT, UNDERGROUND,
EXPLOSION OR COLLAPSE HAZARDS.
MICROSOFT AND ITS DIRECTORS, OFFICERS AND EMPLOYEES, ARE TO BE
INCLUDED UNDER SUCH POLICY AS ADDITIONAL INSUREDS TO THE
EXTENT OF CONTRACTUAL LIABILITY ASSUMED BY STARTEK IN THIS
SECTION 1.2, WITH COVERAGE TO BE PRIMARY AND NOT CONTRIBUTORY
WITH ANY COVERAGE MAINTAINED BY MICROSOFT OR ON BEHALF OF
MICROSOFT. THE POLICY SHALL CONTAIN A SEVERABILITY OF
INTERESTS PROVISION IN FAVOUR OF THE ADDITIONAL INSUREDS.
1.3 Workers' Compensation/Health and Safety Laws and Regulations.
STARTEK shall at all times comply to the full extent with all
applicable workers' compensation, occupational disease and
occupational health and safety laws, statutes and regulations
to the full
41
<PAGE> 42
extent applicable and shall indemnify and keep MICROSOFT
indemnified against all claims, judgements, decrees, orders,
awards, costs, liabilities and expenses howsoever arising
under or by virtue of such laws, statues and regulations.
1.4 Employers Liability.
STARTEK, in addition to complying with the provisions of
Section 1.3 above, shall maintain coverage for employers
liability with a policy limit of not less than *.
1.5 Automobile Liability
If vehicles will be used in connection with the performance of
the Services, STARTEK shall maintain automobile liability
insurance covering all owned, rented, and non-owned vehicles
operated by STARTEK with policy limits of not less than * per
accident for property damage and unlimited liability per
accident for bodily injury. MICROSOFT and its directors,
officers and employees are to be included as additional
insureds in such policy, with coverage to be primary and not
contributory with any coverage maintained by MICROSOFT or on
behalf of MICROSOFT. The policy shall contain a severability
of interests provision in favour of the additional insureds
1.6 Property Insurance
STARTEK shall obtain and maintain a policy of "All Risks"
property insurance in respect of its buildings, premises,
plant, machinery, equipment and stock with policy limits of
not less *.
1.7 General Requirements Applicable to All Above Coverages -
Any deductible or retention in excess of * per
occurrence or accident under any of the
above-required coverages shall be subject to the
approval of MICROSOFT prior to the commencement of
the Services.
(b) All deductibles and premiums associated with the
above coverages shall be the responsibility of
STARTEK.
(c) If in the opinion of MICROSOFT the amount of
liability coverage is not adequate by reason of
inflationary pressures or experience or the nature
and content of STARTEK activities, STARTEK shall
increase the insurance coverage as required by
MICROSOFT.
(d) At the request of Microsoft, STARTEK shall provide to
MICROSOFT, or make available for MICROSOFT review,
certified copies of the insurance policies required
herein.
(e) The use of umbrella or excess liability insurance to
achieve the above required liability limits shall be
permitted by MICROSOFT, provided that such umbrella
or excess insurance results in the same type and
amounts of coverage as required under the required
individual policies identified above.
(f) It is the intent of MICROSOFT that the above
insurance requirements will assure adequate resources
for victim compensation and will serve to minimise
its involvement and liability arising out of
performance of this Agreement by STARTEK.
1.8 Sub-Contractors
If STARTEK sub-contracts part of the Services to a third party
pursuant to the provisions of Section 5(a) and Section 16(a),
then STARTEK must ensure before such third party commences to
perform those Services that such third party has, and will
maintain in force for the period that they are so engaged as
sub-contractor by STARTEK, insurance cover and insurance
policies with equivalent limits and on the same terms as
specified in this Exhibit C. In the event that any such third
party does not have such insurance cover and/or insurance
policies in place, STARTEK shall
42
<PAGE> 43
indemnify and hold harmless MICROSOFT and its directors,
officers and employees from any and all loss arising.
1.9 Certificates of Insurance
Prior to the commencement of the Services, STARTEK shall
provide to MICROSOFT certificates of insurance evidencing full
compliance with the insurance requirements contained herein.
Where STARTEK sub-contracts part of the Services to a third
party pursuant to Section 5(a) and Section 16(a), STARTEK
shall provide to MICROSOFT certificates of insurance
evidencing full compliance by such third party with the
insurance requirements specified in this Exhibit C. All such
certificates shall be kept current throughout the entire
period of performance, and shall provide for at least *
advance notice to MICROSOFT if the coverage is to be cancelled
so as not to comply with the foregoing requirements.
Where such insurance is to:
(1) include MICROSOFT as an additional insured,
(2) waive rights of subrogation, be indicated to
be primary to and not contributory with
insurance maintained by MICROSOFT or on
behalf of MICROSOFT and/or,
(4) contain a severability of interests
provision in favour of MICROSOFT,
the certificate shall expressly reflect in writing that the
policy contains language or endorsements that assure the
insurer's acceptance of such requirements.
FAILURE BY STARTEK, TO FURNISH CERTIFICATES OF INSURANCE OR
FAILURE BY MICROSOFT TO REQUEST SAME SHALL NOT CONSTITUTE A
WAIVER BY MICROSOFT OF THE INSURANCE REQUIREMENTS SET FORTH
HEREIN. IN THE EVENT OF SUCH FAILURE ON THE PART OF STARTEK OR
ITS PERMITTED SUB-CONTRACTORS TO PROVIDE THE CERTIFICATES AS
REQUIRED HEREIN, MICROSOFT EXPRESSLY RESERVES THE RIGHT TO
ENFORCE THESE REQUIREMENTS, AND IN THE EVENT OF LIABILITY OR
EXPENSE INCURRED BY MICROSOFT AS A RESULT OF SUCH FAILURE BY
STARTEK OR ANY PERMITTED SUB-CONTRACTOR, STARTEK HEREBY AGREES
TO INDEMNIFY MICROSOFT FOR ALL LIABILITY AND EXPENSE
(INCLUDING REASONABLE ATTORNEY'S FEES AND EXPENSES ASSOCIATED
WITH ESTABLISHING THE RIGHT TO INDEMNITY), INCURRED BY
MICROSOFT AS A RESULT OF SUCH FAILURE BY STARTEK OR ITS
PERMITTED SUB-CONTRACTORS.
43
<PAGE> 44
EXHIBIT D
REQUIRED TAX INFORMATION
During the term of this Agreement, StarTek agrees to provide MICROSOFT with such
information, as mutually agreed upon between the parties, that MICROSOFT
determines necessary for tax compliance and statutory reporting purposes. Such
information shall include, but may not be limited to the following:
A listing of all transactions, showing for each invoice:
- Invoice Number
- Date of Invoice
- Purchase Order Number(s)
- Total Charges Before *
- *
- Total Amount Due
The data provided in electronic format should agree with the information shown
on actual invoices issued to MICROSOFT.
If there are any transactions that are exempt from *, such transactions should
be reported separately (but the information required will still be listed as set
forth above, except that *).
44
<PAGE> 45
EXHIBIT E
APPROVED SUBCONTRACTOR LIST
45
<PAGE> 46
EXHIBIT F
CONFIDENTIALITY AGREEMENT
StarTek
[to be addressed to StarTek]
Dear Sirs
As [an employee], [agent], [sub-contractor], [consultant] [insert as
appropriate] of [Insert here name of StarTek] ("COMPANY") I acknowledge that I
may have direct or indirect access to, or that there may be disclosed or
released to me, information ("the Confidential Information") in relation to:-
*
Now in performance of the duties owed by me to COMPANY and in consideration of
the sum of * now paid to me by COMPANY (receipt whereof I hereby acknowledge) I
hereby undertake to and covenant with COMPANY that throughout the period of my
[employment], [agency], [sub-contractorship], [consultancy] [insert as
appropriate] and thereafter until such time as a written release shall have been
received by me from COMPANY in respect of this undertaking:-
(i) I will not at any time publish or disclose or permit to be published or
disclosed or make available to any person or permit to be made
available to any person any Confidential Information;
(ii) I shall treat in the strictest confidence all notes, memoranda,
documents, records and writing made, received or obtained by me
incorporating or recording any Confidential Information and these shall
be and remain the property of Microsoft Ireland Operations Ltd or
Microsoft Corporation or any of its or their affiliates (as the case
may be) and shall be delivered by me to Microsoft Ireland Operations
Ltd or Microsoft Corporation or any of its or their affiliates (as the
case may be) forthwith upon request;
(iii) in the event that any or all of COMPANY, Microsoft Ireland Operations
Ltd or Microsoft Corporation or any of its or their affiliates shall
have obtained any confidential or secret information from any third
party under an arrangement, agreement or obligation that includes any
restriction or obligation of non-disclosure of which I am or ought to
be aware I shall not without the prior specific consent of COMPANY,
Microsoft Ireland Operations Ltd or Microsoft Corporation or any of its
or their affiliates (as the case may be) at any time infringe such
restriction or obligation or do or permit to be done any act or suffer
any omission which would or may result directly or indirectly in
COMPANY, Microsoft Ireland Operations Ltd or Microsoft Corporation or
any of its or their affiliates (as the case may be) being in breach of
such restriction or obligation.
I hereby acknowledge and agree that each of the covenants contained above
constitutes an entirely separate and independent restriction on me and is
separate and severable and enforceable accordingly and that the duration, extent
and application of each of the covenants is no greater than is reasonably
necessary for the protection of the legitimate interests of COMPANY, Microsoft
Ireland Operations Ltd or Microsoft Corporation or any of its or their
affiliates and accordingly if any of the restrictions shall be adjudged by any
court of competent jurisdiction to be void or unenforceable but would be valid
and enforceable if part of the wording thereof was deleted and/or the period
thereof reduced and/or the geographical area or application thereof reduced in
scope, such restriction shall apply within the jurisdiction of that court with
such modifications as may be necessary to make it valid, effective and
enforceable.
I further acknowledge and agree that the benefit of each of the provisions of
this Agreement be and is hereby made available to each of Microsoft Corporation
and Microsoft Ireland Operations Ltd to the intent that each of them shall be
entitled in its own name and in its own right to require of me the due
performance of each such provision as aforesaid.
46
<PAGE> 47
SIGNED SEALED AND DELIVERED
by [Insert name of employee, agent, sub-contractor or consultant (as
appropriate)]
on the day of 199
47
<PAGE> 1
Exhibit 21.2
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME OF STATE OF SUBSIDIARIES
SUBSIDIARIES INCORPORATION ARE DOING BUSINESS AS
------------ ------------- ---------------------
<S> <C> <C>
StarTek USA, Inc.(a)
(formerly named StarPak, Inc.) Colorado StarTek Teleservices, Inc.
StarTek Technical Services, Inc.
StarTek Internet, Inc.
StarTek, Inc.
StartPak, Inc.
StarTek Europe, Ltd.(a)
(formerly named StarPak International, Ltd.) Colorado StarPak, Inc.
StarPak International, Ltd.
StarTek Pacific, Ltd.(a) Colorado StarTek Pacific, Ltd.
Domain.com, Inc.(a) Delaware Domain.com, Inc.
Good Catalog Company(b) Delaware gifts.com
</TABLE>
- -------------------------------------
(a) Wholly owned subsidiary of StarTek, Inc.
(b) 19.9% owned by Domain.com, Inc., a wholly owned subsidiary of StarTek, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Amendment No. 1 to the
Registration Statement (Form S-8 No. 333-77009) pertaining to the StarTek, Inc.
Stock Option Plan and the StarTek, Inc. Director Stock Option Plan of our report
dated February 11, 2000, with respect to the consolidated financial statements
of StarTek, Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 1999.
ERNST & YOUNG LLP
Denver, Colorado
March 8, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1999 INCLUDED IN STARTEK, INC'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 11,943
<SECURITIES> 23,907
<RECEIVABLES> 22,567
<ALLOWANCES> 775
<INVENTORY> 3,740
<CURRENT-ASSETS> 64,193
<PP&E> 38,810
<DEPRECIATION> 12,052
<TOTAL-ASSETS> 101,435
<CURRENT-LIABILITIES> 23,979
<BONDS> 5,964
0
0
<COMMON> 140
<OTHER-SE> 70,906
<TOTAL-LIABILITY-AND-EQUITY> 101,435
<SALES> 0
<TOTAL-REVENUES> 205,227
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 166,880
<LOSS-PROVISION> 334
<INTEREST-EXPENSE> 332
<INCOME-PRETAX> 20,823
<INCOME-TAX> 7,800
<INCOME-CONTINUING> 13,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,023
<EPS-BASIC> 0.94
<EPS-DILUTED> 0.92
</TABLE>
