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Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 1 of 105
IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF COLORADO
Civil Action No. 05 -cv-01265 -PSF-MEH(Consolidated with 05-cv-01344-PSF-MEH)
WEST PALM BEACH FIREFIGHTERS' PENSION FUND,On Behalf of Itself and All Others Similarly Situated,
Plaintiff,
v.
STARTEK, INC., et al.,
Defendants.
PLAINTIFFS' CONSOLIDATED COMPLAINT FOR VIOLATIONS OF THEFEDERAL SECURITIES LAWS
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 2 of 105
TABLE OF CONTENTS
Page
INTRODUCTION ...........................................................................................................................1
SUMMARY OF THE ACTION ......................................................................................................5
JURISDICTION AND VENUE .................................................................................................... 22
THE PARTIES ...............................................................................................................................22
FACTS RAISING A STRONG INFERENCE OF SCIENTER ....................................................27
INSIDER SELLING ......................................................................................................................44
DEFENDANTS' FALSE AND MISLEADING STATEMENTS AND OMISSIONSDURING THE CLASS PERIOD ...................................................................................... 50
LOSS CAUSATION/ECONOMIC LOSS ....................................................................................93
FIRST CLAIM FOR RELIEF .......................................................................................................95
Against Defendants Meade, McKenzie, Stephenson and Morgan for Violation of§ 11 of the Securities Act ........................................................................................95
SECOND CLAIM FOR RELIEF ..................................................................................................97
Against the Individual Defendants for Violations of § 15 of the Securities Act ................97
THIRD CLAIM FOR RELIEF ......................................................................................................97
Against All Defendants for Violation of § 10(b) of the Exchange Act and RulelOb-5 ......................................................................................................................97
FOURTH CLAIM FOR RELIEF ................................................................................................100
Against All Defendants for Violation of §20(a) of the Exchange Act ............................100
CLASS ACTION ALLEGATIONS ............................................................................................100
PRAYER FOR RELIEF ..............................................................................................................101
JURY DEMAND .........................................................................................................................102
- i -
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 3 of 105
INTRODUCTION
1. This is a securities class action on behalf of all persons who purchased or otherwise
acquired the common stock of StarTek, Inc. ("StarTek or the "Company or "SRT ) between
February 26, 2003 and May 5, 2005 (the "Class Period ) for violations of §§11 and 15 of the
Securities Act of 1933 (the "Securities Act ), §§10(b) and 20(a) of the Securities Exchange Act of
1934 (the "Exchange Act ) and Rule 1Ob-5 promulgated by the Securities and Exchange
Commission ("SEC ). The defendants are StarTek, A. Emmet Stephenson, Jr. ("Stephenson ), co-
founder and Chairman of the Board of the Company, and his wife Toni Stephenson and sister
Pamela S. Oliver (who together beneficially owned approximately 66.3% of the stock of the
Company, elected the entire Board of Directors and controlled the Company), Michael Morgan
("Morgan ), the other co-founder and Vice Chairman of the Board, William E. Meade ("Meade ),
the CEO, and Eugene L. McKenzie , Jr. ("McKenzie ), the CFO of the Company.
2. By issuing false statements about strong existing demand for StarTek's outsourced
services from four of the Company 's customers (that accounted for 90% of revenue), the
Company's healthy sales pipeline , and the completion ofa management transition and restructuring
plan, defendants artificially inflated StarTek's stock price from $23 on February 25, 2003 the day
before the start of the Class Period to over $36 on August 18, 2003. Defendants took advantage of
this artificial inflation and unloaded 85,800 shares of StarTek stock between August 19, 2003 and
September 17, 2003, reaping over $3.1 million in insider trading proceeds . On the heels of these
sales , in October 2003, defendants represented that "to handle the increased demand from its
targeted markets, StarTek had opened several new telecommunication facilities. One month later,
defendants said that "[d]emand for these services now appears to be larger than we previously
-1-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 4 of 105
expected, which requires opening a fourth new facility this year to keep up. In response to this
statement, StarTek's stock climbed over 3.6% to $34.41 per share. In November, the StarTek Board
of Directors declared an increase in its quarterly cash dividend to $0.37 per share, payable
November 25, 2003. Stephenson said that "StarTek 's business grew significantly during the
September quarter as previously opened facilities ramped up on time and within budget. In
response to defendants' highly positive but false statements, StarTek's stock price increased to over
$40 in December 2003. Defendants again took advantage ofthis higher stock price and sold 79,400
shares of their StarTek stock between November 6, 2003 and January 9, 2004, for an average price
of over $41 per share for insider trading proceeds of over $3.2 million.
3. But defendants faced serious obstacles to selling offmore oftheir own StarTek stock
because restrictions under SEC Rule 144 sharply limited the number of "unregistered shares
StarTek's insiders could sell into the open market. To take advantage of the artificial inflation in
StarTek's stock and circumvent SEC Rule 144 volume restrictions on stock sales, defendants
decided to undertake a large SEC-registeredpublic offering ofmillions ofshares ofStarTek stock.
On February 17, 2004, StarTek filed a Registration Statement for a pubic offering of 3.2 million
shares (the "Public Offering ) with a proposed maximum aggregate value of $146.5 million to be
received by the selling shareholders.
4. But after StarTek filed its Registration Statement with the SEC for the Public
Offering, Cingular announced that it was acquiring AT&T Wireless Services , Inc. ("ATT ),
jeopardizing the Public Offering. To salvage the Public Offering and complete their insider bailout,
defendants caused StarTek to renegotiate its contract with ATT and told investors in a revised S-3
filed on April 13, 2004, that StarTek's contract with ATT was extended until December 31, 2006,
-2-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 5 of 105
and was not subject to termination for convenience or without cause. But defendants failed to
disclose that StarTek was forced to drastically reduce its pricing in return for the contract
extension . This enabled StarTek's insiders to complete an insider bailout, selling offa total of over
5.3 million shares of their StarTek stock during the Class period and pocketing $175 million in
illegal insider tradingproceeds.
5. On February 18, 2005, StarTek issued a press release entitled "StarTek, Inc.
Announces Management Change, which stated that defendant Meade had resigned as President and
Chief Executive Officer of the Company. Analysts were stunned and StarTek's stock dropped
almost 24% from $25.75 to $19.60 per share because the market believed that Meade's ouster
confirmed earlier reports that StarTek's earnings would be weak and that the Company 's sales
pipeline was not as strong as investors were led to believe. The next day, StarTek's stock dropped
another 4.8% to $18.65. The market's fears were realized on March 3, 2005, when StarTek
disclosed that "[f]ully diluted earnings per share including discontinued operations decreased by
44% to $0.30, compared to $0.54 for the same period in 2003.
6. Defendants explained that "[t]he gross margin decline of 9.7% points from 29.7% to
20.0%, was largely the result of greater costs from the launching of new call center capacity to
handle anticipated volume growth that materialized at lower levels than our clients forecasted,
continuing decreases in revenue and margins in our supply chain management platform, and
increased volume billed at lower agent rates due to our tiered incentive pricing model. In other
words, Startek's revenues declined because StarTek was forced to drastically reduce its pricing in
return for the contract extension with ATT. After this news , StarTek stock continued to fall from
-3-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 6 of 105
almost $18 on March 2, 2005 to $15.54 on April 8, 2005. However, the stock continued to be
inflated during the remainder of the Class Period.
7. Then, on May 6, 2005, StarTek announced that its first quarter 2005 "earnings per
share from continuing operations decreased ... to $0.18 compared to $0.49 for the first quarter of
2004. The Company also announced that its revenues declined 14.2% from the same period in
2004. On this news, StarTek's stock price fell over 18% from a closing price on May 5, 2005 of
$15.20 to $12.40 per share on May 6, 2005, as shown by the following chart:
-4-
StarTek Inc.Daily Share Pricing: January 2, 2003 to April 21, 2005
a^cat
d
ca00
$45
$40
$35
$30
$25
$20
$15
$10
Insider Sales : isiders sell,370,000 sharE)r $144.210,00
Shares Sold: 5,370,475Proceeds : $175,576,264
cider.75,275,%.
d` 'V) UOI,L
Isider sells9,400 shares ^•r $3,264,4'
3126/04 - 3/29104M 7102 nsider sells V
slaers sell30,000 shares fo
85,800 sharps f,,52,078,2
X3,129,66'
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Class Period : 2/26/03 - 3/3/05
01/02/2003 04/04/2003 07/08/2003 10/07/2003 01/08/2004 04/12/2004 07/14/2004 10/13/2004 01/13/2005 04/18/200502/19/2003 05/21/2003 08/21/2003 11/20/2003 02/25/2004 05/26/2004 08/27/2004 11/29/2004 03/02/2005
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Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 8 of 105
SUMMARY OF THE ACTION
8. Prior to its initial public offering in June 1997 (the "IPO ), all of the outstanding
capital stock ofthe Company was owned or controlled by Stephenson, Chairman ofthe Board ofthe
Company, and his family . Even after the IPO, Stephenson and his family beneficially owned
approximately 66.3% ofthe common stock ofthe Company. As a result, Stephenson and his family
were able to elect the entire Board of Directors and control the Company.
9. On June 19, 1997, StarTek completed its IPO at $15 per share. In the IPO, StarTek
sold 3 million shares for net proceeds of $41.9 million, but insiders sold only 666,667 of the more
than 4.6 million StarTek shares they held for net proceeds of $9.3 million. Thus, they were very
focused on the stock's performance. During 2000, StarTek's stock fell from a high of $74 per share
to a low of about $12 per share. In 2001, StarTek's average trading price was about $18 per share.
This was of great concern to StarTek' s insiders who had only sold a small percentage of their
personal holdings up to this point and had a material part oftheir net worth tied up in StarTek stock.
10. As a result of StarTek's poor stock price performance, in June 2001, co-founder and
CEO Michael Morgan was replaced by Meade and Morgan was named Vice-Chairman ofthe Board.
Then the CFO, Dennis Swenson, "retired and was replaced by David Rosenthal in August 2001.
Meade and Rosenthal instituted a number ofchanges. Meade and Stephenson explained in StarTek's
2002 Annual Report that "[f]rom a management and infrastructure perspective, 2002 was a year of
great transition in which we added many new people and retained key talent in the organization.
These personnel additions and creation of two new functions were designed to strengthen and
deepen our relationships with existing and new clients and are important components of our future
-5-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 9 of 105
strategic direction. Despite these changes, in 2002, StarTek's stock price averaged only
approximately $23 per share.
11. In desperation , defendants began to issue highly positive but false statements
concerning existing demand for its services and the sales pipeline for new contracts in order to push
StarTek's stock price to much higher levels. For example, at the start of the Class Period on
February 26, 2003, Stephenson said in a press release : "This month we have announced the opening
oftwo new facilities ... to handle growing demand for our superior outsourced services. Although
expenses will increase this quarter related to the start up of these operations, the demand for this
additional capacity brightens the outlook for more growth in future quarters. Based upon these
positive statements, StarTek's stock increased over 4% to $24 per share, because the market believed
that StarTek opened the new facilities in response to strong existing demand. Indeed, defendants
told the market that StarTek "leveraged capacity very, very effectively, we're not in a ... we will
build and hope they come type ofenvironment... [B]ecause ofour conservative nature ... you
could bepretty much assured that somewhere right behind that there is a client in thepipeline. So
that's the best leading indicator ofour capacity and how the capacity relates to growth . In fact,
the opposite was true. StarTek opened new facilities not to service existing demand for current
customers, but in the vain hope that demand would materialize in the future. And defendants knew
that there was not sufficient future demand to fully utilize these new facilities because StarTek's
customers were contractually obligated toprovide a twelve month, rolling call volume forecast, and
a monthly daily call volume forecast. Defendants later admitted: "We launched three new call
centers in anticipation ofa lotgreater volume, with a couple ofthe clients that we signed lastyear.
That didn't materialize last year ....
-6-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 10 of 105
12. Defendants also told investors that the problems that plagued the Company in 2000-
2001 were fixed and behind the Company. For example, Meade and Stephenson explained in
StarTek's 2002 Annual Report distributed in late February 2003 that "[t]he management transition,
redirection, and refocus is largely complete. The new team is in place to implement against our
strategic plan, and we are optimistic about our potential. Unfortunately for investors these
statements were false. Indeed, Near the end of the Class Period, on March 3, 2005, defendants
admitted that StarTek was forced to hire another new head of sales in October 2004 who completely
revamped the sales force during the course of the fourth quarter, and during January 2005. And at
the end of the Class Period, defendants admitted that "the sales team that's in place today is still
fairly new. Most of them came on board November, December, January time frame. The
management transition was not largely complete. In fact, the sales force was in complete disarray
and the Company was still in the process ofhiring key executives . There were only two sales reps at
StarTek who had been with the Company for the long-term, and over 17 sales reps came and went.
Four different people held the top sales position at StarTek, Senior VP of Sales , during the Class
Period. StarTek created the SVP of Sales position in October 2000, when it hired Michael Burke to
assume this position . Burke remained StarTek's SVP of Sales for just under two years. Following
Bill Meade's appointment as StarTek's new CEO in May 2001, Meade undertook an effort to bring
in a senior management team with more experience in the teleservices industry. This management
restructuring led Meade to fire Burke as SVP of Sales around September 2002 and to hire Blake
Willardsen as StarTek's new SVP of Sales in June 2003. In the eight months between Burke's
departure and Willardsen ' s hiring, CEO Bill Meade served as Acting SVP of Sales in addition to his
role as the company's CEO. Willardsen only lasted in the position of SVP of Sales for 10 months,
-7-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 11 of 105
and he left StarTek in early April 2004. From April 2004 to October 2004, StarTek had no SVP of
Sales, and thus no sales leadership for its Business Process Management ("BPM ) (teleservices)
division that the Company was heavily relying on to generate new accounts and corresponding
revenues to meet forecasted revenues and earnings during 2004. It was not until six months after
Willardsen's April 2004 departure that StarTek hired Michael Griffith as StarTek's new SVP of
Sales. StarTek never informed the public that it had lost Willardsen as its SVP of Sales six months
earlier, or of the fact that there was no sales leadership during the second or third quarters of 2004.
In fact, it did not publicly announce that it had retained Griffith as its new SVP of Sales in October
of 2004, until March 3, 2005, during an investor and analyst conference call.
13. The crux of the management restructuring effort that Meade initiated after being
appointed CEO in May 2001, and which Meade represented throughout the Class Period was
facilitating improved cost efficiencies and increased sales revenues, was to bring in a new senior
management team with more experience in the teleservices industry. However, none of Meade's
new hires had prior teleservices experience, and there was a significant amount of turnover at the
executive level. Meade himselfhad no prior teleservices industry experience, havingjoined StarTek
after two years as President and CEO of WebMiles, a "customer loyalty startup, and 13 years in
several business development positions with American Express . Among the new hires Meade made
during the Class Period were SVP of Sales Blake Willardsen in June 2003 , COO Lance Zingale in
June 2002, and CFO David Rosenthal in August 2001. Willardsen came to StarTek from a company
called Duexo, which was a provider of automated marketing and sales process applications wholly
unrelated to teleservices. Willardsen had been with Deuxo for only a year before joining StarTek.
Prior to Deuxo, Willardsen worked for a year with No Magic, a software modeling tool company.
-8-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 12 of 105
Before No Magic, Willardsen held marketing and sales positions in the customer relationship
management, enterprise resource planning, and financial planning industries.
14. Willardsen only served as StarTek's SVP of Sales for ten months, leaving in early
April 2004. StarTek did not hire a replacement for Willardsen until October 2004, and thus went
without a SVP of Sales for two critical quarters during the Class Period. Additionally, Meade hired
Lance Zingale to be StarTek's COO in June 2002. Zingale came to StarTek after three years at
Stonehenge Telecom and several years with AT&T before Stonehenge . While Zingale had some
telecommunications industry experience, he did not have exposure in these prior positions to the
business process outsourcing services industry that SRT is in. Zingale left StarTek in September
2005. Meade also hired David Rosenthal as StarTek's CFO in late August 2001. Rosenthal's prior
experience was as CFO ofCelestial Seasonings , a seller ofherbal teas , and as CFO ofHauser, Inc., a
maker ofrefrigerated cabinets. Rosenthal stepped down as StarTek's CFO in late October 2003, and
was replaced by defendant McKenzie in early November 2003. McKenzie had been StarTek's
Controller for only about 18 months at the time, and hadjoined StarTek from his position as Director
ofFinance and Information Technology at International Paper Company. McKenzie stepped down
as CFO after only 11 months, resigning October 1, 2004. StarTek named Rod Granger as
McKenzie's replacements as CFO at that time, after having onlyjoined StarTek in July 2004 as a VP
of Finance. Granger only held the CFO position for three months. On January 3, 2005, StarTek
announced the hiring of Steven Butler as its new CFO. Then, when Bill Meade resigned as
StarTek's CEO in late February 2005 and Butler became acting CEO as well as CFO, Granger
stepped in again as Acting CFO, and was eventually formally appointed CFO again in August 2005.
In short, far from the stability and driver of growth that Meade portrayed his restructuring effort
-9-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 13 of 105
during the Class Period, the lack of industry experience and turnover in these executive positions had
no positive impact on improving StarTek's performance during the Class Period.
15. In addition to the executive management restructuring, Meade's restructuring effort
also involved dividing the sales organization into two divisions: Client Services and Sales. The
Client Services division handled contract implementation with new and existing customers and new
orders from existing customers, while Sales was responsible for generating new contracts with new
clients. This reorganization was a detriment to the Company's overall sales performance. The
expenses associated with overhauling the sales organization were "significant and didn't result in
increased sales . After StarTek secured a new contract with TXU in March 2004, the account was
handed over to the Client Services division for implementation, which caused a shift in responsibility
for the account and a change in who TXU was dealing with at StarTek. The TXU contract was lost
in September 2004, only six months after it was secured.
16. Despite the undisclosed sales force and management transition problems, to foment
investor interest, on August 5, 2003, StarTek declared its first ever quarterly cash dividend of $0.36
per share. At the same time, Stephenson told the market that two new facilities were now open and
"we are happy to report that both came in on time and within budget . Currently, our revenue is
growing at the new facilities, and we expect the increase will continue to ramp over the coming
quarters . At full capacity , these two facilities would employ 1,400 people . Overall , we see business
conditions gradually improving for our company as they have for the last 7 quarters in a row. The
market responded favorably to these statements sending StarTek's stock up over 5.5%.
17. Defendants' highly positive but false statements artificially inflated StarTek's stock
price from $23 on February 25, 2003 - the day before the start of the Class Period - to over $36 on
-10-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 14 of 105
August 18, 2003. Defendants took advantage of this artificial inflation and unloaded 85,800 shares
of StarTek stock between August 19, 2003 and September 17, 2003, reaping over $3.1 million in
insider trading proceeds.
18. On the heels of these sales, in October 2003, defendants represented that "to handle
the increased demand from its targeted markets, StarTek had opened several new
telecommunication facilities. One month later, defendants said that "[d]emand for these services
now appears to be larger than we previously expected, which requires opening a fourth new facility
this year to keep up. In response to this statement, StarTek's stock climbed over 3.6% to $34.41
per share. Also in November, the StarTek Board of Directors declared an increase in its quarterly
cash dividend to $0.37 per share, payable November 25, 2003. Stephenson said that "StarTek's
business grew significantly during the September quarter aspreviously openedfacilities ramped
upon time and within budget. Business was so good that Stephenson exclaimed that StarTek was
"opening two morefacilities that will ultimately employ nearly 1,000 additional new employees
whenfully staffed in 2004. Currently, we expect nextyear to offer opportunityforgrowth in our
technical support and business process management services platforms, and we will be fully
prepared to capture that additional growth . The market again reacted positively. StarTek's stock
rose almost 5.5% to $36. 50. Based upon these representations , analysts told investors that StarTek
"initiated multiple new projects with new and existing clients based on growing wireless portability-
related demand, necessitating the opening of two new call centers ... in 4Q03, of which one will
initially be a dedicated wireless portability call center for a large client. We believe SRT will see
margin expansion after the two new call centers ramp in 4Q03 and start-up costs lessen .... In
-11-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 15 of 105
response to defendants' highly positive but false statements, StarTek's stock price increased to over
$40 in December 2003.
19. But then rumors began to circulate that Cingular was planning to acquire StarTek's
biggest client, ATT, which accounted for 38% of StarTek's revenue. If Cingular took over ATT, in
accordance with certain contractual provisions , Cingular would be free to cancel ATT's contract
with StarTek. As one analyst put it, since Cingular was not a client of StarTek "we believe it is
relatively possible that [StarTek] could lose up to 40% of its revenue base by the end of 1Q05.
20. The possible loss of the ATT contract and the significant amount of excess capacity
which resulted from the opening of four new facilities and the slackening of demand posed a
significant danger to StarTek and to the Individual Defendants, who owned significant amounts of
StarTek stock and had thus far only been able to sell off a small percentage of their StarTek shares.
StarTek's insiders knew that ifthese negative conditions continued or worsened, they would have a
very adverse impact on StarTek's growth and profitability and when these adverse trends became
publicly known would cause StarTek's stock to decline. Thus, defendants realized that they had
only a short time to capitalize on StarTek' s apparent strong profitable growth to sell off large
amounts of their own StarTek stock at high prices.
21. The Individual Defendants, however, faced serious obstacles to selling off more of
their own StarTek stock. For example, restrictions existed under SEC Rule 144 which sharply
limited the number of "unregistered shares StarTek's insiders could sell into the open market.
Further, they knew that if StarTek's top insiders started to sell off even the permitted number of
shares into the market at or about the same time, this would disrupt the market and cause StarTek's
-12-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 16 of 105
stock to decline - thus undercutting their goal of maximizing the price at which they sold off their
StarTek stock and their own personal profits.
22. In order to pocket millions in insider-trading proceeds for themselves before the
negative information about StarTek, which they alone knew, became public and to enable them to
sell offmuch larger amounts oftheir StarTek stock than they could legally sell via open market sales
of unrestricted shares under SEC Rule 144, the Individual Defendants decided to undertake a large
SEC-registeredpublic offering ofmillions ofshares ofStarTek stock. In a registered secondary
offering, StarTek's insiders could sell shares without the Rule 144 volume restrictions and in
transactions where underwriters would help them sell the stock and stabilize the market trading price
of StarTek stock while these large stock sales were takingplace. By selling shares in this way, the
Individual Defendants could maximize their stock sale proceeds. First, they could condition the
market for the stock offering by issuing very positive reports and forecasts and push the stock up to
higher levels , including making Roadshow presentations just before the Public Offering to
disseminate very favorable information to potential stock purchasers to create demand for the stock.
Also, they could use the underwriters to help merchandize the stock and rely upon the underwriting
firms' "firm commitment purchase obligations to buy all their shares and then resell them while the
underwriters used special marketing techniques, only allowed to be used in registered stock
offerings, to "stabilize the stock price - supporting the market price ofthe stock via techniques that
would not be legal in normal open-market stock trading. This plan would enable StarTek's insiders
to sell larger amounts of stock, many more shares than they could have sold in open-market sales,
because the stock sold would be registered with the SEC and thus exempt from the volume
-13-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 17 of 105
restrictions of Rule 144, without disrupting the market. Refusing to go along with the scheme,
David Rosenthal, the CFO, resigned.
23. Undeterred by Rosenthal' s resignation, StarTek's controlling shareholders and
insiders hurried to complete the Public Offering, as they realized that the adverse facts concerning
StarTek's business could not be long concealed and ifthose facts became known, it would prevent a
successful offering and prevent them from selling their own StarTek stock at inflated prices.
24. On February 17, 2004, StarTek filed a Registration Statement for a public stock
offering of 3.2 million shares at a proposed maximum price of $39.82 per share and a proposed
maximum aggregate value of $146.5 million to be received by the selling shareholders. The market
responded favorably to defendants' representations in the Registration Statement sending StarTek's
stock up 5.3% to over $42 per share. For example, in the Registration Statement, defendants
represented that "[fJor our capacity deployment strategy, we seek to maintain enough available
capacity to meet our clients'sudden surges in demand while maintaining high capacity utilization
levels throughout our organization . This statement, however, was false or misleading because
StarTek did not have high utilization rates . The Company had a tremendous amount of excess
capacity due to the fact that defendants opened four facilities on the mere hope that demand would
materialize.
25. After StarTek filed its Registration Statement with the SEC, Cingular announced that
it was acquiring ATT. Cingular's announcement jeopardized the Public Offering. As one analyst
wrote: "AT&T Wireless (AWE) represents about 35% of SRT's revenue. We believe the proposed
AT&T Wireless/Cingular merger could therefore have a potentially significant impact on SRT's
revenue and earnings in 2005 and beyond .... With the acquisition ofAWE, Cingular may choose
-14-
Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 18 of 105
to bring the AWE call center work inhouse , and consolidate it with its existing internal
infrastructure. In response to the merger announcement, StarTek stock declined from $42.05 on
February 17, 2004, to $37.62 on February 23, 2004. It was doubtful that defendants would be able to
successfully complete the Public Offering, and on March 19, 2004, StarTek announced that the
"offering of 3.2 million shares expected to price Thursday via Lehman Brothers Inc. was postponed
due to market conditions.
26. Then, to salvage the Public Offering and complete a massive insider bailout, StarTek
renegotiated its contract with ATT. In a revised S-3 filed on April 13, 2004, StarTek told investors
that its contract with ATT was extended until December 31, 2006, and was not subject to termination
for convenience or without cause . Analysts told the market that "the AWE/Cingular merger created
uncertainty about the future of SRT's relationship with its largest client that negatively impacted the
stock over the past few weeks. We think that this contract extension significantly mitigates this risk.
In addition , we believe that SRT is AWE' s best-performing and lowest-cost supplier of call center
based business process management services , thereby positioning the company to take share from
competitors Convergys (CVG) and West Corp. (WSTC) after the completion ofthe AWE/Cingular
merger as Cingular looks for cost synergies.... We are reiterating our Buy rating on SRT in light of
the pullback in valuation (from $40.50 at 3/1/04 to $34.35 currently) and the removal of the
AWE/Cingular concern. But the revised Registration Statement and all of defendants' statements
concerning the new contract with ATT were false or misleading because defendants failed to
disclose that StarTek was forced to drastically reduce its pricing in return for the contract
extension. Later, in StarTek's 2004 annual reportfiled on Form 10-K, defendants admitted that
"Our cost ofservices as apercentage ofrevenue increasedprimarily due to underutilized capacity
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associated with lower thanforecasted volumes and the tieredpricing structure set inplace by our
agreement with Cingular [ATTJ, which results in decreased revenue rate at higher levels of
volume.
27. Lehman Brothers was originally the lead underwriter for the Public Offering, but after
conducting a due diligence investigation in which it discovered the terms of the new contract with
ATT, Lehman Brothers withdrew from the offering.
28. To stem the decline in its stock price, defendants announced on May 5, 2004 an
increase in the quarterly cash dividend to $0.39 per share, and issued more optimistic but false
statements. For instance, defendant Stephenson said, "We are very pleased with the results for the
first quarter of2004 in which revenue growth accelerated as we more fully utilized the new Business
Process Management Services capacity we added last year. He also represented that the Company's
"sales efforts have produced our first meaningful client in the utility industry, a new industry vertical
market and "that continued growth in our Business Process Management Services platform and
strategic diversification of our client base will considerably reduce the historical seasonality of our
stream of revenue and earnings this year and in the future.
29. Then, on June 10, 2004, StarTek announced the pricing of a public offering of 3.8
million shares of common stock at $33.00 per share by three of its stockholders. The press release
noted that the selling stockholders increased the offering by 600,000 shares from their 3.2 million
share offering announced February 17, 2004, and that the Company would receive no proceeds from
the sale of the common stock. The release also said that SunTrust Robinson Humphrey was acting
as the lead manager and sole book running manager for the deal. William Blair & Company and
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Thomas Weisel Partners LLC were acting as co-managers . The press release did not mention that
Lehman Brothers withdrew from the offering.
30. To put some distance between the Public Offering and a stock price decline they
knew was coming, on July 29, 2004, defendants hosted their first conference call with analysts and
investors to disseminate more misleading statements to the market. For example, defendant Meade
exclaimed that "[w]e continue to be encouraged by the activity in our sales pipeline. As I stated,
we are currently in the middle oframping two new clients which were secured earlier this year.
We are encouraged by our recent close rates and the size of our sales pipeline. We anticipate
replicating the success we had during thefirst halfof2004 with two new key client acquisitions
during the second halfof2004, and we are verypleased with the ongoingpositive responsefrom
both our existing clients and our newer clients and that they continue to reward us with more of
their business . Analyst repeated these representations to the market stating that "Management has
characterized the currentpipeline as among the healthiest ever. These statements were also false.
In fact, the sales pipeline was weak and the sales force was in complete disarray. Near the end ofthe
Class Period, on March 3, 2005, defendants admitted that StarTek was forced to hired another new
head of sales in October 2004 who completely revamped the sales force during the course of the
fourth quarter, and during January 2005. And at the end of the Class Period, defendants admitted
that "the sales team that's in place today is still fairly new. Most of them came on board [in the]
November, December, January time frame.
31. Then, two months after the upbeat July 28, 2004 conference call, StarTek filed an 8-K
with the SEC on October 4, 2004, which stated that on October 1, 2004, defendant McKenzie had
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resigned as Executive Vice President, ChiefFinancial Officer, Secretary and Treasurer for "personal
reasons.
32. One month later, on November 4, 2004, StarTek announced disappointing results in a
press release entitled, "StarTek, Inc. Reports Third Quarter Earnings and Raises Dividend; Board
Authorizes Stock Repurchase Program Up to $25 Million, which disclosed that StarTek's "fully
diluted earnings per share from continuing operations decreased 21 percent for the quarter ended
September 30, 2004, to $0.34 compared to $0.43 for the third quarter of2003. To blunt the negative
stock market reaction, defendants announced that the Board ofDirectors declared an increase in
the Company's quarterly cash dividend to $0.41 per share, and that the Company's Board of
Directors authorized the repurchase ofup to $25 million ofStarTek's common stock. Meade also
put a positive false spin on the quarter by stating: " While we are disappointed with the Company's
results for this quarter when compared with last year, we are confident the decisions and
investments we have made in the quarter will support continuedprofitable growth and "[w]e're
undertaking this stock buy-back program with high confidence in our current operational
performance .... Our fundamentals are strong, and our capital position affords us the
opportunity to repurchase stock at an attractive market price. We see this as an excellent
investment opportunity that's in the best interests ofour shareholders. These false statements and
the announcement of the increase in the dividend and share repurchase had their intended effect -
StarTek stock did not fall in response to the bad news.
33. The same day, StarTek held a conference call for analysts, money and portfolio
managers, institutional investors and large StarTek shareholders. During the call, defendant Meade
stated: "Now we could have made staffreductions[,] but because ofour optimism and confidence
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in both the near term and the mid term in really our visibility in the solid demandfor incremental
seats during the late third quarter and also moving into thefourth quarter... our assessment was
not to make cuts . He also reiterated that "the pipeline is the strongest its been since I've been
CEO which is 3plus years[,] and wefeelgood about the incremental revenue that will be coming
from new signings.
34. The market was surprised by the poor financial results. As one analyst noted,
"StarTek reported third-quarter results this morning. Revenue came in slightly ahead of our
expectations butEPS of$0.34fell well short ofour estimate of$0.43 and the consensus of$0.45.
The big surprise in the quarter was a significant drop in gross margins, which was driven by a
larger than expected price decline at AT&T Wireless and one-time expenses for retraining
employees andfacility startup costs.
35. In early January 2005, StarTek's stock declined 11% as information that StarTek's
fourth quarter would be weak and that the Company's sales pipeline was not as strong as investors
were led to believe began to leak into the market. Defendants denied that there were any problems at
the Company. As one analyst report noted: "Management last night confirmed that there was [sic]
no new occurrences announced either by the company or from client-related actions . SRT was down
11% in the past three days on no news , declining 7% yesterday on twice normal volume. The
report explained that:
the stock weakness may primarily reflect three investor concerns: (1) that 4Q will beweaker than expected; (2) that SRT was not able to secure the 3 RFPs [Request forProposals] in the 4Q pipeline; and/or (3) that SRT will not be able to offset apotential decline in AWE revenue and meet `05 Street estimates & dividendpayments.
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36. After weeks of denying that there were any problems at the Company, on February
18, 2005, StarTek issued a press release entitled "StarTek, Inc. Announces Management Change,
which stated that defendant Meade had resigned as President and Chief Executive Officer of the
Company. The release disclosed that "Meade and the company ' s board ofdirectors mutually agreed
that a change in leadership is in the best interests of StarTek's stockholders, and Mr. Meade has
tendered his resignation to the board to pursue other interests . Analysts were stunned and StarTek's
stock dropped almost 24% from $25.75 to $19.60 per share. On February 22, 2005, William Blair &
Company, issued a report on StarTek entitled "Lowering Estimate Amid Uncertainty, which stated
that "StarTek announced the resignation of its CEO, Bill Meade. This news came as a surprise and
leads us to believe that other issues could be on the horizon. The next day, StarTek's stock dropped
another 4.8% to $18.65.
37. Then the market's fears were realized when on March 3, 2005, StarTek disclosed that
"[fJully diluted earnings per share including discontinued operations decreased by 44% to $0.30,
compared to $0.54 for the same period in 2003. The gross margin decline of 9.7% points from
29.7% to 20.0%, was largely the result ofgreater costs from the launching of new call center
capacity to handle anticipated volume growth that materialized at lower levels than our clients
forecasted, continuing decreases in revenue and margins in our supply chain management
platform, and increased volume billed at lower agent rates due to our tiered incentive pricing
model. On the same day, StarTek held a conference call for analysts and Steven Butler, the
Company's CFO and acting CEO, admitted that "We launched three new call centers in
anticipation ofa lot greater volume, with a couple ofthe clients that we signed last year. That
didn 't materialize last year .... Then Troy Mastin, an analyst with William Blair & Co., asked:
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"And then on the new business pipeline, there has been a lot of discussion over the last 6-9
months that it was healthy. It's characterized as the strongest ever. You didn't mention any new
clients on the call, can you give us up an update on any landed in the quarter, and what the
pipeline looks [like] today in your assessment? In response, Butler disclosed for the first time that
StarTek "hired a new head ofsales in October, who completely revamped the salesforce during
the course ofthefourth quarter, and during the course ofJanuary. I cannot announce any clients
today. After this news StarTek stock continued to fall from almost $18 on March 2, 2005 to $15.54
on April 8, 2005. However, the stock continued to be inflated during the remainder of the Class
Period.
38. Finally, on May 6, 2005, StarTek announced that its first quarter 2005 "earnings per
share from continuing operations decreased ... to $0.18 compared to $0.49 for the first quarter of
2004. The Company also announced that its revenues declined 14.2% from the same period in
2004. Subsequent to the release of its quarterly results , StarTek told analysts on a conference call
that "[i]n looking at gross profit, our total gross profit for the first quarter of '05 compared to the first
quarter of '04 fell 35% or $6.4 million to 11.7 million. The "tiered pricing incentives and reduced
supply chain volume accounted for approximately $4 million of this change. In other words,
Startek's revenues declined because StarTek was forced to drastically reduce its pricing in return
for the contract extension with ATT. Defendants also admitted that "[t]he sales team that's in place
today is still fairly new. Most of them came on board [in the] November, December, January time
frame. Defendants also admitted that there was "excess capacity throughout the Company.
39. On this news, StarTek's stock price fell over 18% from a closing price on May 5,
2005 of $15.20 to $12.40 per share on May 6, 2005.
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JURISDICTION AND VENUE
40. Jurisdiction exists pursuant to §22 of the Securities Act, 15 U.S.C. §77v, §27 of the
Exchange Act, 15 U.S.C. §78aa and 28 U.S.C. § 1331. The claims asserted arise under §§ 11 and 15
of the Securities Act, 15 U.S.C. §§77k and 77o, §§10(b) and 20(a) of the Exchange Act, 15 U.S.C.
§§78j(b) and 78t(a) and Rule lOb-5.
41. Venue is proper in this district pursuant to §22 ofthe Securities Act, 15 U.S.C. §77v,
§27 of the Exchange Act, 15 U.S.C. §78aa and 28 U.S.C. § 1391(b). Many ofthe acts giving rise to
the violations complained of occurred in this district.
42. Defendants used the instrumentalities of interstate commerce , the U. S. mail and the
facilities of the national securities markets.
THE PARTIES
43. Lead Plaintiffs Wayne County Employees' Retirement System, West Palm Beach
Firefighters' Pension Fund, Anthony Zigmont and Stewart L. Horn ("Plaintiffs ) purchased or
otherwise acquired StarTek's common stock at artificially inflated prices during the Class Period and
suffered damages when StarTek's stock price fell as the truth was revealed to the market, as detailed
in the previously attached certifications.
44. Defendant StarTek is a Delaware corporation, headquartered in Denver, Colorado,
with principal executive offices located at 100 Garfield Street, Denver, Colorado 80206. StarTek
was founded in 1987 as StarPak, a small product packaging and fulfillment company. On December
30, 1996, StarTek was incorporated in the state of Delaware. Effective January 1, 1997,
stockholders of StarPak, Inc. exchanged all of their outstanding shares of capital stock for shares of
common stock of the Company, and StarPak, Inc. became a wholly-owned subsidiary of the
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Company. Effective January 29, 1997, shareholders of StarPak International , Ltd. contributed all of
their outstanding shares of capital stock to the Company, and StarPak International, Ltd. became a
wholly-owned subsidiary of the Company. Accordingly, the Company became a holding company
for the businesses conducted by StarPak, Inc. and StarPak International, Ltd. On June 19, 1997,
StarTek completed its IPO at $15 per share. In the IPO, StarTek sold 3 million shares for net
proceeds of $41. 9 million and insiders sold 666,667 shares for net proceeds of $9.3 million.
45. StarTek is a provider of business process outsourced services, which consist of
business process management and supply chain management services . The Company's business
process management services include provisioning management, wireless telephone number porting,
receivables management, wireless telephone activations, and high-end technical support and
customer care services . The supply chain management services include packaging, fulfillment,
marketing support and logistics services. StarTek's four largest customers, ATT, Microsoft
Corporation, T-Mobile , a subsidiary of Deutsche Telekom, and AT&T Corporation, accounted for
about 90% of revenue . In 2003, ATT accounted for 38.1% of revenue, Microsoft for 21.7%, T-
Mobile for 16.1% and AT&T Corporation for 13.1%. In 2002, ATT accounted for 26.3% of
revenue, Microsoft for 34.4%, T-Mobile for 12.2% and AT&T Corporation for 13.3%.
46. Defendant A. Emmet Stephenson, Jr. ("Stephenson ) co-founded the Company in
1987 and has served as Chairman of the Board of the Company since its formation. Defendant
Stephenson enjoyed a special relationship with StarTek because : (i) he co-founded the Company; (ii)
he was StarTek's largest shareholder; (iii) he held 23.2% of StarTek's stock during the Class Period;
and (iv) he, along with his wife, had the power to appoint StarTek's entire Board of Directors.
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47. Defendant William E. Meade, Jr. ("Meade ) served as the Company's President and
Chief Executive Officer from June 2001 until his resignation on February 16, 2005. In the two year
period prior to the Class Period, Meade sold no shares of StarTek stock. During the Class Period,
Meade sold 15,000 shares of StarTek stock, 100% of his holdings, for proceeds of $570,677.00.
48. Defendant Michael W. Morgan ("Morgan ) co-founded the Company in 1987 and has
served as Vice Chairman of the Board of the Company since June 2001 and as a director of the
Company since January 1997. In the two year period prior to the Class Period, Morgan sold 397,800
shares of StarTek stock, 68.64% of his holdings at the time, for proceeds of approximately $7.8
million. During the Class Period, Morgan sold 142,600 shares of StarTek stock, 71.53% of his
holdings, for proceeds of approximately $5 million. Although Morgan sold more shares during the
two years prior to the Class Period, the average weighted price per share was only $19.84 compared
to $35.73 per share during the Class Period.
49. Defendant Eugene L. McKenzie, Jr. ("McKenzie ) served as Executive Vice
President and Chief Financial Officer since November 2003 and prior to that served as Vice
President and Corporate Controller since June 2002.
50. Defendant Toni E. Stephenson ("Toni Stephenson ) is the wife of defendant
Stephenson. From the inception of StarPak, Inc. and StarPak International, Ltd. until January 23,
1997, Toni Stephenson was a director of StarPak, Inc. and StarPak International and continued to act
as a vice president ofsuch companies, without compensation. Defendant Toni Stephenson enjoyed a
special relationship with StarTek because: (1) she was the wife of the co-founder of the Company;
(2) she was StarTek's second largest shareholder; (3) she held 22.9% of StarTek's stock during the
Class Period; and (4) she, along with her husband, had the power to appoint StarTek's entire Board
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of Directors. In the two year period prior to the Class Period, Stephenson sold no shares of StarTek
stock. During the Class Period, Stephenson sold 3,158,551 shares of StarTek stock, 83.29% ofher
holdings, for proceeds of approximately $100 million.
51. Defendant Pamela S. Oliver ("Oliver ) is the sole trustee of the FASSET Trust and
MASSET Trust and has sole voting power and investment power with respect to the common stock
held by the trusts. Defendant Oliver is defendant Stephenson's sister. From the inception of
StarPak, Inc. and StarPak International, Ltd. until January 23, 1997, defendant Oliver was a director
of each such company, and continued to act as a vice president of StarPak, Inc. and StarPak
International , without compensation. Defendant Oliver enjoyed a special relationship with StarTek
because : ( 1) she was the sister ofthe co-founder ofthe Company; (2) she was StarTek's third largest
shareholder; and (3) she held 13.7% of StarTek's stock during the Class Period. During the two year
period prior to the Class Period, the Masset and Fasset Trusts sold no share of StarTek stock. During
the Class Period, the Masset and Fasset Trusts sold approximately one million shares of StarTek
stock each, 100% of their holdings, for proceeds of approximately $34 million each.
52. The individuals named as defendants in ¶146-51 are referred to herein as the
"Individual Defendants. Because of their positions and access to material non-public information
available to them but not to the public, the Individual Defendants knew that the adverse facts
specified herein had not been disclosed to and were being concealed from the public and that the
positive representations which were being made were then materially false and misleading. The
Individual Defendants, by reason of their stock ownership or positions with StarTek or
representation on StarTek's Board, were controlling persons of StarTek. These controlling persons
are each liable under §20(a) of the Exchange Act and § 15 of the Securities Act.
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53. Defendants Stephenson, Meade, Morgan and McKenzie, because of their positions
with the Company, possessed the power and authority to control the contents of StarTek's quarterly
reports , press releases and presentations to securities analysts, money and portfolio managers and
institutional investors, i. e., the market. Defendants Stephenson, Meade, Morgan and McKenzie were
provided with copies of the Company's reports and press releases alleged herein to be misleading
prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or
cause them to be corrected. Defendants Stephenson, Meade, Morgan and McKenzie are liable for
the false statements pleaded herein at ¶¶99-100,102-104,106,109-110,113,115-120,132-133,142,
145-146, 149, as those statements were each "group-published information, the result of the
collective actions of the officers and directors.
54. During the Class Period, defendants Stephenson, Meade, Morgan and McKenzie
knew the adverse material facts specified herein because they reviewed daily, weekly and monthly
operating and sales reports and attended periodic meetings with the executive officers and their
direct reports . For example , the Company used a three-year strategic plan that incorporated five
main objectives: growth, operations, technology, people, and offshore opportunities. The strategic
plan was implemented through weekly meetings among the CEO, CFO, and COO; weekly revenue
reviews; biweekly reviews of customer and other issues; monthly conference calls with the contact
centers; and quarterly face-to-face meetings with front-line supervisors. Stephenson conveyed the
adverse material information to defendants Toni Stephenson and Oliver.
55. Each of the defendants is liable for making false and misleading statements, and/or
for willfully participating in a scheme and course ofbusiness that operated as a fraud on purchasers
of StarTek stock and damaged Class members in violation of the federal securities laws. All of the
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defendants pursued a common goal, i.e., inflating the price of StarTek stock, by making false and
misleading statements and concealing material adverse information. The scheme and course of
business was designed to and did: (i) deceive the investing public, including plaintiffs and other
Class members; (ii) artificially inflate the price of StarTek common stock during the Class Period;
and (iii) cause plaintiffs and the other members of the Class to purchase StarTek common stock at
inflated prices and to sustain damages.
FACTS RAISING A STRONG INFERENCE OF SCIENTER
56. Confidential Witness Number One ("CW 1 ) was a Vice President of Sales at StarTek
from approximately 1993 until late 2003. He reported to the Senior Vice President of Sales Mike
Burke and later Blake Willardsen. Between Burke's and Willardsen's appointment to this position,
Defendant Bill Meade served as Acting Senior Vice President of Sales , and CW 1 reported to Meade
during this interim period, from September/October 2002 through June 2003 . According to CW 1,
"[t]he biggest thing [senior management] struggled with was the sale's team's ability to forecast
sales . CW 1 explained that business process outsourcing services involves a long sales cycles, in
part because making a sale depends on many complex factors . According to CW 1, on average the
sales cycle takes 18 to 24 months.
57. According to CW 1, there were weekly sales meetings that were attended by Meade,
all of the sales representatives , and the Senior VP of Sales . These meetings were held on Monday
mornings at 10:00 a.m. in the third floor conference room at the "Garfield headquarters in Denver.
At these meetings, Meade was "very fixated on the call center pipeline status because call center
sales were becoming an increasingly large part of StarTek's sales revenue stream. In the weekly
sales meetings , Meade took notes and asked questions as each sales rep presented his portion of the
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pipeline report. It was clear that Meade presented the sales pipeline numbers to Emmet Stephenson
for approval.
58. At these meetings Meade and the sales representatives went over the "Pipeline
Report. The Pipeline Report was updated on a weekly basis. The form of the report was prepared
by the sales organization's sales administrator in an Excel spreadsheet format, and then each sales
representative "populated the form with their respective sales prospects in the pipeline. The
Pipeline Report contained seven columns listing the sales executive, the target customer, the
customer's industry, prospective revenue, anticipated "go live date, the number of
seats/units/revenue projections, and comments/strategy/next steps. The Pipeline Report also listed
the probability of signing the contract within the particular quarter. At the start of the class period,
there were no contracts on the Pipeline Report with a 90% probability, six contracts with a 50%
probability with projected revenues of $8.1 million, 19 contracts with a 30% probability with
projected revenues of $7.7 million, and a number of contracts with only a 10% probability with
projected revenues of $22.8 million. A Pipeline Report is attached hereto as Exhibit A. According
to CW 1, in reality a new contract with a 50% probability would actually take another six months to
get signed. Pipeline Reports were distributed to StarTek's "senior leadership team, which was
comprised ofthe operational senior vice presidents, COO Lance Zingale, the CFO (David Rosenthal
during the Class Period, until November 2003, when Eugene McKenzie replaced Rosenthal), and
CEO Bill Meade.
59. After the weekly sales pipeline meetings , the Finance Department held a meeting to
discuss the numbers that came out of the weekly sales meetings . The Finance Department was
comprised ofthe CFO (David Rosenthal, and later Defendant Gene McKenzie), the Controller (Gene
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McKenzie, and later Kevin Comstock), the Finance Manager Kevin Comstock, and a couple of
assistants.
60. According to CW 1, the company knew whether it would have a problem meeting
projected revenues for the year by August each year because by that time, in the teleservices
industry, companies that outsource call center business always sign new contracts, or place new
orders on existing contracts , for whatever call center services they need for October through
December, which are the busiest months ofthe year in the industry . According to CW 1, if StarTek
had not signed a contract with a prospective customer by August, there was no way StarTek could
implement the contract (by placing the required number of seats in its call centers) before the
October-December busy season. StarTek did not generate new contract revenues until it actually
began fielding calls for customers in its call centers. Thus, by August each year StarTek knew what
its new contract revenue stream would be through the end ofthe year, as well as additional revenues
from existing customers through the end of the year and, accordingly, whether it would meet the
projected annual revenue figure.
61. StarTek prepared an Income Statement per Major Customer each year. These were
generated in an Excel spreadsheet by Kevin Comstock in the Finance Department and contained a
vertical list of every customer in the left-hand column in order of revenue contribution for the
current year, followed by a column reflecting each customer's revenue contribution for the current
year, a column for the customer's revenue contribution for the prior year, and a column showing the
percent change in revenue from the prior to the current year. The Income Statements were
distributed to StarTek' s top executives including CEO Meade, CFO Rosenthal (and then Defendant
CFO Gene McKenzie), COO Lance Zingale, the SVP ofthe BPM Sales Blake Willardsen, the SVP
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of Client Services Bob Forsyth, and SVP of Supply Chain Management ("SCM ) operations Frank
Santistevan.
62. Additionally, according to CW 1, there were weekly operations meetings within the
SCM division. StarTek's SVP of Supply Chain, Frank Santistevan, headed these meetings with the
SCM sales and operations employees, and then Santistevan's report from this meeting went up the
ladder to CEO Meade, COO Lance Zingale, and CFO David Rosenthal (Gene McKenzie from
November 2003 on).
63. During 2002, StarTek's SCM contract with Microsoft generated $71.5 million in
revenue for the company, according to StarTek's Revenue Concentration per Customer Report for
the Twelve Months Ended December 31, 2002. The Revenue Concentration per Customer Report
for the Twelve Months Ended December 31, 2002 is attached hereto as Exhibit B. According to CW
1, StarTek lost the existing SCM contract with Microsoft in early 2003. In early 2003, Microsoft
notified StarTek that it had decided not to renew the contract and that Microsoft was opening a
Request for Proposal ("RFP ) process for the contract. According to CW 1, this notification
occurred in a meeting between Microsoft's representative for StarTek and Frank Santistevan,
StarTek's VP of Operations for the SCM division at the time.
64. During the Class Period, StarTek's operations were broken down into two primary
operating divisions: Supply Chain Management Services and Business Process Management
Services. The SCM division engaged in software manufacturing and packaging services for such
customers and Microsoft Corporation. The BPM division engaged in call center services such as
customer care, technical support, receivables management, and porting services for such customers
as T-Mobile and ATT.
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65. In StarTek's 2002 Annual Report on Form 10-K, StarTek represented that Microsoft
Corporation accounted for 34.4% of the Company' s total revenues in 2002, which were reported to
be $207. 8 million . These figures are supported by StarTek's internal "Pivot Table" spreadsheet
reflecting revenues from all customers for the years 1998 through 2002. According to the Pivot
Table, at year-end 2002, total revenues company-wide were $207.8 million, and the Microsoft
contract for SCM services contributed approximately $71.5 million in annual revenues to StarTek, or
34.4%. The Pivot Table spreadsheet is attached hereto as Exhibit C. According to CW 1, the
Microsoft contract accounted for 90% ofthe SCM division's total annual revenues at the time. Thus,
when Microsoft informed StarTek in early 2003 that it would not renew its SCM contract with
StarTek, StarTek knew that 34.4% ofits total annual revenues, and 90% ofthe entire SCM division's
annual revenues, would disappear by early to mid 2004.
66. According to CW 1, SRT's Supply Chain Management "pipeline was dead by
October 2003 and the teleservices side ofthe business (BPM) "was on life support. With respect to
the SCM division, CW 1 attributed the business decline to two main factors: A failure to invest
adequate capital to bring the division's operations in line with its competitors, and the loss of the
Microsoft contract in early 2003.
67. There were three phases of the RFP process for Microsoft's SCM services business:
Submission ofan initial bid; selection of a "short list ofpotential SCM vendors; and final selection
ofthe winning bidder. According to CW 1, SRT did not even make it past phase one because it was
not included on Microsoft's short list. StarTek learned this sometime in late 2003. As a result, by
no later than late 2003, CW 1 confirmed that StarTek knew that its SCM business with Microsoft
would dry up completely within the next several months. CW 1 explained that there was a transition
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period of about 10-12 months following SRT's elimination from the RFP process until all of
Microsoft' s business disappeared. During that time, SRT received no new projects from Microsoft,
was only completing preexisting projects, and did not receive any re-orders on existing projects.
68. CW 1 noted that, based on a review ofthe company's press releases and SEC filings,
SRT never disclosed the loss of this contract to the public. According to CW 1, SRT's executive
management "absolutely knew that the Microsoft business was lost by early 2003 because "it came
up in discussions with Meade about how to replace that revenue during the weekly sales pipeline
meetings in 2003. To make matters worse, in its 2003 10-K, SRT described a decrease in SCM
services provided to Microsoft, said it expected Microsoft's business to continue to decline and that
Microsoft has decreased the number of SCM vendors it uses, and expressly acknowledged the
expiration of its contract with Microsoft for SCM services in Singapore and the U.K. However,
there is no mention of the fact that the domestic SCM services agreement with Microsoft was not
renewed, and thus its business with Microsoft would notjust continue to decline but would disappear
altogether.
69. According to CW 1, who kept in contact with other executives after leaving the
company, in order to secure the amended BPM services agreement with ATT that was announced in
April 2004, which extended SRT's agreement with ATT through December 31, 2006, SRT had to
cut its pricing with ATT and had to make an upfront payment to ATT of one million dollars "to get
the deal done . The primary players in the negotiations for SRT were COO Lance Zingale , Senior
VP Client Services Bob Forsyth, and Dan Farley, who worked for Forsyth.
70. According to CW 1, after CEO Meade was brought in, "Meade's mission was to
increase management's expertise across the board. COO Lance Zingale was one of the new
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executives Meade hired to accomplish this . Additionally, Meade split SRT's sales organization into
two groups, one ofwhich handled only existing client accounts, and the other handled generation of
new business. Bob Forsyth, mentioned above, was brought in to manage existing accounts in what
CW 1 referred to as the "Relationship Management group, and Forsyth hired others to work for him
in this new group.
71. CW 2 was a Senior Vice President at StarTek from early 2003 until early to mid-
2004 . According to CW 2, Blake Willardsen negotiated the call center contract with Verizon
Wireless ("Verizon ) along with COO Lance Zingale. They obtained Verizon's signature on the
contract in October 2003, and then began working on the "Statement of Work ("SOW ). The
Verizon contract was for $14 million annually and 400 seats, which were to be in the new call center
in Alexandria, VA. CW 2 said the SOW is what really starts the process rather than the signing of
the contract , called a Master Service Agreement . The SOW contains all the details about the billing,
the hourly rate, and the number of seats. The hourly rate in the contract was based on call volumes.
Right when they began working on the SOW in early November 2003 is when Verizon cancelled the
400 seat order. It did not cancel the contract outright, but rather the order was cancelled, and the
contract remained valid. StarTek announced in early November 2003 that this call center was open,
but in its 2003 10-K filed in March 2004, it stated that this facility's operations were delayed until
February 2004 . According to CW 2, Lance Zingale received the notice from Verizon's
representative.
72. According to CW 2, just after Zingale received notice from Verizon, there was a
discussion among StarTek's "Executive Panel about the cancellation ofVerizon's 400 seats to go
into the new Alexandria, LA facility. The Executive Panel was comprised ofCEO Bill Meade, CFO
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David Rosenthal (and then Eugene McKenzie from November 2003 on), COO Lance Zingale, and
the heads of every company department. The meetings took place at StarTek's Denver office on
Garfield Street in the third floor conference room. The Executive Panel met formally twice a month
and informally in between on an as-needed basis . The Executive Panel meetings covered a blanket
agenda, i. e., performance and problems with each department ofthe company. The meetings usually
took place in the morning and lasted between three and six hours. The meetings that occurred
toward the end ofa quarter lasted on the longer side ofthis range because there was more to cover in
order to close out the quarter. Bill Meade was in charge of these meetings. CW 2 attended these
meetings and recalled discussing at the Executive Panel meeting in early November 2003 that
StarTek had incurred around $100,000.00 in ramp-up expenses for hiring staff, equipment and
supplies when Verizon cancelled the order, in addition to having built the Alexandria facility. The
Executive Panel members determined that they needed to find a way to fill at least some ofthe seats
in the Alexandria facility in order to open it.
73. In late 2003 and early 2004, StarTek was in the process of closing three new call
center services contracts with Qwest, TXU, and Cricket Communication (aka Leap Wireless).
According to CW 2, the Cricket Communication contract was signed in late 2003 , and StarTek
began earning revenues from the deal in early 2004. The contract called for 150 seats and total
annual revenues of around seven to eight million dollars. The contract involved a lot of wireless
porting services, which is the process of transferring an existing cell phone number from one
provider to another provider. Within six months ofthe start ofthe contract, StarTek learned that the
contract would only generate about half of the total projected annual revenues in 2004 because the
volume ofwireless porting business was not as great as Cricket Communication had forecasted. CW
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2 said this was due to inadequate marketing of Cricket Communication ' s services . StarTek was
aware of this during the first half of 2004.
74. CW 3 worked for StarTek from mid to late 2001 through early 2004 as a Sales
Director in the BPM group. During this time, CW 3 reported to a series ofpeople due to turnover in
the Senior VP of Sales position. Initially, he reported to SVP Michael Burke. Burke was let go
around September 2002, at which time CW 3 began reporting to senior sales manager Rick Wright,
who reported to Bill Meade while he was the interim acting SVP of Sales following Burke's
termination . Meade hired Blake Willardsen as the new SVP of Sales around June 2003 , and at that
point CW 3 began reporting directly to Willardsen.
75. According to CW 3, during 2003, the BPM sales group "had very minimal success
in securing new contracts. Of all the accounts CW 3 was trying to land a contract with in 2003, only
one came to fruition; it was with Arts & Entertainment Television ("A&E ) for in-bound customer
care and in-bound sales ofprimarily videos ofprograms that A&E televised. The contract closed in
late 3Q03 or early 4Q03. It was a very small contract for about one million dollars in annual sales.
However, A&E decided not to move forward with StarTek. According to CW 3, from mid to late
2001 through early 2004, there were only two or three new customer contracts that came through,
and the rest of StarTek's call center revenues came from existing customers.
76. CW 4 worked for StarTek for almost 12 years beginning in mid 1993 and ending in
early 2005. During the Class Period, CW 4 was a director of sales in the BPM division. CW 4
reported to Mike Morgan, who was CEO until stepping down in 2001. Thereafter, CW 4 reported to
a series ofpeople who held the position ofSVP of Sales including Michael Burke , Bill Meade, Blake
Willardsen, and Mike Griffith.
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77. According to CW 4, when Michael Burke was hired as SVP of Sales, "there was a lot
of focus on the sales pipeline, but all the effort to predict when a sale would close and how much
revenue it would generate in a particular quarter was speculative. According to CW 4, CEO Bill
Meade overemphasized the number ofnew business prospects in the pipeline and seemed to believe
that a larger number ofprospective new accounts that StarTek was talking to would translate into a
larger number of new contracts per quarter. "Just because you have 10 new customers in the
pipeline doesn't mean you ' ll end up with two new contracts . CW 4 said the call center industry
sales cycle is long and often takes up to two years to land a new account.
78. According to CW 4, as a result of the 2004 contract renegotiations with ATT,
StarTek's revenues became based on a tiered-pricing structure whereby as call center volumes
increased , the price ATT paid for StarTek's services decreased. According to CW 4, the original
contract with ATT called for one price , and that price never changed (up until the 2004
renegotiation).
79. According to CW 4, "relationship building with Verizon began in 2002, and
StarTek was awarded a Master Services Agreement ("MSA ) with Verizon in the fall of 2003. The
MSA called for 400 seats and represented $14 million in annual revenues to StarTek. However,
within a week after the parties signed the MSA, Verizon notified StarTek that its anticipated demand
had dried up and that it would have to delay implementation of the 400 seats with StarTek. It was
not until 2005 that StarTek received a new order for call center services from Verizon, and therefore
no revenues derived from this contract until 2005.
80. StarTek publicly referenced a new potential call center contract with a health care
company in a conference call with analysts on November 4, 2004. "[W]e are one ofthree finalists in
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a service bid with a health care company which would be a new vertical for us. CW 4 said this
health care company was McKesson and that StarTek was a finalist in its RPF process at that time.
The McKesson RFP was for around 150-200 seats . However, before Christmas 2004, McKesson
had withdrawn its RFP and notified the finalists that it had decided not to outsource to call centers.
81. In November 2004, CEO Meade stated at an analyst conference call that StarTek's
pipeline was "the strongest it's ever been in the three years he had been with the Company. There
was also a statement about "two new telecom/utilities clients in the 2004 pipeline, referring to
Verizon and Bell Canada according to CW 4. CW 4 said business with these two accounts did not
come in to StarTek until sometime in 2005, however, and these accounts "were no closer in
November 2004 than they had been in the prior months of 2004. Therefore, disclosure of these as
"two new telecom/utilities clients in November 2004 was not an indication that they were any
closer to being finalized at that point than they had been at any earlier time in 2004.
82. The Alexandria, Louisiana call center, which StarTek announced on November 3,
2003, initially was filled with about 100-200 seats from T-Mobile. However, according to CW 4,
these seats were in part existing capacity moved from other StarTek call center sites . According to
CW 4, StarTek had planned to also put the 400 seats from Verizon in Alexandria, but that contract
was not implemented until sometime in 2005 and on a smaller scale. As a result, StarTek ended up
putting TXU's 130 seats there . However, by early 2005 , those seats were eliminated and the
contract cancelled following Cap Gemini's acquisition of TXU's call center business.
83. According to CW 4, the Lynchburg, VA call center, which was announced as opened
in October 2004, was initially populated with Qwest seats. StarTek intended to put seats from
McKesson in this call center as well, but as explained above, McKesson withdrew its RFP before
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choosing a finalist (StarTek was one of three finalists) shortly before Christmas 2004 and decided
not to outsource call center services.
84. According to CWs 1, 2, 3 and 4, there was significant turnover in the leadership ofthe
BPM Sales organization during the Class Period. Just before the beginning of the Class Period,
Michael Burke was the SVP of Sales for BPM, but CEO Bill Meade fired Burke in mid to late 2002.
Meade then served as Acting SVP ofBPM Sales for several months until hiring Blake Willardsen in
this position around June 2003. Willardsen remained in this position until early April 2004 and then
left StarTek. Thereafter , StarTek did not hire a new SVP ofBPM Sales until October 2004, when
Mike Griffith was appointed to the position. As a result, the BPM Sales division, which the
Company was heavily relying on to generate new accounts and corresponding revenues to meet
forecasted revenues and earnings throughout 2004, had no leadership during the second and third
quarters of2004. StarTek did not disclose that it had hired a new SVP of Sales in October 2004 until
March 3, 2005 during a conference call with analysts on fourth quarter 2004 and year-end 2004
results.
85. CW 5 worked for StarTek from late 2003 through mid 2005. During this time, CW 5
held several different positions , some of which were simultaneous . CW 5 handled a variety of
responsibilities in the finance department, including financial analysis, "compliance and
reengineering functions , "process improvements , Sarbanes-Oxley Act of 2002 compliance, and
internal audit. CW 5 held a VP level position during the last year of CW 5's employment. CW 5
reported to StarTek's CFOs David Rosenthal, Gene McKenzie , and finally Steven Butler.
86. According to CW 5, CFO Gene McKenzie was traveling with Board Chair Emmet
Stephenson for investor road shows for the 2004 stock offering during his first six months as CFO.
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Upon his return to the office in early July 2004, CW 5 presented the quarterly results for 2Q04 to
McKenzie, which "didn't line up with the forecasts for that quarter. When McKenzie saw the
actual results , he commented to CW 5, "We can't have that, and then he called Accounting
Manager Kevin Comstock and directed Comstock to "change the numbers by "pulling funds out of
a particular account. By doing this, StarTek was able to report that it met revenue and earnings
projections for 2Q04. CW 5 had also called CEO Bill Meade while he was traveling for the road
show for the June 2004 offering and informed him that StarTek had lost $11 million in business
from T-Mobile that would negatively impact 2Q04 results.
87. At the same time that CW 5 informed McKenzie ofthe 2Q04 earnings shortfall, CW
5 also informed McKenzie that StarTek was not going to be able to meet the 3Q04 or 4Q04
projections.
88. CW 6 worked for StarTek as a Customer Care Supervisor in the Greeley, CO call
center from mid 2004 through early 2005. The Greeley call center building was referred to by
company employees as "Greeley North, since there were two other buildings in Greeley called
"Greeley East and "Greeley West. During CW 6's employment, CW 6 managed about 10-20
customer service representatives who fielded calls from ATT customers . Greeley North serviced
ATT customers exclusively . CW 6 reported to Carol Lewelling, who was the Customer Care
Operations Manager for Greeley North until late 2004, when she was laid off and replaced by Pam
O'Brien.
89. According to CW 6, around September or October 2004, Human Resources Manager
Tina Garcia held a meeting in the Greeley North call center with all Greeley North employees and
announced that in order to "help with restructuring at StarTek and cut labor costs, StarTek was
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offering to allow call center staff and managers to take an unpaid leave of absence until the end of
2004. According to CW 6, six to seven call center supervisors at Greeley North took advantage of
the unpaid leave ofabsence at that time. In addition, the Company cut the number ofhours that each
customer service representative was working during the last few months of 2004 and reduced some
employees to part-time status in order to "save on labor costs.
90. According to CW 6, around the end ofNovember or early December 2004, Lewelling
informed all of the customer care supervisors at Greeley North that the facility would be converted
from a customer care call center to a receivables management call center. Instead of firing all ofthe
customer service representatives at Greeley North, StarTek retained these employees and retrained
them on handling receivables collections for ATT instead. The customer service business that
Greeley North had handled for ATT up to that point was entirely eliminated from StarTek's book of
business , and it was not transferred to another call center . The ATT receivables management
business that Greeley North took on was not new AT&T business for StarTek, but was transferred to
this call center from the Enid, OK facility. The transition from customer care to receivables
management took a couple ofmonths; Greeley North began operating as a receivables management
call center in February 2005.
91. According to CW 6, after the ATT-Cingular merger took place in the fall of 2004,
StarTek did not receive any new call center business from the original Cingular side ofthe business,
and all of StarTek's business with the merged company was legacy ATT business.
92. CW 7 worked for StarTek in the Accounting Department from late 2002 until early to
mid 2005. During this time, CW 7 held positions as General Ledger Accountant, General Ledger
Manager, and Cash Manager. CW 7 initially reported to GL Manager Rich Hannon who reported to
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Controller Aaron Babl. Later, CW 7 reported to CFO Gene McKenzie. In the Cash Manager role,
CW 7 managed the local bank accounts set up for each of the call centers.
93. Based on CW 7's position as Cash Manager , CW 7 knew that StarTek received a
monthly payment from ATT during the third week ofeach month ofaround $10 million pursuant to
the call center services agreement between the companies . According to CW 7, "cushions were set
up in the Accounts Payable ("AP ) budget so that StarTek could "wring out $500,000 to a million
[dollars ] per quarter in costs and thereby "turn a slight loss into a profit for the quarter. CW 7
recalled this in 3Q03/4Q03 . By having over-accrued for AP expenses, StarTek was able to reduce
the actual AP expense figure for a given quarter and improve the total profit that StarTek reported.
94. Additionally , according to CW 7, during weekly accounting staff meetings during
3Q04 it was reported that StarTek was having a bad quarter and would not meet its projected
earnings.
95. According to CWs 1 through 4, throughout the Class Period, StarTek suffered from
significant turnover and instability in its sales force and top leadership. There were only two sales
reps at StarTek who had been with the Company for the long-term, and over 17 sales reps came and
went. Four different people held the top sales position at StarTek, Senior VP of Sales , during the
Class Period. StarTek created the SVP of Sales position in October 2000, when it hired Michael
Burke to assume this position . Burke remained StarTek's SVP of Sales for just under two years.
Following Bill Meade's appointment as StarTek's new CEO in May 2001, Meade undertook an
effort to bring in a senior management team with more experience in the teleservices industry. This
management restructuring led Meade to fire Burke as SVP of Sales around September 2002 and to
hire Blake Willardsen as StarTek's new SVP of Sales in June 2003. In the eight months between
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Burke's departure and Willardsen's hiring, CEO Bill Meade served as Acting SVP of Sales in
addition to his role as the company's CEO. Willardsen only lasted in the position of SVP of Sales
for 10 months, and he left StarTek in early April 2004. From April 2004 to October 2004, StarTek
had no SVP of Sales , and thus no sales leadership for its BPM (teleservices ) division that the
Company was heavily relying on to generate new accounts and corresponding revenues to meet
forecasted revenues and earnings during 2004. It was not until six months after Willardsen's April
2004 departure that StarTek hired Michael Griffith as StarTek' s new SVP of Sales . StarTek never
informed the public that it had lost Willardsen as its SVP of Sales six months earlier , or of the fact
that there was no sales leadership during the second or third quarters of 2004. In fact, it did not
publicly announce that it had retained Griffith as its new SVP of Sales in October of 2004, until
March 3, 2005, during an investor and analyst conference call.
96. According to CWs 1 through 4, the crux ofthe management restructuring effort that
Meade initiated after being appointed CEO in May 2001, and which Meade represented throughout
the Class Period was facilitating improved cost efficiencies and increased sales revenues, was to
bring in a new senior management team with more experience in the teleservices industry. However,
none ofMeade's new hires had prior teleservices experience, and there was a significant amount of
turnover at the executive level. Meade himselfhad no prior teleservices industry experience, having
joined StarTek after two years as President and CEO ofWebMiles, a "customer loyalty startup, and
13 years in several business development positions with American Express. Among the new hires
Meade made during the Class Period were SVP of Sales Blake Willardsen in June 2003 , COO Lance
Zingale in June 2002, and CFO David Rosenthal in August 2001. Willardsen came to StarTek from
a company called Duexo, which was a provider of automated marketing and sales process
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applications wholly unrelated to teleservices. Willardsen had been with Deuxo for only a year
before joining StarTek. Prior to Deuxo, Willardsen worked for a year with No Magic, a software
modeling tool company. Before No Magic, Willardsen held marketing and sales positions in the
customer relationship management, enterprise resource planning, and financial planning industries.
Willardsen only served as StarTek's SVP of Sales for ten months, leaving in early April 2004.
StarTek did not hire a replacement for Willardsen until October 2004, and thus went without a SVP
of Sales for two critical quarters during the Class Period. Additionally, Meade hired Lance Zingale
to be StarTek's COO in June 2002 . Zingale came to StarTek after three years at Stonehenge
Telecom and several years with AT&T before Stonehenge . While Zingale had some
telecommunications industry experience, he did not have exposure in these prior positions to the
business process outsourcing services industry that SRT is in. Zingale left StarTek in September
2005. Meade also hired David Rosenthal as StarTek's CFO in late August 2001. Rosenthal's prior
experience was as CFO ofCelestial Seasonings , a seller ofherbal teas , and as CFO ofHauser, Inc., a
maker ofrefrigerated cabinets. Rosenthal stepped down as StarTek's CFO in late October 2003, and
was replaced by defendant McKenzie in early November 2003. McKenzie had been StarTek's
Controller for only about 18 months at the time, and hadjoined StarTek from his position as Director
ofFinance and Information Technology at International Paper Company. McKenzie stepped down
as CFO after only 11 months, resigning October 1, 2004. StarTek named Rod Granger as
McKenzie's replacements as CFO at that time, after having onlyjoined StarTek in July 2004 as a VP
of Finance. Granger only held the CFO position for three months. On January 3, 2005, StarTek
announced the hiring of Steven Butler as its new CFO. Then, when Bill Meade resigned as
StarTek's CEO in late February 2005 and Butler became acting CEO as well as CFO, Granger
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stepped in again as Acting CFO, and was eventually formally appointed CFO again in August 2005.
In short, far from the stability and driver of growth that Meade portrayed his restructuring effort
during the Class Period, the lack ofindustry experience and turnover in these executive positions had
no positive impact on improving StarTek's performance during the Class Period.
97. In addition to the executive management restructuring, CWs 1 and 4 explained that
Meade's restructuring effort also involved dividing the sales organization into two divisions: Client
Services and Sales. The Client Services division handled contract implementation with new and
existing customers and new orders from existing customers, while Sales was responsible for
generating new contracts with new clients . CWs 1 and 4 both viewed this reorganization as a
detriment to the Company's overall sales performance. As CW 1 noted, the expenses associated
with overhauling the sales organization were "significant and didn't result in increased sales. CW 4
indicated that after StarTek secured a new contract with TXU in March 2004, the account was
handed over to the Client Services division for implementation, which caused a shift in responsibility
for the account and a change in who TXU was dealing with at StarTek, and CW 4 received "an
angry call or two from TXU in the first few months after the contract was signed about the
implementation of the contract. According to CWs 1, 3 and 4, the TXU contract was lost in
September 2004, only six months after it was secured.
INSIDER SELLING
98. While StarTek's top insiders were issuing favorable statements , StarTek's insiders
sold more than 5.3 million shares of stock for more than $175 million in illegal trading proceeds to
personally profit from the artificial inflation in StarTek's stock price. Notwithstanding their access
to material non-public information and their duty to disclose all material facts before trading in
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StarTek stock, they sold significant amounts oftheir StarTek stock at artificially inflated prices. The
insider selling during the Class Period is detailed below:
SHARESNAME DATE PRICE SOLD PROCEEDS
OLIVER/FASSET TRUST 1/6/04 $41.90 100 $4,1901/6/04 $42.00 300 $12,6001/6/04 $42.03 300 $12,6091/6/04 $41.94 400 $16,7761/6/04 $41.85 1,000 $41,8501/6/04 $41.84 2,000 $83,6801/6/04 $41.95 4,900 $205,5551/6/04 $41.80 6,000 $250,8001/6/04 $41.60 10,000 $416,0001/7/04 $41.87 300 $12,5611/7/04 $41.80 500 $20,9001/7/04 $41.91 500 $20,9551/7/04 $41.85 1,000 $41,8501/7/04 $41.88 1,700 $71,1961/7/04 $41.94 2,200 $92,2681/7/04 $41.89 2,600 $108,914
6/15/04 $33.00 993,462 $32,784,246Total 1 ,027,262 $34,196,950
OLIVER/MASSET TRUST 1/8/04 $41.94 100 $4,1941/8/04 $41.96 100 $4,1961/8/04 $41.88 300 $12,5641/8/04 $41.95 300 $12,5851/8/04 $41.87 400 $16,7481/8/04 $41.92 400 $16,7681/8/04 $41.97 600 $25,1821/8/04 $41.89 700 $29,3231/8/04 $41.91 1,100 $46,1011/8/04 $41.86 1,300 $54,4181/8/04 $41.93 1,300 $54,5091/8/04 $41.98 1,300 $54,5741/8/04 $41.90 2,300 $96,3701/8/04 $41.99 2,900 $121,7711/9/04 $41.58 100 $4,1581/9/04 $41.99 100 $4,1991/9/04 $41.32 200 $8,2641/9/04 $41.37 200 $8,274
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Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 49 of 105
SHARESNAME DATE PRICE SOLD PROCEEDS
1/9/04 $41.39 200 $8,2781/9/04 $41.43 200 $8,2861/9/04 $41.49 200 $8,2981/9/04 $41.78 200 $8,3561/9/04 $41.79 200 $8,3581/9/04 $41.81 200 $8,3621/9/04 $41.95 200 $8,3901/9/04 $41.36 300 $12,4081/9/04 $41.38 300 $12,4141/9/04 $41.87 300 $12,5611/9/04 $41.97 300 $12,5911/9/04 $41.56 400 $16,6241/9/04 $41.96 400 $16,7841/9/04 $41.85 500 $20,9251/9/04 $41.80 700 $29,2601/9/04 $41.92 800 $33,5361/9/04 $41.40 3,100 $128,3401/9/04 $40.10 11,600 $465,160
6/15/04 $33.00 993,462 $32,784,246Total 1 ,027,262 $34,177,375
MEADE, WILLIAM 9/15/03 $35.00 100 $3,5009/15/03 $35.05 100 $3,5059/15/03 $35.00 2,200 $77,0009/17/03 $35. 00 800 $28,00011/6/03 $37.00 3,500 $129,500
11/28/03 $39.14 3,300 $129,16212/8/03 $40.00 5,000 $200,000
Total 15,000 $570,667
MORGAN, MICHAEL 8/19/03 $36.43 100 $3,6438/19/03 $36.49 100 $3,6498/19/03 $36.52 100 $3,6528/19/03 $36.55 100 $3,6558/19/03 $36.44 400 $14,5768/19/03 $36.45 600 $21,8708/19/03 $36.46 600 $21,8768/19/03 $36.56 600 $21,9368/19/03 $36.66 600 $21,9968/19/03 $36.51 700 $25,5578/19/03 $36.47 900 $32,8238/19/03 $36.50 3,100 $113,1508/19/03 $36.65 5,400 $197,910
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NAME DATE8/20/038/20/038/20/038/20/038/20/038/20/038/20/038/20/038/20/038/20/038/20/038/20/038/20/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/21/038/22/038/22/03
PRICE$36.28$36.31$36.45$36.35$36.36$36.49$36.34$36.27$36.29$36.30$36.26$36.25$36.40$36.58$36.60$36.61$36.63$36.72$36.90$36.95$37.00$37.03$36.81$36.84$36.86$36.89$36.93$36.78$36.71$36.80$36.98$36.99$36.66$36.67$36.79$36.94$36.88$36.75$36.70$36.68$36.65$36.40$36.25
SHARESSOLD
100100100200200200400600600700800
1,0001,100100100100100100100100100100200200200200200300400400400400600600700800
2,0003,1003,8004,20010,400
100200
PROCEEDS$3,628$3,631$3,645$7,270$7,272$7,298
$14,536$21,762$21,774$25,410$29,008$36,250$40,040$3,658$3,660$3,661$3,663$3,672$3,690$3,695$3,700$3,703$7,362$7,368$7,372$7,378$7,386
$11,034$14,684$14,720$14,792$14,796$21,996$22,002$25,753$29,552$73,760
$113,925$139,460$154,056$381,160
$3,640$7,250
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NAME DATE8/22/038/22/038/22/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/26/038/27/038/27/038/27/038/27/038/27/038/27/038/27/038/28/038/28/038/28/038/28/038/28/038/29/038/29/038/29/038/29/038/29/038/29/038/29/039/3/03
PRICE$36.28$36.60$36.29$36.60$36.65$36.68$36.70$36.71$36.76$37.05$35.70$35.75$35.98$35.77$35.85$36.78$36.85$35.80$36.09$36.00$35.76$35.96$36.50$36.30$36.39$36.36$36.38$36.51$36.25$36.40$36.61$36.55$36.54$36.56$36.64$36.30$36.36$36.45$36.28$36.35$36.40$36.25$36.31
SHARESSOLD
200300400100100100100100100100200200200300300300300400500
1,0001,3001,4004,300200200400400400
1,0001,800100200300
4,7004,700100100100200400600
1,700100
PROCEEDS$7,256
$10,980$14,516$3,660$3,665$3,668$3,670$3,671$3,676$3,705$7,140$7,150$7,196
$10,731$10,755$11,034$11,055$14,320$18,045$36,000$46,488$50,344
$156,950$7,260$7,278
$14,544$14,552$14,604$36,250$65,520$3,661$7,310
$10,962$171,832$172,208
$3,630$3,636$3,645$7,256
$14,540$21,840$61,625$3,631
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SHARESNAME DATE PRICE SOLD PROCEEDS
9/3/03 $36.40 100 $3,6409/3/03 $36.42 100 $3,6429/3/03 $36.45 100 $3,6459/3/03 $36.47 100 $3,6479/3/03 $36.65 100 $3,6659/3/03 $36.67 100 $3,6679/3/03 $36.48 200 $7,2969/3/03 $36.55 200 $7,3109/3/03 $36.60 200 $7,3209/3/03 $36.52 400 $14,6089/3/03 $36.53 400 $14,6129/3/03 $36.57 400 $14,6289/3/03 $36.32 500 $18,160
3/26/04 $34.71 100 $3,4713/26/04 $34.76 100 $3,4763/26/04 $34.69 200 $6,9383/26/04 $34.77 200 $6,9543/26/04 $34.64 400 $13,8563/26/04 $34.63 500 $17,3153/26/04 $34.80 500 $17,4003/26/04 $34.62 1,100 $38,0823/26/04 $34.70 2,100 $72,8703/29/04 $34.71 100 $3,4713/29/04 $34.89 100 $3,4893/29/04 $34.87 300 $10,4613/29/04 $34.65 600 $20,7903/29/04 $34.64 2,600 $90,0643/29/04 $34.63 51,100 $1,769,593
Total 142,600 $5,095,894
STEPHENSON, TONI 6/15/2004 $33.00 1,813,076 $59,831,5086/18/2004 $33.00 570,000 $18,810,00011/22/2004 $29.53 775,275 $22,893,870
Total 3,158,351 $101,535,378
Grand Total 5,370,475 $175,576,264
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DEFENDANTS' FALSE AND MISLEADING STATEMENTSAND OMISSIONS DURING THE CLASS PERIOD
99. On February 26, 2003, StarTek issued a press released, entitled "StarTek, Inc. Fourth
Quarter Earnings Per Share Grow, which stated:
StarTek, Inc. today reported net income for the fourth quarter of $6.5 million, or$0.45 earnings per fully diluted share, excluding a non-cash investment impairmentcharge, which is up 23% from $5.3 million, or $0.37 earnings per fully diluted share,also excluding an investment impairment charge, in the fourth quarter of 2001.Revenue in the fourth quarter of2002 was $66.5 million up from $64.9 million in thesame quarter last year ....
For the year ended December 31, 2002, net income for the year grew 32% to$19.0 million, or $1.32 earnings per fully diluted share, excluding the investmentcharge, compared to $14.4 million, or $1.02 in 2001, also excluding an investmentimpairment charge. Revenue increased 14% to $207.9 million for 2002 compared to$182.6 million for last year ....
Chairman A. Emmet Stephenson, Jr. said, "We are very pleased with theresults of 2002, a year of growth and transition for the company. In a difficulteconomic environment, we attained all time record high revenue for StarTek withgrowth of 14% year-over-year and increased operating profit by 49% over 2001.Both fourth quarter revenue and operating earnings per share were the highest inStarTek's history. Our margins improved due to a focus on improved productivityand a better mix of services provided. Our new management team has been in placeduring this period and deserves full credit for these good results.
"This month we have announced the opening of two new facilities to add100,000 square feet of call center space to handle growing demand for our superioroutsourced services. Although expenses will increase this quarter related to the startup ofthese operations, the demand for this additional capacity brightens the outlookfor more growth in future quarters.
100. On May 7, 2003, StarTek issued a press release , entitled "StarTek Reports First
Quarter Results, which stated:
StarTek, Inc. today reported results for the first quarter ended March 31, 2003. NetIncome was $4.2 million, or $0.29 earnings per fully diluted share, compared to $4.0million, or $0.28 earnings per fully diluted share in the first quarter of2002. Revenuein the first quarter of 2003 was $50.5 million, up from $46.0 million in the samequarter last year.
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Chairman A. Emmet Stephenson, Jr. said, "As expected, our growth in thefirst quarter was only modest as we concentrate on adding new capacity foridentifiable client demand in the second half ofthe year. Currently, we are stillabsorbing start up costs, Including training expense,for the two newfacilities, oneof which will start generating revenue late this quarter with the second onebecoming operational shortly thereafter. The year seems to be developing similarlyto our historical seasonal pattern, and we expect to be more satisfied with the secondhalf of 2003 than the sluggish first half.
101. On May 8, 2003, SunTrust Robinson Humphrey, issued a report entitled "SRT: 1 Q03
In Line EPS of $0.29 vs. $0.29; Strong Performance Continues, which stated:
Outlook
We believe SRT is successfully maneuvering the challenging industryenvironment through targeting of smaller projects in the $5mm-$10mm rangewhile its competitors are battling over the $50-$100mm deals. These smaller dealsreceive less competition andpricingpressure, are moreplentiful, and have shorterramp-up times and start-up costs. In addition, SRT is growing revenue throughdiversification (from both providing new services to new clients and fromextending breadth ofprojects and servicesfor existing clients), new contract wins,positive mix shift to higher margin revenue, and continued cost control Twoexisting tech support clients are expanding contracts to be serviced out oftwo newfacilities: a 500-seat facility in Regina, Saskatchewan, Canada (beginningoperations at the end ofMay 2003) and a 250-seat facility in Decatur, Illinois(beginning operations at the end ofJune 2003) which, in our view, underscores thegrowing demandforSRT's services. In connection with these expansions, SRTisin process of hiring over 1,000 people. We believe SRT may need a third newcenter in mid-2003 as current projects become fully ramped and continue toexpand We expect the new centers, together with upgrades to SRT's technologyand communications platform, will raise capex in 2003 to about $14mm versus$6mm in 2002 and lower margins in 2Q03from start-up costs, but expect the twonew centers to begin contributing meaningful revenue in 3Q03. In addition, weexpect to see incremental positive revenue impact from several new projects forSRT's largest SCM client, and SRT is expanding its relationship with its largestTSPM client by leveraging off its existing customer record database to provide firstparty/pre-chargeoff collections services.
102. On August 5, 2003, StarTek issued a press release, entitled "StarTek, Inc. Initiates
Quarterly Cash Dividend and Reports Second Quarter Earnings , which stated:
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StarTek, Inc. reports revenue increased 25% for the second quarter to $54.5 millionfrom $43.3 million for the same quarter in 2002. Net income for the second quarterwas $4.2 million, or $0.29 earnings per fully diluted share, compared to $4.0 million,or $0.28 earnings per fully diluted share in the second quarter of 2002.
For the six months ended June 30, 2003 , revenue was $105.1 millioncompared to $89 . 3 million for the same period last year, an increase of 17%. For thefirst six months of 2003 , net income was $8 . 3 million, or $0.57 earnings per fullydiluted share , compared to $8.0 million, or $0.56 earnings per fully diluted share inthe same period last year.
The StarTek Board of Directors is pleased to declare its first ever quarterlycash dividend of $0.36 per share, payable August 29, 2003, to StarTek holders ofrecord on August 15, 2003. More than 3,100 StarTek stockholders will receive thesenew quarterly dividends.
Chairman A. Emmet Stephenson, Jr. said, "We are pleased with theincrease in our revenue, but as announced in May, we have been absorbing thecosts of opening new facilities in Decatur, Illinois, and Regina, Saskatchewan,Canada, over the lastfew months. Bothfacilities are now open, and we are happyto report that both came in on time and within budget. Currently, our revenue isgrowing at the newfacilities, andwe expect the increase will continue to ramp overthe coming quarters. At full capacity, these two facilities would employ 1,400people. Overall, we see business conditions gradually improvingfor our companyas they havefor the last 7 quarters in a row.
"In recognition of the new 15% maximum tax on dividends recently enactedby Congress and signed by President Bush, the StarTek Board has decided to beginreturning to stockholders profits earned by the company in the form of a quarterlycash dividend. The great attraction of StarTek's business model, which is cashgenerating, self financing, and produces high returns on invested capital, can nowmanifest itself in dividend payments to our stockholders. In the future the Board willconsider the results produced by our company and determine the appropriate cashdividend for each period, while providing funds for the capital expenditures andreinvestment needed to fuel our continued growth.
103. On October 15, 2003, StarTek issued a press release , entitled "StarTek, Inc.
Announces Opening of 18th Facility, which stated:
StarTek, Inc. announced plans to open a 40,000 square foot teleservices facility inSarnia, Ontario, Canada. The center will operate 24 hours per day, 7 days per weekand will employ over 500 people when fully staffed. The hiring of new associateswill commence shortly, and the company expects to be fully operational later thisyear. In order to give existing andnew clients outstanding service, StarTek willfit
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the building with state-of-the-art telecommunications systems to handle theincreased demandfrom its targeted markets.
A. EmmetStephenson, Jr., Chairman ofthe Board ofStarTek stated, "Ourdecision to open still anotherfacility in Canada in a shortperiod oftime reflectsour continuing gains in market share in our teleservicesplatform. We operate twofacilities in Kingston, one each in Cornwall andRegina and are opening ourfifthCanadian facility in Sarnia.
Bill Meade, StarTek's CEO commented, "We always target communitieswhere there are many educated and motivated people available. We found this to bethe case in recruiting initial associates for our first facility in Kingston, Ontario, andas a result we feel we will have the same success in staffing our fourth Ontariolocation.
104. On November 3, 2003, StarTek issued a press release , entitled "Demand for Wireless
Number Portability Services Triggers Capacity Addition, which stated:
StarTek, Inc. announced plans to open a 42,000 square foot teleservices facility inAlexandria, Louisiana. The center will employ over 420 people when fully staffedand will operate 24 hours per day, 7 days per week. The company has begun addingnew associates in order to be operational late this year with the ramp up continuingwell into 2004.
A. Emmet Stephenson, Jr., Chairman of the Board of StarTek stated, "TheNovember 24 initiation of Wireless Number Portability is creating a growing needfor our market leading service platform . Demandfor these services now appears tobe larger than we previously expected, which requires opening a fourth newfacility this year to keep up.
105. On November 3, 2003, Reuters ran a release , entitled "StarTek opens 19th Facility -
Fourth new one this year, which stated:
StarTek, Inc. announced plans to open a 42,000 square foot teleservicesfacility in Alexandria, Louisiana. The center will employ over 420 people whenfully staffed and will operate 24 hours per day, 7 days per week. The company hasbegun adding new associates in order to be operational late this year with the rampup continuing well into 2004.
106. On November 5, 2003, StarTek issued a press release , entitled "StarTek's Net Income
Up 31% in Third Quarter; Quarterly Dividend is Increased to $.37 Per Share , which stated:
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StarTek, Inc. is pleased to report that fully diluted earnings per share increased 29%to $0.40 for the third quarter ended September 30, 2003, from $0.31 last year. Netincome increased 31% to $5.9 million from $4.5 million, and revenue grew 15% to$60.0 million this quarter compared to $52.1 million for the same quarter in 2002.
For the nine months ended September 30, 2003, net income was up 14% to$14.2 million, or $0.98 earnings per fully diluted share, compared to $12.5 million,or $0.87 earnings per fully diluted share in the same period last year. For the firstnine months of 2003, revenue increased 17% to $165.1 million compared to $141.4million for the same period last year.
The StarTek Board of Directors is pleased to declare an increase in itsquarterly cash dividend to $0.37 per share, payable November 25, 2003, to StarTekholders ofrecord on November 14, 2003. The previous quarter's dividend was $0.36and was the company's first quarter of cash dividend payments.
Chairman A. Emmet Stephenson, Jr. said, "StarTek's business grewsignificantly during the September quarter aspreviously openedfacilities rampedup on time and within budget. Our new associates in Decatur and Regina havecompleted an excellent start up for our clients in those two new locations for whichwe are most appreciative. We are currently opening two morefacilities that willultimately employ nearly 1,000 additional new employees when fully staffed in2004. Currently, we expect next year to offer opportunity for growth in ourtechnical support and business process management services platforms, and wewill be fully prepared to capture that additional growth . After considering ourcapital needs to finance our growing business, the Board has decided to increase ourquarterly dividend to share the cash flow from operations with our stockholders.
107. On November 7, 2003 , SunTrust Robinson Humphrey issued a report on StarTek,
entitled "SRT: Reiterating Overweight on Strong 3Q Results and Increasing Demand, which stated:
Outlook
We believe SRT is successfully maneuvering the challenging industryenvironment bygrowing market share ofexisting clients through crossselling andproject expansions, positive mix shift, and continued cost control We expectincremental positive revenue impact from wireless portability (wireless clientsrepresenting over 50% ofrevenue) and expanded outsourced services to AT&TWireless (we estimate at 38% of 3Q03 revenue). In addition, SRT initiatedmultiple new projects with new and existing clients based on growing wirelessportability-related demand, necessitating the opening oftwo new call centers (a500-seatfacility in Sarnia, Ontario, Canada and a 420-seatfacility in Alexandria,Louisiana) in 4Q03, ofwhich one will initially be a dedicated wireless portabilitycall centerfora large client. We believe SRT will see margin expansion after the
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two new call centers ramp in 4Q03 and start-up costs lessen; however, we believeSRT will need to open additional call centers in 2004 as currentprojects becomefully ramped and wireless portability demand continues to grow.
108. Defendants' statements issued in 2003 were false or misleading because:
(a) Defendants knew there was insufficient existing and forecasted demand to
efficiently utilize StarTek's capacity which was significantly increased by the opening of new
facilities during the Class Period because StarTek's customers were contractually obligated to
provide a twelve month, rolling call volume forecast, and a monthly daily call volume forecast;
(b) The severe problems the Company experienced in 2000-2001 were not fixed
and behind the Company and the management transition and restructuring plan was still not
implemented during the Class Period, and indeed, there was significant turnover in the leadership of
the BPM sales organization throughout the Class Period. See, e.g., ¶174, 84, and 95-97;
(c) StarTek' s sales pipeline was not strong and healthy as detailed in the weekly
sales pipeline reports discussed every Monday in the Garfield headquarters. See, e.g., ¶157-58;
(d) Defendants lacked an ability to track and forecast sales throughout the Class
Period in the pipeline. See, e.g., ¶157-58;
(e) Defendants failed to account for appropriate sales cycles, of as long as 18 to
24 months. See, e.g., ¶56;
(f) StarTek's SCM revenue pipeline was "dead by October 2003 and the
teleservices revenue side of the business (BPM) was on "life support. See, e.g., ¶66;
(g) Defendants failed to disclose that StarTek lost the SCM contract with
Microsoft in early 2003. See, e.g., ¶166-68;
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(h) Defendants were informed in early November 2003 that Verizon cancelled a
400 seat call center order . See, e.g., ¶171, 72-79;
(i) In late 2003, StarTek was in the process of closing three new call center
services contracts with Qwest, TXU, and Cricket Communication (aka Leap Wireless). See, e.g.,
¶73; and
0) During 2003, the BPM sales group had very minimal success in securing new
contracts and from mid to late 2001 through early 2004 there were only two to three new customer
contracts with the rest of StarTek' s call center revenues coming from existing customers . See, e.g.,
¶75.
109. On February 17, 2004, StarTek filed a Registration Statement relating to a proposed
public offering of 3.2 million shares of common stock with the SEC offered by the selling
stockholders. The Registration Statement was signed by defendants Meade, McKenzie, Stephenson
and Morgan . The offering was managed by Lehman Brothers, SunTrust Robinson Humphrey and
Thomas Weisel Partners. The selling stockholders granted the underwriters an option to purchase up
to 480,000 additional shares for the purpose of covering over-allotments , if any. The Registration
Statement stated:
A. Emmet Stephenson, Jr., our Chairman of the Board and co-founder, hiswife Toni E. Stephenson, and two trusts controlled by Mr. Stephenson ' s sister own60.3% ofour outstanding common stock currently. Following this offering, Mr. andMrs. Stephenson will beneficially own an aggregate of approximately 38.0% of ouroutstanding common stock, or 34 .6% if the underwriters ' over-allotment option isexercised in full . As a result, Mr. Stephenson and his wife will continue to be ourlargest stockholders and together may be able to elect our entire Board of Directorsand to control substantially all other matters requiring action by our stockholders.
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Maintain a Disciplined Approach to Expansion. We plan to grow our revenueorganically through staged expansion of the services we provide to ourexisting or potential clients, or through rapid deployment ofcapacity to assistour clients in responding to demand for their products or services. For ourstaged expansion strategy, we seek to obtain new clients or provide newservices to existing clients by providing highly competitive pricing. Onceengaged to provide a service, we seek to deliver service quality that exceedsour clients' value expectations, which should position us well to expand thescale and profitability of that project. For our capacity deployment strategy,we seek to maintain enough available capacity to meet our clients' suddensurges in demand while maintaining high capacity utilization levelsthroughout our organization.
* * *
Beneficial Ownership of Shares
Name of Stockholder
Before Offering
No. ofShares Percentage
No. of SharesBeing Offered
After Offering
No. ofShares Percentage
Toni E. Stephenson 3,313,882 23.1% 1,213,076 2,100,806 14.6%FASSET Trust 993,462 6.9% 993,462 --- ---MASSET Trust 993,462 6.9% 993,462 --- ---A. Emmet Stephenson, Jr. 3,350,882 23.3% --- 3,350,882 23.3%William E. Meade, Jr. 65,000 * --- 65,000Eugene L. McKenzie, Jr. 2,000 * --- 2,000Lawrence Zingale 20,000 * --- 20,000Pamela S. Oliver 1,986,924 13.8% --- --- ---Michael W. Morgan 119,243 * --- 119,243Ed Zschau 38,000 * --- 38,000Hank Brown 7,500 * --- 7,500Michael S. Shannon 19.000 * --- 19.000Awad Asset Management 779,279 5.4% --- 779,279 5.4%All Directors and 3,621,625 24.9% --- 3,621,625 24.9%Executive Officers as agroup (8 persons)
(Footnotes omitted.)
110. On February 27, 2004, StarTek issued a press release , entitled "StarTek, Inc. Fourth
Quarter EPS Up 20%, which stated:
StarTek, Inc. today reported net income for the fourth quarter of 2003 of $8.0million, which is up 22% from $6. 5 million , excluding a non-cash investment
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impairment charge in the fourth quarter of2002. Fully diluted earnings per share rose20% to $0.54 from $0.45 last year on more shares outstanding. Revenue in the fourthquarter of 2003 was $66.1 million compared with $66.5 million in the same quarterlast year. During the fourth quarter of the prior year, the company recorded animpairment charge of $6.2 million for an "other than temporary decline on itsinvestment portfolio resulting in net income of $2.7 million, or $0.18 earnings perfully diluted share.
For the year ended December 31, 2003, net income for the year grew 17% to$22.2 million or $1.52 earnings per fully diluted share compared to $19.0 million, or$1.32 earnings per fully diluted share, excluding the investment impairment charge.Revenue increased 11% to $231.2 million for 2003 compared to $207.9 million forlast year. Including investment impairment charges of $6.2 million in prior year2002, net income for the year ended December 31, 2002 was $15.2 million, or $1.05earnings per fully diluted share.
Chairman A. Emmet Stephenson, Jr. said, " We are very pleased with the2003 results, a year of continued growth for StarTek, as revenue, operatingincome, net income, and earnings per share reached all time record levels for theyear. Our marginsfurther improved due to a better mix ofservices provided andadditionalproductivity gains as a result ofour innovativeprocess management. Inthefourth quarter, our business process management services were particularlystrong which was reflected in both gross margins and operating profits.
"We successfully opened four new facilities last year, which increasedcapacity significantly, to meet thegrowing demandfor our outsourced services. Asthe economy has improved, our clients have responded with renewed emphasis onimproving service to their customers and reducing costs, both of which lead toincreased demandfor StarTek's service offerings.
111. On March 19, 2004, Dow Jones ran a release , entitled "StarTek 3.2M/Shr Offering
Delayed Due To Market Conditions, which stated:
StarTek Inc.'s offering of 3.2 million shares expected to price Thursday viaLehman Brothers Inc. was postponed due to market conditions.
112. On March 31, 2004, it was announced that StarTek opened a Lynchburg, Virginia
facility.
113. On April 13, 2004, StarTek filed Amendment No. 2 to Form S-3 Registration
Statement, which stated:
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AT&T Wireless Services has announced that it has entered an agreement to beacquired by Cingular Wireless LLC. The term of our agreement with AT&TWireless Services was recently extended to December 31, 2006 and is not subject totermination for convenience or without cause.
* * *
Beneficial Ownership of Shares
Name of Stockholder
Before OfferingNo. ofShares Percentage
No. of SharesBeing Offered
After OfferingNo. ofShares Percentage
Toni E. Stephenson 3,313,882 23.1% 1,213,076 2,100,806 14.6%FASSET Trust 993,462 6.9% 993,462 --- ---MASSET Trust 993,462 6.9% 993,462 --- ---A. Emmet Stephenson, Jr. 3,350,882 23.3% --- 3,350,882 23.3%William E. Meade, Jr. 65,000 * --- 65,000Eugene L. McKenzie, Jr. 2,000 * --- 2,000Lawrence Zingale 20,000 * --- 20,000Pamela S. Oliver 1,986,924 13.8% --- --- ---Michael W. Morgan 119,243 * --- 119,243Ed Zschau 38,000 * --- 38,000Hank Brown 7,500 * --- 7,500Michael S. Shannon 19,000 * --- 19,000Awad Asset Management 779,279 5.4% --- 779,279 5.4%All Directors and 3,621,625 24.9% --- 3,621,625 24.9%Executive Officers as agroup (8 persons)
(Footnotes omitted.)
114. On April 14, 2004, SunTrust Robinson Humphrey issued a report on StarTek, entitled
"SRT: SRT Extends AWE Contract Until 12/31/06, which stated:
CONTRACT EXTENSION : In a revised S-3 filed yesterday afternoon, SRTindicated that its contract with AT&T Wireless (AWE) (38. 1% of '03 revenue) hasbeen extended until 12/31/06 and is NOT subject to termination for convenience orwithout cause.
OUR TAKE: In our opinion, the AWE/Cingular merger created uncertaintyabout the future of SRT's relationship with its largest client that negatively impactedthe stock over the past few weeks . We think that this contract extension significantlymitigates this risk. In addition , we believe that SRT is AWE's best-performing andlowest-cost supplier of call center based business process management services,
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thereby positioning the company to take share from competitors Convergys (CVG)and West Corp. (WSTC) after the completion of the AWE/Cingular merger asCingular looks for cost synergies.
RATING: We are reiterating our Buy rating on SRT in light of the pullbackin valuation (from $40.50 at 3/1/04 to $34.35 currently) and the removal of theAWE/Cingular concern.
115. On May 5, 2004, StarTek issued a press release , entitled "StarTek, Inc. First Quarter
EPS Up 59% on Revenue Increase of 28%; Increased Quarterly Dividend to $0.39, which stated:
StarTek, Inc. today reported that fully diluted earnings per share rose 59% to $0.46for the first quarter of 2004 from $0.29 in the same quarter of last year. Net incomewas $6.9 million, up 65% compared to $4.2 million in the first quarter of 2003.Revenue in the first quarter of2004 increased 28% over the same quarter last year, to$64.7 million from $50.5 million.
In addition, the Board ofDirectors declared an increase in its quarterly cashdividend to $0.39 per share, payable May 24, 2004, to StarTek holders of record onMay 11, 2004. The dividend for the 1st quarter of 2004 was $0.38, which wasincreased from the 4th quarter 2003 dividend of $0.37.
Chairman A. Emmet Stephenson, Jr. said, "We are very pleased with theresults for the first quarter of2004 in which revenue growth accelerated as wemore fully utilized the new Business Process Management Services capacity weadded last year. Two ofourfour newfacilities were operational by the beginningofthe second quarter of2003 and a third onefor thefourth quarter. The last oneopened in November 2003 but is still in the early stages ofits ramp. The dedicationofour management team and associates to operational excellence, inherent in theStarTek Advantage System, has resulted in improved efficiency and costeffectiveness as reflected in the improvement in gross profit margins, operatingmargins, and bottom line results.
Our sales efforts have produced ourfirst meaningful client in the utilityindustry, a new industry vertical market for StarTek We believe that continuedgrowth in our Business Process Management Services platform and strategicdiversification ofour client base will considerably reduce the historical seasonalityof our stream of revenue and earnings this year and in the future. Ourcommitment to achieving client satisfaction keeps us focused on continuousimprovement of our ability to deliver superior service to all our clients.
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116. On May 18, 2004, StarTek filed Amendment No. 3 to Form S-3 Registration
Statement, which stated:
A. Emmet Stephenson, Jr., our Chairman of the Board and co-founder, hiswife Toni E. Stephenson, and two trusts controlled by Mr. Stephenson's sister own59.9% ofour outstanding common stock currently. Following this offering, Mr. andMrs. Stephenson will beneficially own an aggregate of approximately 37.8% of ouroutstanding common stock, or 34.4% if the underwriters' over-allotment option isexercised in full. As a result, Mr. Stephenson and his wife will continue to be ourlargest stockholders and together may be able to elect our entire Board of Directorsand to control substantially all other matters requiring action by our stockholders.
Scalable, Flexible Business Model. Upon a determination that businessdemand will support the opening ofa particular business process outsourcedservices facility, we are generally able to develop and launch the new facilityinto operational status in 90 days. We believe our ability to rapidly deploy anew facility significantly differentiates us from our competitors. Our abilityto quickly expand capacity allows our clients to rely on us to manage suddenchanges in demand for their products. Additionally, we have developed astandardized approach to supply chain management services enabling us toassemble and package various types ofproducts and rapidly change the typeof product assembled and packaged.
Maintain a Disciplined Approach to Expansion. We plan to grow our revenueorganically through staged expansion of the services we provide to ourexisting or potential clients, or through rapid deployment ofcapacity to assistour clients in responding to demand for their products or services. For ourstaged expansion strategy, we seek to obtain new clients or provide newservices to existing clients by providing highly competitive pricing. Onceengaged to provide a service, we seek to deliver service quality that exceedsour clients' value expectations, which should position us well to expand thescale and profitability ofthat project. For our capacity deployment strategy,we seek to maintain enough available capacity to meet our clients' suddensurges in demand while maintaining high capacity utilization levelsthroughout our organization.
In 2002, AT&T Wireless Services accounted for 26.3% of our revenue, MicrosoftCorporation accounted for 34.4%, T-Mobile, 12.2%, and AT&T Corporation, 13.3%.
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AT&T Wireless Services has announced that it has entered an agreement to beacquired by Cingular Wireless LLC. The term of our agreement with AT&TWireless Services was recently extended to December 31, 2006 and is not subject totermination for convenience or without cause.
* * *
The table below presents information as of May 7, 2004 regarding thebeneficial ownership of shares ofour common stock, as adjusted to reflect the sharesof our common stock being offered hereby ....
* * *
Each selling stockholder is an affiliate of StarTek, Inc. and is thereforeprohibited from engaging in short sales pursuant to Section 16(c) of the ExchangeAct....
Beneficial Ownership of Shares
Name of Stockholder
Before Offering
No. ofShares Percentage
No. of SharesBeing Offered
After Offering
No. ofShares Percentage
Toni E. Stephenson 3,313,882 23.0% 1,213,076 2,100,806 14.6%FASSET Trust 993,462 6.9% 993,462 --- ---MASSET Trust 993,462 6.9% 993,462 --- ---A. Emmet Stephenson, Jr. 3,350,882 23.2% --- 3,350,882 23.2%William E. Meade, Jr. 105,000 * --- 105,000Eugene L. McKenzie, Jr. 4,000 * --- 4,000Lawrence Zingale 40,000 * --- 40,000Pamela S. Oliver 1,986,924 13.8% --- --- ---Ed Zschau 41,000 * --- 41,000Hank Brown 10,500 * --- 10,500Awad Asset Management 779,279 5.4% --- 779,279 5.4%All Directors and 3,551,382 24.3% --- 3,551,382 24.3%Executive Officers as agroup (8 persons)
(Footnotes omitted.)
117. On May 25, 2004, StarTek filed Amendment No. 4 to Form S-3 Registration
Statement, which stated:
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Our largest stockholder, together with members of his family, will own37.8% of our outstanding shares following this offering and will have the ability tosignificantly influence major corporate actions.
A. Emmet Stephenson, Jr., our Chairman of the Board and co-founder, hiswife Toni E. Stephenson, and two trusts controlled by Mr. Stephenson's sister own59.9% ofour outstanding common stock currently. Following this offering, Mr. andMrs. Stephenson will beneficially own an aggregate of approximately 37.8% of ouroutstanding common stock, or 34.4% if the underwriters' over-allotment option isexercised in full. As a result, Mr. Stephenson and his wife will continue to be ourlargest stockholders and together may be able to elect our entire Board of Directorsand to control substantially all other matters requiring action by our stockholders.
Scalable, Flexible Business Model. Upon a determination that businessdemand will support the opening ofa particular business process outsourcedservices facility, we are generally able to develop and launch the new facilityinto operational status in 90 days. We believe our ability to rapidly deploy anew facility significantly differentiates us from our competitors. Our abilityto quickly expand capacity allows our clients to rely on us to manage suddenchanges in demand for their products. Additionally, we have developed astandardized approach to supply chain management services enabling us toassemble and package various types ofproducts and rapidly change the typeof product assembled and packaged.
Maintain a Disciplined Approach to Expansion. We plan to grow our revenueorganically through staged expansion of the services we provide to ourexisting or potential clients, or through rapid deployment ofcapacity to assistour clients in responding to demand for their products or services. For ourstaged expansion strategy, we seek to obtain new clients or provide newservices to existing clients by providing highly competitive pricing. Onceengaged to provide a service, we seek to deliver service quality that exceedsour clients' value expectations, which should position us well to expand thescale and profitability of that project. For our capacity deployment strategy,we seek to maintain enough available capacity to meet our clients' suddensurges in demand while maintaining high capacity utilization levelsthroughout our organization.
In 2002, AT&T Wireless Services accounted for 26.3% of our revenue, MicrosoftCorporation accounted for 34.4%, T-Mobile, 12.2%, and AT&T Corporation, 13.3%.
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AT&T Wireless Services has announced that it has entered an agreement to beacquired by Cingular Wireless LLC. The term of our agreement with AT&TWireless Services was recently extended to December 31, 2006 and is not subject totermination for convenience or without cause.
* * *
Each selling stockholder is an affiliate of StarTek, Inc.... .
Beneficial Ownership of Shares
Name of Stockholder
Before Offering
No. ofShares Percentage
No. of SharesBeing Offered
After Offering
No. ofShares Percentage
Toni E. Stephenson 3,313,882 23.0% 1,213,076 2,100,806 14.6%FASSET Trust 993,462 6.9% 993,462 --- ---MASSET Trust 993,462 6.9% 993,462 --- ---A. Emmet Stephenson, Jr. 3,350,882 23.2% --- 3,350,882 23.2%William E. Meade, Jr. 105,000 * --- 105,000Eugene L. McKenzie, Jr. 4,000 * --- 4,000Lawrence Zingale 40,000 * --- 40,000Pamela S. Oliver 1,986,924 13.8% --- --- ---Ed Zschau 41,000 * --- 41,000Hank Brown 10,500 * --- 10,500Awad Asset Management 779,279 5.4% --- 779,279 5.4%All Directors and 3,551,382 24.3% --- 3,551,382 24.3%Executive Officers as agroup (6 persons)
(Footnotes omitted.)
118. On June 10, 2004, StarTek issued a Prospectus which stated:
Per Share TotalPublic Offering Price $33.00 $125,400,000Underwriting Discounts and Commissions $1.65 $ 6,270,000Proceeds to Selling Stockholders (before expenses) $31.35 $119,130,000
One of the selling stockholders identified in this prospectus has granted theunderwriters a 30-day option to purchase up to 570,000 additional shares of ourcommon stock at the public offering price, less the underwriting discount, solely tocover over-allotments.
* * *
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Our largest stockholder, together with members of his family, will own33.6% of our outstanding shares following this offering and will have the ability tosignificantly influence major corporate actions.
A. Emmet Stephenson, Jr., our Chairman of the Board and co-founder, hiswife Toni E. Stephenson, and two trusts controlled by Mr. Stephenson ' s sister own59.9% ofour outstanding common stock currently . Following this offering, Mr. andMrs. Stephenson will beneficially own an aggregate of approximately 33.6% of ouroutstanding common stock, or 29.6% if the underwriters ' over-allotment option isexercised in full . As a result , Mr. Stephenson and his wife will continue to be ourlargest stockholders and together may be able to elect our entire Board of Directorsand to control substantially all other matters requiring action by our stockholders.
Scalable, Flexible Business Model. Upon a determination that businessdemand will support the opening ofa particular business process outsourcedservices facility, we are generally able to develop and launch the new facilityinto operational status in 90 days. We believe our ability to rapidly deploy anew facility significantly differentiates us from our competitors. Our abilityto quickly expand capacity allows our clients to rely on us to manage suddenchanges in demand for their products. Additionally, we have developed astandardized approach to supply chain management services enabling us toassemble and package various types ofproducts and rapidly change the typeof product assembled and packaged.
Maintain a Disciplined Approach to Expansion. We plan to grow our revenueorganically through staged expansion of the services we provide to ourexisting or potential clients, or through rapid deployment ofcapacity to assistour clients in responding to demand for their products or services. For ourstaged expansion strategy, we seek to obtain new clients or provide newservices to existing clients by providing highly competitive pricing. Onceengaged to provide a service, we seek to deliver service quality that exceedsour clients' value expectations, which should position us well to expand thescale and profitability of that project. For our capacity deployment strategy,we seek to maintain enough available capacity to meet our clients' suddensurges in demand while maintaining high capacity utilization levelsthroughout our organization.
In 2002, AT&T Wireless Services accounted for 26.3% of our revenue, MicrosoftCorporation accounted for 34.4%, T-Mobile, 12.2%, and AT&T Corporation, 13.3%.
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AT&T Wireless Services has announced that it has entered an agreement to beacquired by Cingular Wireless LLC. The term of our agreement with AT&TWireless Services was recently extended to December 31, 2006 and is not subject totermination for convenience or without cause.
* * *
Beneficial Ownership of Shares
Name of Stockholder
Before OfferingNo. ofShares Percentage
No. of SharesBeing Offered
After OfferingNo. ofShares Percentage
Toni E. Stephenson 3,313,882 22.9% 1,813,076 1,500,806 10.4%FASSET Trust 993,462 6.9% 993,462 --- ---MASSET Trust 993,462 6.9% 993,462 --- ---A. Emmet Stephenson, Jr. 3,350,882 23.2% --- 3,350,882 23.2%William E. Meade, Jr. 105,000 * --- 105,000Eugene L. McKenzie, Jr. 4,000 * --- 4,000Lawrence Zingale 40,000 * --- 40,000Pamela S. Oliver 1,986,924 13.7% --- --- ---Ed Zschau 41,000 * --- 41,000Hank Brown 10,500 * --- 10,500Awad Asset Management 779,279 5.4% --- 779,279 5.4%All Directors and 3,551,382 24.3% --- 3,551,382 24.3%Executive Officers as agroup (6 persons)
* * *
Underwriters Number of SharesSunTrust Capital Markets, Inc. 2,280,000William Blair & Company, L.L.C. 760,000Thomas Weisel Partners LLC 760,000
Total 3,800,000
*
Over-Allotment Option
Toni E. Stephenson, one of the selling stockholders, has granted to theunderwriters an option to purchase up to an aggregate of 570,000 shares ofcommonstock, exercisable to cover over-allotments, if any, at the public offering price lessthe underwriting discounts and commissions shown on the cover page of thisprospectus.
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(Footnotes omitted.)
119. On June 10, 2004, StarTek issued a press release , entitled "StarTek, Inc. Announces
Pricing of Common Stock in Public Offering by Selling Stockholders, which stated:
StarTek, Inc. today announced the pricing of a public offering of 3,800,000shares ofcommon stock at $33.00 per share by three of its stockholders. The sellingstockholders increased the offering by 600,000 shares from their 3,200,000 shareoffering announced Feb. 17, 2004. The company will receive no proceeds from thesale of the common stock.... The anticipated settlement date is June 15, 2004.
SunTrust Robinson Humphrey, is acting as the lead manager and sole bookrunning manager for the deal. William Blair & Company and Thomas WeiselPartners LLC are acting as co-managers.
120. On July 28, 2004, StarTek issued a press release , entitled "StarTek, Inc. Reports
Second Quarter Earnings Increase of 52%, which stated:
For the quarter ended June 30, 2004, StarTek, Inc. is pleased to report fully dilutedearnings per share rose 51.7% to $0.44 compared to $0.29 for the second quarter of2003. For the six months ended June 30, 2004, fully diluted earnings per shareincreased 57.9% to $0.90 from $0.57 for the same period last year.
For the three months ended June 30, 2004, gross profit increased 30.0% on arevenue increase of 17.7% over the second quarter of 2003. The revenue increasewas primarily due to continued growth in the Company's Business ProcessManagement Services platform, both with its core telecommunications clients as wellas developing clients in new industries. The 2.5 percentage point increase in grossmargin, from 23.4% to 25.9%, was primarily due to a greater proportion of theCompany's revenue portfolio being generated within the higher-margin BusinessProcess Management Services platform. Operating margin increased 4.3 percentagepoints, from 10.2% to 14.5%. Selling, general and administrative expenses remainedrelatively flat for the period and total operating expense as a percent oftotal revenuedecreased by 1.9 percentage points thus increasing operating margin even more thangross margin.
In addition, the Board ofDirectors declared an increase in its quarterly cashdividend to $0.40 per share, payable August 24, 2004, to StarTek shareholders ofrecord as ofAugust 11, 2004. The dividend per share for the 2nd quarter of2004 was$0.39, which was increased from the 1st quarter 2004 dividend of $0.38. Revenuegrowth was slightly stronger in Q1 compared to Q2 due to the slower pace of
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wireless number porting volumes seen across the overall marketplace. In addition,the Supply Chain Management Services business continued to decline in overallvolume.
William E Meade, Jr., President and Chief Executive Officer said, `Byleveraging our model of operational excellence, StarTek continues to be rewardedwith additional business. Our clients and our shareholders benefit from our focus oncustomer-centric service and dedication to delivering ongoing operationalefficiencies.
121. On July 30, 2004, SunTrust Robinson Humphrey issued a report on StarTek which
stated:
NEW BUSINESS OUTLOOK ENCOURAGING: Management indicatedthat its new client pipeline is the strongest in 3 years , and we expect SRT toannounce two large new clients (in utilities and/or telecon verticals) sometime in 21104 and to have off-shore (Philippines) capacity in place by the endof `04.
2Q04 EARNINGS & IMPLICATIONS: 2Q04 revenue and gross margintrends reflected (1) a deceleration in wireless portability volumes, (2) lowerpricing associated with the 4/1/04 renewal of SRT's AWE contract, (3) ramp-up expenses from 11104's new clients (Qwest and TXU), and (4) troughseasonal slowness. We expect wireless portability volumes to remain weakand so trimmed our 3Q04 EPS from $0.47 to $0.46 on 7/28/04. In 4Q04,however, we expect revenue and earnings to benefit from (1) the fully-ramped contribution of Qwest and TXU, (2) higher volumes and improvedproductivity at AWE, and (3) peak seasonal strength.
NEW IR POLICY: We are encouraged by SRT's first-ever earningsconference call and view it as a positive. We believe, however, that investorsdo expect management to provide financial guidance, especially as it relatesto ramp-up ofnew projects and impact ofprice concessions on gross margin.
OUR TAKE: We are reiterating our Buy rating based on strong fundamentalsand compelling valuation. Introducing $45 price target (20 x '05E EPS of$2.25).
122. On July 29, 2004, subsequent to the release of its quarterly results , StarTek held a
conference call for analysts, money and portfolio managers, institutional investors and large StarTek
shareholders. During the call, defendant Meade stated:
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We arepleased with the - we are verypleased with the very strong results ofour second quarter, performance. As you can see from the earnings releaseyesterday, our growth continues. Overall we grew revenue 18% over Q2 lastyearand ourforwardmomentum on the businessprocess management services side ofour business continues. Our revenue growth demonstrates the proof of ouroperational excellence model and contributes to our ongoing strong EPSgrowth.With this, we believe our business model continues to distinguish us. Our solidservice offerings coupled with fair pricing and crisp execution continues to be able[to] distinguish us from our competition. Both Q2 and Q1 and Q2 combinedbenefitedfrom the capacity we brought online and operationally at this tine lastyear.
During Q2, we... continued our successfulprocess oframping up slowlyand deliberately two new clients, one in utilities and an addition is another keytelecommunication 's client. In the quarter, porting volumes for wireless numberportability were not as strong as in the previous two quarters. This trend isconcurrent with that in the overall industry which has experienced lower volumescompared to an initial consumer forecast and certainly slower than wireless numberportability was first introduced to consumers in November of 2003. In our supplychain management services, volume with our largest client is continuing to slowrelative to the work we do for them and is trended to be a smaller and smallerpercentage of our total revenue. We continue to be encouraged by the activity inour salespipeline. As Istated, we are currently in the middle oframping two newclients which were secured earlier this year. We are encouraged by our recentclose rates and the size ofour salespipeline. We anticipate replicating the successwe had during thefirst halfof2004 with two new key client acquisitions during thesecond halfof2004, and we are very pleased with the ongoing positive responsefrom both our existing clients and our newer clients and that they continue toreward us with more of their business. Wefirmly believe this is testament to thesuccess and value ofour operational excellence model. Our focus on people andprocess has been the foundation of this excellence. We believe delivering servicingquality day-in and day-out is what our clients value the most, and if we do this wewill be rewarded with incremental business and gain share in the marketplace.
123. In response to a question from Lehman Brothers analyst Kristen Cooper, defendant
Meade stated:
[C]urrently we have got 20 physical locations or what we call 19 operational sites.We have a site in process right now terms oframping [sic] which again will bring usto 20 operational sites . In the near term, we are continuing to look and have in ourplans for this year having a presence offshore in Asia and having seat capacity mostlikely in the Philippines by year end and then again, based on thepipeline, we couldanticipateperhaps an additionalfacility by year end.
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124. On the same call , Bill Warmington, the analyst for SunTrust Robinson asked: "I want
to see how the two new clients you mentioned were ramping in the second quarter? How are they
ramping, and did they contribute anything in the second quarter? Is that really something that's
going to happen more in the third and fourth quarters? Defendant McKenzie responded:
Yeah, Bill, both those clients are coming online and I think it is - you know, ourhistorical practice particularly as it relates to nailing our operational excellencemodel, we tend to bring that but just slowly making sure again we have really got thequality and focus. So, there was a revenue contribution in Q2, but you knowrelatively small, you know from comparative standpoint, but again you know thegood news is about both ofthose clients particularly as we [go] forward over the nextcouple of years as there are besides where we think we can replicate the stronggrowth we've had with some of our existing clients.
125. Then Warmington asked: "And so how are things going on with your existing clients
and demand there? Defendant Meade replied:
I think, you know, it's going very well I would say that again our operationalexcellence model[,] and just refresh what we mean by that for people, ouroperational excellence model is we believe we can ramp capacityfaster than any ofour competitors in a quality way. We believe we are delivering quality and serviceday in and day out better than any ofour competitors . And then thirdly, it's theway we staff. Our staffing model relative to 15 minute intervals, and we I think, youknow, again we are certainly experiencing continued growth with the majority ofourlarge clients within the business process management services area.
126. Arnold Ursaner, an analyst for CJS Securities, asked:
[T]he one number in your release that was disappointing to me and I want to focus onit, if I can, is your operating margin, your EBIT margin, and it appears we have twokey factors that are affecting it; expenses to ramp-up to new clients and your new tierpricing, the impact of the renewal on the expanded contract; is it fair to say those arethe two key factors and can you give us a little better help in understanding whetherthey will continue to be a problem going forward?
127. Defendant McKenzie replied:
Yeah, Arnie, those two are key factors, clearly when we ramp they will, as is the casein our industry there will always be that impact when we are ramping, so you short-term impact, long-term gain and the answer to the second part of the question is yes
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we do have the operational excellence model, we do intend to improve productivityto play against the period pricing and the lower margins. The third thing I wouldpoint to in Q2 over Q 1 is that we do have higher mix of supply change businessrelative to Q 1. Arnie and still the only other I had is over the duration of contract wedo focus on improving productivity year-over-year so as we move forward we hopeto offset some ofthe margin degradation with productivity increase, but certainly Q2was the first[,] you know[,] the first quarter that the pricing change was effective.
128. Finally David Grossman, the analyst for Weisel Partners, asked: "[O]n the capacity
side, is [sic] there any kind of rules ... you can give us perhaps that you have provided in the past
about, you know, current capacity utilization and as you add clients should we at least at this point
assume that you will need to add new facilities to service new clients or is there anyway for us to
gauge - some metric to gauge capacity utilization as you add new clients? Meade responded:
You know, again we'd very [sic] shy away from providing, you know, the financialguidance all [amount] of that. I think, you know, we are [a] very conservativecompany. We leveraged capacity very, very effectively, we're not in a, you know,we will build and hope they come type ofenvironment. Usually the best leadingindicator ofwhat goes on is just [to] follow press releases closely. Usually whathappens to us is when we identifya location or a site we want to go to, the [Mayor]or the Head ofEconomic Development and the Community gets [a] little bit...excited andgets ahead ofus relative to saying StarTek is coming to town becauseofour conservative nature when that happens, you could bepretty much assuredthat somewhere right behind that there is a client in thepipeline. So that's the bestleading indicator ofour capacity and how the capacity relates to grow.
129. On August 9, 2004, it was announced that StarTek opened a Collinsville, Virginia
facility.
130. On August 18, 2004, PR Newswire ran a release , entitled "William Blair & Company
Initiates Coverage of StarTek, Inc. With Market Perform Rating, which stated:
William Blair & Company today announced that it initiated research coverageof StarTek, Inc. ($30.40), a leading provider of business process outsourcingservices , with a Market Perform rating and company profile of Core Growth.
Analyst Troy Mastin estimated that the company - which has a network of20contact centers throughout the United States, Canada, and the United Kingdom
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offering services including provisioning management, wireless number portability,receivables management, customer care, and activation - would earn $1.89 per sharein 2004 and $2.26 per share in 2005.
"StarTek has shown an ability to grow meaningfully when pursuing newclients or new industries, Mastin said. "The company's impressive penetration intothe telecommunications industry and its rapid growth with its largest clients are clearevidence of this success. This record of success provides a favorable backdrop forgrowth in the future, in our opinion, and recent progress has been encouraging.
Mastin also said he believes industry trends are favorable for StarTek, asmany companies are turning to third parties to outsource customer-care functionsincluding customer and technical support and fulfillment. "We view theopportunities for outsourcing as vast and growing, as the return to global economicgrowth, combined with an increase in mergers, acquisitions, and divestitures, likelywill lead to an increase in outsourcing activity.
131. On August 18, 2004, William Blair & Company, issued a report on StarTek, entitled
"Initiating Coverage of a Leader in Business Process Outsourcing, which stated:
The company has multiple avenues for growth, including existing customers,new clients in existing industries, and new verticals such as retail, utilities,financial services, and health care. The company has had recent success inlanding new clients with two major additions in the first half of 2004,including one on the utilities vertical. Management has characterized thecurrentpipeline as among the healthiest ever.
We are initiating coverage with 2004 and 2005 EPS estimates of $1.89 and$2.26 and revenue estimates of $268 million and $307 million, respectively.
132. On October 4, 2004, StarTek filed an 8-K with the SEC announcing the resignation of
defendant McKenzie. The 8-K stated that McKenzie had "resigned as Executive Vice President,
ChiefFinancial Officer, Secretary and Treasurer for personal reasons . The Company has appointed
Mr. Rodd Granger, 39, as Chief Financial Officer of the Company on an interim basis, and has
commenced a search for Mr. McKenzie' s permanent replacement.
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133. On November 4, 2004, StarTek issued a press release , entitled "StarTek, Inc. Reports
Third Quarter Earnings and Raises Dividend; Board Authorizes Stock Repurchase Program Up to
$25 Million, which stated:
StarTek Inc. reported that fully diluted earnings per share from continuing operationsdecreased 21 percent for the quarter ended September 30, 2004, to $0.34 compared to$0.43 for the third quarter of 2003. Fully diluted earnings per share includingdiscontinued operations decreased by 45 percent to $0.22, compared to $0.40 for thesame period in the prior year. For the nine months ended September 30, 2004, fullydiluted earnings per share from continuing operations increased 24 percent to $1.29from $1.04 for third quarter of 2003. Fully diluted earnings per share includingdiscontinued operations increased 14 percent to $1.12 compared to $0.98 for thesame period in the prior year. Discontinued operations consist of operations in theUnited Kingdom, which as previously reported were sold on September 30, 2004.
For the quarter ended September 30, 2004, revenue increased 13.9 percentwhile gross profit decreased 8.0 percent over the third quarter of 2003. The revenueincrease was primarily driven by the continued strong growth in business processmanagement services. The 5.1 percentage point decrease in gross margin, from 26.5percent to 21.4 percent, was primarily due to:
- the previously disclosed incentive tiered-price reduction with our largestclient that generated increased volume at lower prices,
- investments in launching an additional facility, and
- re-deploying resources that required a one-time re-training expense to serviceincremental growth.
Selling, general and administrative expenses decreased by 0.1 percentagepoint as a percent of total revenue. The dollar increase in selling, general andadministrative expenses was primarily attributed to the addition of three new sitesover the prior year and costs associated with Sarbanes-Oxley compliance efforts.
For the nine months ended September 30, 2004, gross profit increased 23.5percent on a revenue increase of 20.3 percent over the same period last year. Therevenue increase was primarily due to the continued strong demand for ouroperational excellence model and the consistent delivery of service performance.
In addition, the Board ofDirectors declared an increase in the Company'squarterly cash dividend to $0.41per share, payable November 24, 2004, to StarTekshareholders of record as ofNovember 11, 2004. The dividend per share for the 3rd
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quarter of 2004 was $0.40, which was increased from the 2nd quarter 2004 dividendof $0.39.
"While we are disappointed with the Company 's results for this quarterwhen compared with lastyear, we are confident the decisions and investments wehave made in the quarter will support continuedprofitable growth , said WilliamE. Meade Jr., President and Chief Executive Officer of StarTek.
StarTek also announced that the Company's Board of Directors hasauthorized the Company to repurchase up to $25 million ofStarTek's commonstock The repurchaseprogram is effective immediately and will remain in effectuntil terminated by the Board ofDirectors. The repurchaseprogram will allow thecompany to repurchase its shares from time to time in accordance with therequirements ofthe Securities andExchange Commission on the open market, inblock trades and in privately-negotiated transactions, depending on marketconditions and otherfactors. Any repurchased shares will be held as treasury stockand will be available for general corporatepurposes.
"We're undertaking this stock buy-backprogram with high confidence inour current operational performance," Meade said "Our fundamentals arestrong, and our capitalposition affords us the opportunity to repurchase stock atan attractive market price. We see this as an excellent investment opportunitythat's in the best interests ofour shareholders.
134. On September 13, 2004, William Blair & Company issued a report on StarTek,
entitled "StarTek, Inc., A Fast Growing Leader in Business Process Outsourcing, which stated:
StarTek has strong management and a demonstrated ability to execute. Overthe past four years, StarTek has posted impressive annual growth ofmore than 50%in business process management services (BPMS). During this time, managementsuccessfully transitioned to these higher-margin services because of its ability tomeet or exceed client expectations where competition often failed. The company hasindustry-leading growth, margins, and returns.
The company has attractive growth opportunities in existing and newverticals. StarTek has multiple avenues for growth, including existing customers,new clients in existing industries, and new industries. The company has had recentsuccess in landing new clients, with two major additions in the first half of 2004.Management has characterized the current new businesspipeline as strong, andwe expect several new client additions in the nearfuture.
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Successful transition to higher-margin services. A good illustration of thestrength of StarTek's management is the successful repositioning away from low-margin supply chain management (SCM) services with a highly concentratedcustomer base to higher-margin business process management services (BPMS) witha more diverse set of clients. Specifically, in 2000 about 70% of the company'srevenue was derived from Microsoft, while today nearly 80% of revenue is derivedfrom three BPMS clients, with Microsoft accounting for less than 10% of revenue.
The company's success in transitioning to higher-margin BPMS has beendriven by its ability to execute better than competition and focus on higher-value-added services that are more challenging to complete. The complexity of theseservices creates more opportunities to excel versus competition through bettermanagement and execution, which ultimately results in higher margins. We believeStarTek experiences lower turnover and employment costs than many competitors asa result of the company's ability to select facility locations that are hungry for jobs,have plentiful skilled labor, and are willing to provide incentives to the company forlocating in certain areas. The company is able to open facilities quickly with atypical ramp-up of 90 days and an aggressive timeline of 60 days. Once up tospeed, the company employs proprietary scheduling systems at its centers, whichmatches call demand with supply by scheduling reps in 15-minute intervals.
Strong new businesspipeline. This record ofsuccess provides afavorablebackdrop for growth in thefuture, in our opinion, and recentprogress has beenencouraging. Specifically, the company started working with two new clients (TXUCorp. and Qwest) in the second quarter, which have thepotential to be significant,perhaps on a scale similar to ATTW or T-Mobile. These two new clients likelyprovide the necessary visibility to maintain revenue growth in excess of10% overthe next several years. Higher growth is possible, in our opinion, as managementhas characterized its current pipeline as the healthiest it has ever been. If thecompany is able to landseveral meaningful new clients in the second halfof2004,we believe growth could reach the 15%plus range in 2005.
We believe management has an effective process for setting goals, delegatingresponsibility, and implementing strategy. Specifically, the company works off athree-year strategic plan that incorporates five main objectives: growth, operations,technology, people, and offshore opportunities. The strategic plan is implementedthrough weekly meetings among the CEO, CFO, and COO; weekly revenue reviews;biweekly reviews of customer and other issues; monthly conference calls with thecontact centers; and quarterly face-to-face meetings with front-line supervisors. Webelieve management's methodical approach to planning and implementing strategy
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enables the company to be a nimble competitor that can quickly adapt to thechanging demands of the industry.
135. On October 25, 2004, SunTrust Robinson Humphrey issued a report on StarTek
which stated:
We see three potential near-term catalysts for SRT:
(1) We view the recent sale of SRT Europe as a positive and expect$0.08/share in annualized costs savings to offset the estimated $2mmloss in annualized revenue.
(2) SRT has a number of new client programs (Qwest, TXU, and twoother large telecom/utilities clients) ramping. Management indicatedon the 2Q04 call that the company's new business pipeline is thestrongest it's ever been. In addition, the ramping of SRT's Philippinescall center is targeted to be completed by the end of 2004.
(3) We believe SRT is well-positioned to win increased business fromAWE/Cingular as a result of their merger based on SRT's currentpositive relationship with AWE, Cingular's intention to reduce costs,and volume incentives implied by the tiered pricing model.
136. On November 4, 2004, subsequent to the release of its quarterly results , StarTek held
a conference call for analysts, money and portfolio managers , institutional investors and large
StarTek shareholders. During the call, defendant Meade stated:
Now also the ramp ofour two newest clients continues to go very well and we arealso pleased in our contribution toward our over all growth now and movingforward
... We really only ramp a site[,]you know[,] [when] we'refairly and verysolidly optimistic about the demand to fill it....
... Now we could have made staff reductions[,] but because of ouroptimism and confidence in both the near term and the mid term in really ourvisibility in the solid demandfor incremental seats during the late third quarterand also moving into thefourth quarter[,] we made a conscious decision to retainstaff....
So our assessment was not to make cuts [or] to saw to the bone in ouroperations because while it might be an effective short term decision[,] we believe
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that it was not the right thing to do really looking at both the growth we see in thenear term and the long term.... Now we also see the ramp of addition[al] capacityand seat [sic] continuing as we move through Q4 which is evidence we believe thatour operational excellence model is working and we're being rewarded withincremental volume and we believe we are also continuing to gain share of market.
Now we continue to believe andsee that thepipeline is the strongest its beensince I've been CEO[,] which is 3 plus years[,] and we feel good about theincremental revenue that will be coming from new signings as we go forwardand[,] to be a little more specific about some ofthe opportunities we see relative toourpipeline right now, we are 1 of3 finalists in a service bid with a health carecompany which would be a new verticalfor us.... So based upon the health ofourpipeline we could envision our new siteplanningprocess and havingperhapsto bring on another 2-3 additional sites in 2005....
... Coming back to the gross profit margin, it was down 5.1 percentagepoints year over year from the 26.5% to 21.4[,] but again this is really driven by threefactors during the quarter. As we previously disclosed, we have an incentive tieredprice reduction with our largest client and the good news in that though is that'sworking exactly the way we hoped it would. It is generating incremental volume forus while we had had a lower price.
Due to strong client demand[,] we are ramping a new site and we may yet needanother site in early '05. The growth combined with the training revenue in ourtieredpricing volume model confirms our views that we move into 2005 with verystrong momentum....
As I stated earlier in the call, we've got a healthy promising pipeline of diverseprospects as we move into 2005.
137. On November 5, 2004, William Blair & Company issued a report on StarTek, entitled
"Results Weak Due to Pricing, Retraining, Facility Ramp-up, which stated:
Summary
StarTek reported third-quarter results this morning. Revenue came inslightly ahead ofour expectations but EPS of$0.34fell well short ofour estimateof $0.43 and the consensus of $0.45. The big surprise in the quarter was a
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significant drop in gross margins, which was driven by a larger than expectedpricedecline at AT&T Wireless and one-time expenses for retraining employees andfacility startup costs. We likely saw thefull impact ofthe company 's renegotiatedcontract with AT&T Wireless in the second quarter (previously estimated at 5%),which appears to be higher than we expected-perhaps as high as 10% - due to anoutright cut in price and a tieredpricing structure that likely drove a significantboost in volume but at lower margins.
While we were encouraged by the strong top-line growth in the quarter, it iscoming mostly from AT&T Wireless at the cost of margin. The company's otherlarge clients are not experiencing as robust growth, while recently added clients don'tappear to have the potential to become as large as we once thought as quickly as wehad hoped. The company is experiencing a strong new business pipeline, but much ofthis is anecdotal at this point, and a potential revenue impact is too early to predict.However, revenue growth should continue to be stable (we are forecasting growth of10% next year) and the company expects to add two to three new centers next yearbased on expected demand from existing and new clients.
Given our lower growth outlook and the larger than expected decline inpricing at AT&T Wireless, we are revising our estimates. We are lowering ourfourth-quarter EPS estimate to $0.48 from $0.57 and decreasing our 2005 estimate to$1.98 from $2.26. We believe shares are somewhat attractive at current levels, asthey are trading at 14 times our revised 2005 EPS estimate, which is in line withcomparable companies. We believe shares should trade at a slight premium to comps,and we recommend opportunistic purchase.
Financial Results
EPS of $0.34 declined from $0.40 last year and came in well below ourestimate of $0.43 and the consensus of $0.45. Revenue increased 11% to $67 millionfrom $60 million last year and exceeded our estimate by 1.3%. Gross margins of21.4% declined 450 basis points from 25.9% last year and fell short of our estimateof26.1%. The drop in margins was due topricing declines atA T&T Wireless, one-time expenses for the retraining ofemployees that were shifted to another client,costs associated with the startup of a new facility, and an unfavorable currencyimpact. We estimate that the one-time items in the quarter accountedfor over 60%of the margin decline while the remaining drop was due to the AT&T Wirelesspricing, which will be ongoing.
While the significant decline in margins this quarter was discouraging, weexpect margins to rebound somewhat next quarter....
... The outlook for continued volume growth at A WS is positive, asmanagement expects the client to reach the next volume tier in December. The
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company expects to build two to three newfacilities nextyear, with aportion ofthisadded capacity expected to be utilizedforAWS.
*
Management seems committed to returning cash to shareholders, as thedividend was increased one cent to $0.41 and a new share repurchase program of$25million was announced. We view these moves as a potentially positive sign thatmanagement believes the shortfall this quarter was temporary and that result shouldimprove going forward.
138. On November 5, 2004, SunTrust Robinson Humphrey issued a report on StarTek,
entitled "SRT: 3Q04 Comments and Forward Outlook, which stated:
3Q Shortfall - On a normalized basis, SRT's 3Q EPS were $0.32 vs. $0.43(-26% y/y), $0.14 below our $0.46 estimate, excluding a $0.12 loss fromStarTek Europe discontinuing ops and a $0.02 one-time tax benefit from theStarTek Europe sale. GAAP EPS (including these items) were $0.22 vs.$0.40. The EPS shortfall reflected negative gross margin leverage related toa significant expansion of SRT's Cingular contract - including a volume-driven tiered price reduction (50% of impact), employee training and ramp-up of an additional facility, and a 60-day headcount redeployment delay - inaddition to $lmm in negative Canadian Fx. Despite the substantial grossmargin shortfall (21.4% vs. 26.4% and our 27% estimate), we note that grossprofit declined just $1.2mm y/y to $14.3mm.
4Q Outlook - We expect a y/y EPS decline to reflect residual gross marginimpact from employee training & tiered pricing, difficult y/y comps over aspike in wireless portability and reduced SCM revenue, and negative Fximpact.
139. On November 8, 2004, Thomas Weisel Partners LLC issued a report on StarTek
entitled "SRT: New Contract Drives Down Q3 Margin and EPS; Lowering 2005 Ests, which stated:
Technology Services-StarTek, Inc.-Peer Perform
* * *
* Q3 revenue inline, but significant EPS miss because of revised AWScontract and investments in new facilities. Thursday before the open, SRT reported3Q04 revenue of $66.8mn, in line with TWP estimates of $66.Omn (consensus$66.2mn), and EPS of $0.34, which was significantly below our estimate of $0.44and consensus ($0.45). The company does not provide forward financial guidance,
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which obviously increases the potential for divergence between reported results andconsensus. Gross margins declined 450bp q-q to 21.4% due to the previouslyannounced, newly negotiated tiered pricing agreement with AT&T Wireless (41% ofrevs); investments in a new facility and retraining costs; and foreign exchange losses,which represented 35%, 50% and 15% of the gross margin decline, respectively.
3Q04 Margins were 21.4% vs. 25.9% in 2Q04 . 3Q04 gross margins wereimpacted by the AT&T Wireless tiered pricing contract renewal , a new facility build-out in Collinsville , VA, foreign exchange losses , lower productivity due to employeetransitioning and an unexpected rise in Supply Chain Management revenues. AT&TWireless is in the process of being integrated into Cingular , which approved theextension of its contract with SRT through 12/31/06. According to StarTekmanagement , Cingular currently does not outsource its call centers and its call centeremployees are unionized. The AT&T wireless agreement signed in June has beensuccessful in driving volume (no volume guarantee) and the new Collinsville facility,which will fully ramp by mid-December and add 500-700 seats , will serviceincremental business from Cingular in accordance with the same tiered pricing termsas the AT&T Wireless contract . During the quarter, the company experienced-$ 1mn ofunfavorable variance due to the 5.2% y-y increase in the Canadian dollar.Approximately 50% of SRT's capacity is based in Canada. Recently the companybegan to hedge a portion of its exposure , which was obviously ineffective in thequarter . 3Q04 margins were also impacted by productivity declines of 18-20% vs.11104 as management decided to retrain and redeploy under-utilized staff to newcontract volume (AWS/Cingular). In addition, the lower margin Supply ChainManagement business, while down 28% y-y, actually rose 11% sequentially.
We anticipate gross margins to recover in 4Q04 and CY05. We anticipatemargins improving from the 3Q04 level in 4Q04 and 2005 as the ramp of newvolume with Cingular is completed (retraining and facility costs) and as newcontracts such as Qwest and TXU increase volumes.
140. On November 15, 2004, SunTrust Robinson Humphrey issued a report on StarTek,
entitled "SRT: Company Update; Adjusting Estimates, which stated:
Cingular : We see Cingular , currently at 41% of revenue , as more of anopportunity than a risk for ` 05. First, we expect pricing to have stabilized bythe end of 1 Q05, coinciding with the ramp-up of 800 new seats for 2 newAWE projects . In addition , we believe SRT is well positioned to winincremental share as Cingular's CWA union agreement comes up forrenegotiation in mid-2005.
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Reiterating Buy: We reiterate our Buy rating and $40 price target on SRTbased on the company's ability to deliver strong, internally funded, organic20%-plus EPS growth while simultaneously offering an attractive free cashflow and 6% dividend yield. At 14.7x '05E EPS of $1.97, SRT is currentlytrading 16% below its teleservices peer group, trading at 17.4x, and below its17x 3-year mean on a 12-month rolling forward basis.
Potential Growth Opportunities for 2005
In 2005, we believe SRT will focus on (a) focusing on smaller deals, (b)diluting its telecom vertical concentration and concentration ofmajor clients, and (c)extending its service offerings. SRT has a $75mm pipeline of new business withover 50% visibility, and is a finalist in three RPF's (McKesson, a healthcarecompany, and a telecom company) that we expect to be decided by the end of thisyear.
Cingular an Opportunity for '05
We see Cingular/AWE, currently at 41% of revenue, as more of anopportunity that a risk for '05 based on stabilizing pricing, positive operatingleverage, and potential incremental business wins. We expect SRT to hit one moreprice reduction in late November (impacting 1 month in 4Q04), after which weexpect pricing to stabilize for the near term - enabling margins to return to 2Q04levels. In our opinion, the Cingular contract is not likely to hit an additional pricereduction tier until Cingular awards an additional large (i.e., 800-seat) project toSRT. SRT is currently ramping 800 new scats for Cingular - 500 seats in SRT's newCollinsville, VA facility, and another 300 seats in Canada. The ramp up ofthis these[sic] should be complete by the end of 1 Q05, and, after that, we should begin to seesignificant positive leverage as incremental volumes translate into higher revenueand margins - especially as Cingular transitions through the merger and beefs up itscustomer retention and marketing efforts. In addition, we note that Cingular's CWAunion agreement comes up for renegotiation in mid-'05. While the fate ofCingular'sin-house unionized call centers remains uncertain, we believe SRT is well-positionedto win new projects as Cingular looks to improve customer retention and win sharefrom Verizon while simultaneously trying to cut costs.
141. Defendants' statements issued during 2004 were false or misleading because:
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(a) Defendants knew there was insufficient existing and forecasted demand to
efficiently utilize StarTek's capacity which was significantly increased by the opening of new
facilities during the Class Period because StarTek's customers were contractually obligated to
provide a twelve month, rolling call volume forecast, and a monthly daily call volume forecast;
(b) The severe problems the Company experienced in 2000-2001 were not fixed
and behind the Company and the management transition and restructuring plan was still not
implemented during the Class Period, and indeed, there was significant turnover in the leadership of
the BPM sales organization throughout the Class Period. See, e.g., ¶174, 84, and 95-97;
(c) Defendants failed to disclose that StarTek had hired a new SVP of Sales in
October 2004 until March 3, 2005 during a conference call with analysts on fourth quarter 2004 and
year-end 2004 results . See, e.g., ¶184, 95;
(d) StarTek' s sales pipeline was not strong and healthy as detailed in the weekly
sales pipeline reports discussed every Monday in the Garfield headquarters, and indeed, things were
so bad that StarTek was forced to hire another new head of sales in October 2004, who completely
revamped the sales force during the course of the fourth quarter, and during the course of January
2005. See, e.g., ¶157-58;
(e) Defendants lacked an ability to track and forecast sales throughout the Class
Period in the pipeline. See, e.g., ¶157-58;
(f) Defendants failed to account for appropriate sales cycles, of as long as 18 to
24 months. See, e.g., ¶56;
(g) StarTek's SCM revenue pipeline was "dead by October 2003 and the
teleservices revenue side of the business (BPM) was on "life support. See, e.g., ¶66;
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(h) Defendants failed to disclose that StarTek was forced to drastically reduce its
pricing in return for the contract extension with ATT.. See, e. g., ¶14, 6, 26, 38, 114;
(i) Defendants failed to disclose that StarTek lost the SCM contract with
Microsoft in early 2003. See, e.g., ¶166-68;
(j) Defendants were informed in early November 2003 that Verizon cancelled a
400 seat call center order. See, e.g., ¶171, 72, 79;
(k) StarTek failed to disclose that within six months of the TXU contract being
signed in March 2004, TXU fired StarTek. See, e.g., ¶97;
(1) During 2003, the BPM sales group had very minimal success in securing new
contracts and from mid-to late 2001 through early 2004 there were only two to three new customer
contracts with the rest of StarTek' s call center revenues coming from existing customers . See, e.g.,
¶75;
(m) In late 2003 and early 2004, StarTek was in the process of closing three new
call center services contracts with Qwest, TXU, and Cricket Communication (aka Leap Wireless).
See, e.g., ¶73;
(n) Before Christmas 2004, McKesson had withdrawn its RFP for a call center
and notified StarTek that it had decided not to outsource to call centers. See, e.g., ¶180, 83;
(o) CFO McKenzie altered the 2Q04 financial results by directing an accounting
manager to change the numbers by pulling funds out of a particular account, allowing StarTek to
report that it met revenue and earnings projections for 2Q04. See, e.g., ¶86; and
(p) By June 2004 StarTek had lost $11 million in business from T-Mobile and
would be unable to meet 3Q04 or 4Q04 projections. See, e.g., ¶86.
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142. On January 6, 2005, StarTek issued a press release, entitled "StarTek Adds Seasoned
Strength to Executive Team, which stated:
StarTek, Inc. announced two major additions to its executive team today with theappointments of Steve Butler in the position of Chief Financial Officer, and SteveBoyer as the company's Chief Information Officer. StarTek also announcedcompany board member Ed Zschau's appointment as Vice Chairman of the Board.
143. On January 6, 2005, SunTrust Robinson Humphrey issued a report on StarTek,
entitled "SRT: Fundamentals Unchanged Despite Recent Stock Weakness, which stated:
Stock Weakness: Management last night confirmed that there was [sic] nonew occurrences announced either by the company or from client-relatedactions. SRT was down 11% in the past three days on no news, declining 7%yesterday on twice normal volume.
Potential Concerns: We think the stock weakness may primarily reflect threeinvestor concerns: (1) that 4Q will be weaker than expected; (2) that SRTwas not able to secure the 3 RFPs in the 4Q pipeline; and/or (3) that SRT willnot be able to offset a potential decline in AWE revenue and meet '05 Streetestimates & dividend payments.
144. On January 13, 2005, SunTrust Robinson Humphrey issued a report, entitled "SRT:
Thoughts Following Meeting with Management, which stated:
New Pipeline: The new clientpipeline heading into '05 looks encouraging.We believe new opportunities exist for SRT, particularly in customer servicefor wireless branding by entertainment companies (e.g., Virgin, Disney),cable/broadband, and VOIP. We believe ramp-up ofPhilippines capacity tosupport new pipeline will help boost margins.
145. On February 4, 2005, StarTek issued a press release , entitled "StarTek Increases
Quarterly Dividend to $0.42 Per Share, which stated:
The StarTek, Inc. Board ofDirectors is pleased to declare an increase in its quarterlycash dividend to $0.42 per share, payable February 24, 2005, to StarTek shareholdersofrecord on February 11, 2005. This marks the sixth consecutive quarterly dividendincrease. The dividend for the 4th quarter of 2004 was $0.41, which was increasedfrom the 3rd quarter dividend of $0.40.
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146. On February 18, 2005, StarTek issued a press release , entitled "StarTek, Inc.
Announces Management Change, which stated:
StarTek, Inc. reported today that William E. Meade, Jr. has resigned as President andChief Executive Officer of the company. Mr. Meade and the company's board ofdirectors mutually agreed that a change in leadership is in the best interests ofStarTek's stockholders, and Mr. Meade has tendered his resignation to the board topursue other interests. Mr. Meade also resigned from his position as a director on thecompany's board.
The board of directors has appointed Steven D. Butler, StarTek's ExecutiveVice President, Chief Financial Officer, Secretary and Treasurer, as President andChief Executive Officer on an interim basis. The board has also formed a specialcommittee of its independent directors, chaired by Albert C. Yates, to initiate asearch for a permanent Chief Executive Officer.
147. On February 22, 2005, Rocky Mountain News ran an article, entitled "StarTek
Abruptly Ousts CEO; Drop in Stock Price, Poor Financial Results Preceded Resignation, which
stated:
Inc.William Meade has been unexpectedly ousted as chief executive of StarTek
In a statement, StarTek said Meade and the board "mutually agreed that achange in leadership is in the best interests of StarTek's stockholders.
148. On February 22, 2005, William Blair & Company, issued a report on StarTek,
entitled "Lowering Estimate Amid Uncertainty, which stated:
• Late Friday, StarTek announced the resignation of its CEO, Bill Meade. Thisnews came as a surprise and leads us to believe that other issues could be onthe horizon.
149. On March 3, 2005, StarTek issued a press release , entitled "StarTek Inc. Reports 2004
Earnings, which stated:
StarTek Inc. reported that gross profit increased 5% on a revenue increase of 15% to$258 million for the year ended December 31, 2004 compared with $225 million for
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the year ended December 31, 2003. Fully diluted earnings per share from continuingoperations decreased to $1.59 from $1.60 for the same periods. Fully diluted earningsper share including discontinued operations decreased 7% for 2004 to $1.42compared to $1.52 for 2003. Discontinued operations consisted of our operations inthe United Kingdom which, as previously reported, were sold on September 30,2004.
Business process management revenues increased 34% in 2004, while supplychain management revenues declined 40% versus the previous year. Businessprocess management revenue now comprises 86% oftotal revenue compared to 73%for the previous year. The StarTek Advantage System, our operational excellencemodel, continues to produce excellent customer satisfaction which generates growingdemand for our business process management services platform.
Selling, general and administrative expenses increased by 8% for the yearended December 31, 2004 compared to the prior year. The increase is attributable tothe launch and staffing of three new call centers and expenses associated with theSarbanes-Oxley Act of 2002. As a result of the new call centers and relatedinfrastructure, depreciation expense increased $2.5 million over the prior year or by$0.17 per share.
For the quarter ended December 31, 2004, revenue was essentially flat at$64.8 million, and fully diluted earnings per share from continuing operationsdecreased 46% to $0.30 compared to $0.56 for the fourth quarter of 2003. Fullydiluted earnings per share including discontinued operations decreased by 44% to$0.30, compared to $0.54 for the same period in 2003. The gross margin decline of9.7% pointsfrom 29.7% to 20. 0%, was largely the result ofgreater costsfrom thelaunching ofnew call center capacity to handle anticipated volume growth thatmaterialized at lower levels than our clients forecasted, continuing decreases inrevenue and margins in our supply chain managementplatform, and increasedvolume billed at lower agent rates due to our tiered incentive pricing model.
Selling, general and administrative expenses decreased by 7% for the fourthquarter of2004 compared with 2003. This reduction would have been greater but forthe offset of substantially increased costs attributable to the Sarbanes-Oxley Act of2002.
"The last two quarters have not met our expectations . Although our businessprocess management revenue has continued to grow over the past year, our focus in2005 will be to improve our margins and to build new sources ofrevenue said SteveButler, Chief Financial Officer and Acting Chief Executive Officer of StarTek.
150. On March 3, 2005, SunTrust Robinson Humphrey issued a report on StarTek, entitled
"SRT: Fourth Quarter Results, which stated:
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StarTek reported fourth quarter results. The company is instituting arestructuring/realignment plan that could be in place by the end of the firstquarter. In addition to right-sizing the company to match current revenues,which should improve margins in the near term, StarTek is aiming to increaserevenue by selling a greater suite of services across its existing client base.
During the fourth quarter, the company added services for the MVNO(mobile virtual network operator) market, however company-wide newclient contract wins were below our expectations as favorable pricing onthose contracts was unachievable. In addition, with the company 's largestclient, Cingular, StarTek's tiered incentive pricing structure failed toincrease profitability as volume grew.
151. On March 3, 2005 , subsequent to the release of its quarterly results , StarTek held a
conference call for analysts, money and portfolio managers, institutional investors and large StarTek
shareholders. During the call, the following transpired:
Steven Butler [the Company's new CFO]: We launched three new callcenters in anticipation ofa lot greater volume, with a couple ofthe clients that wesigned lastyear. That didn't materialize lastyear, it could materialize this year in alot greater way. When you look at those things and you start to monitor yourmargins more carefully, that's what we're going to do. We have to start to take somecorrective action. That's where we're at.
Troy Mastin [William Blair & Co. analyst]: This is the #1 surprise is lessvolume than anticipated?
Steven Butler: The delivery of that volume, yes. Yeah, our largest client,obviously, delivered greater volume. The tiered pricing structure affected us there tosome extent. A couple of other clients didn't deliver the volume we anticipated,having excess capacity for anticipated volume that wasn't there. So we're starting torealign the capacity with the volume.
Troy Mastin: Okay. And then on the new businesspipeline, there has beena lot ofdiscussion over the last 6-9 months that it was healthy. It's characterizedas the strongest ever. You didn 't mention any new clients on the call, canyou giveus an update on any landed in the quarter, and what thepipeline looks [like] todayin your assessment?
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Steven Butler: ... We hired a new head ofsales in October, who completelyrevamped the sales force during the course ofthefourth quarter, and during thecourse ofJanuary. I cannot announce any clients today.
Arnold Ursaner [CJS Securities analyst]: I'll try to ask this question politely.Your stock is down 50 percent from where you did a public offering for a sellingshareholder. The idea that you'll make no comments whatsoever about theupcoming year, I speak on behalf of a lot ofpeople that own your stock, they're notreal pleased with that. Your margins are down 35 percent. Your revenues are prettydisappointing. Your SG&A expenses are declining for one-time items like audits.The idea that you're giving no guidance at all, is pretty upsetting to yourshareholders. Can you give us some of the components of the earnings?
Steven Butler: What I said at this point in time, we're not going to give anyguidance.
152. On May 6, 2005, before the markets opened, StarTek issued a press release , entitled
"StarTek Inc. Reports First Quarter Earnings, which stated:
StarTek Inc. reported fully diluted earnings per share from continuing operationsdecreased for the first quarter ended March 31, 2005, to $0.18 compared to $0.49 forthe first quarter of 2004....
For the first quarter of 2005, revenue declined 14.2% to $54.3 million from$63.3 million for the same period in 2004, which was primarily driven by a declinein our supply chain management services and partially due to our tiered incentivepricing model in our business process management services. Gross margin declinedin the first quarter to 21.6% from 28.6% for the same period in 2004. This declinewas attributed to a greater portion of client volume billed at lower rates, excess callcenter capacity, continuing decreases in revenue and margins in our supply chainmanagement platform, and unfavorable foreign exchange.
Selling, general and administrative expenses increased by 14% for the firstquarter of2005 compared to the same period last year. The increase is primarily dueto costs associated with reductions in staff, recurring fixed costs of three new allcenters opened in 2004, expenses related to investments in information technologyinfrastructure and costs associated with Sarbanes-Oxley Act of 2002.
In addition, the Board ofDirectors declared a quarterly dividend of $0.36 pershare, payable on May 24, 2005, to our stockholders of record as of May 11, 2005.The reduced dividend is an initial step by management to strategically pursue growthopportunities in market and service diversification.
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153. Also on May 6, 2005, subsequent to the release of its quarterly results , StarTek held a
conference call for analysts, money and portfolio managers, institutional investors and large StarTek
shareholders. During the call, the following transpired:
[Steven Butler, the Company's CFO and Acting CEO]: In looking at grossprofit, our total gross profit for the first quarter of '05 compared to the first quarter of'04 fell 35% or $6.4 million to 11.7 million. The change in foreign currency ratesfrom the first quarter of '04 to the first quarter of '05 accounted for $1.3 million ofthis change. In addition, our tiered pricing incentives and reduced supply chainvolume accounted for approximately $4 million of this change.
Total gross margin for the first quarter of '05 to the first quarter of '04 fell7% to 21.6%. We attribute this decline to a greater portion of client volume billed atlower rates, some excess call center capacity, continuing decreases in revenue andmargins at our supply chain management platform and an unfavorable foreignexchange shift from the first quarter of '04 to the first quarter of '05.
On the selling, general and administrative expense side for the first quarter of'05 compared to the first quarter of '04 these (indiscernible) was 14% or $1 millionto 7.9 million. The increase was primarily due to costs associated with reductions instaff, recurring fixed costs for the three new call centers we opened in 2004, expensesrelated to investments in information technology infrastructure and costs associatedwith Sarbanes-Oxley.
The sales team that's in place today is still fairly new. Most of them came on boardNovember, December, January time frame. So we're obviously going to give them ashot. And we have started to see increases in volume and we're picking up somenew programs with some of our clients. The excess capacity is throughout.
Rick D'Auteuil [Columbia Management Analyst]: Just a comment. I lookedback at my notes from the last conference call and I wrote down, and this was onMarch 3rd, that the Board supports a dividend policy and there's no plans to changeit. I may not have taken that down verbatim in my notes, but it seems to me if youguys want to start building credibility you can't give a message like that and thenwithin 30 or 60 days do something contrary.
Steve Butler ...: No, but the dividend policy has always been one that youcontinuously evaluate it based on where your earnings and everything else are. Ifeverything went to hell in a hand basket would you say that the policy would be that
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we would continue to pay a dividend at a current rate? The policy is to evaluatewhere the Company is every quarter and within the context of what its strategy isgoing forward. And I think we've always been very clear on trying to articulate thestrategy of the Company as much as possible on any of these calls.
Rick D'Auteuil ...: And just a second comment. Remember that was onMarch 3rd those comments were made. And I don't know if maybe you wouldinterpret things having gone to hell in a hand basket since March 3rd. It doesn't feellike we're still sliding at the pace we were sliding anyway.
Steve Butler ...: The Board and the management seem still believe in thedividend. It's just looking at what might be the future best way to look at possiblegrowth for the Company and with the cash position we were in we felt that thedividend was very supportable.
154. On this news , StarTek's stock fell from a closing price on May 5, 2005 of $15.20 to
as low as $12.15 on May 6, 2005, before closing at $12.40 per share.
155. On May 9, 2005, Thomas Weisel Partners LLC issued a report on StarTek entitled
"Lowering Estimates on Slowing Revenue Growth and Margin Compress, which stated:
* 1Q EPS miss combination of revenue decline, margin compression andcurrency. Friday before the open, SRT reported 1Q05 revenue of $54.3mn (down14% y/y and 16% and 18% below our and consensus estimates of $64.6mn and$66.5mn, respectively) and EPS of $0.18 (versus our $0.27 estimate and $0.29consensus). The company does not provide guidance; therefore, reported results canvary significantly from estimates. The revenue decline was attributed to new tieredpricing milestones reached with the company's largest customer (55% of revenue)and a sharp reduction in the supply chain management business ($lmn versus$6.8mn in 4Q04), both ofwhich had been anticipated to some extent. Revenue wasalso affected by the delay of anticipated new business with established customers.The operating margin fell 270bp q/q, largely driven by the revenue issues mentionedabove as well as excess capacity at three new call centers opened in 2004, $1.3mn ofcurrency impact and a $0.7mn charge for headcount reduction, which is expected toyield $6mn in annualized cost savings.
Dividend reduced to $0.36 from $0.42. As expected, SRT lowered itsdividend to $0.36 from $0.42. Our expectations were based on concerns that thedividend was not being covered by FCF [Free Cash Flow]. Management indicatedthat it had decided use cash to invest in growth and diversification opportunities,which would likely involve an acquisition.
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* Reducing 2005 EPS estimates. We are lowering our 2005 revenue estimatefrom $270mn to $243 and our EPS estimate from $1.25 to a base case of $1.16.Management said that the pipeline was strong, but that sales cycles were lengthening.No new clients were signed during 1 Q05 and new projects that had been anticipatedwith established clients were delayed. Key assumptions underlying our estimate area 6% revenue decline (5% growth in the core call center business) and operatingmargins that decline to 10% from 13.0% last year.
156. Defendants' statements issued during 2005 were false or misleading because:
(a) Defendants knew there was insufficient existing and forecasted demand to
efficiently utilize StarTek's capacity which was significantly increased by the opening of new
facilities during the Class Period because StarTek's customers were contractually obligated to
provide a twelve month, rolling call volume forecast, and a monthly daily call volume forecast;
(b) The severe problems the Company experienced in 2000-2001 were not fixed
and behind the Company and the management transition and restructuring plan was still not
implemented during the Class Period, and indeed, there was significant turnover in the leadership of
the BPM sales organization throughout the Class Period. See, e.g., ¶174, 84, and 95-97;
(c) Defendants failed to disclose that StarTek had hired a new SVP of Sales in
October 2004 until March 3, 2005 during a conference call with analysts on fourth quarter 2004 and
year-end 2004 results . See, e.g., ¶184, 95;
(d) StarTek' s sales pipeline was not strong and healthy as detailed in the weekly
sales pipeline reports discussed every Monday in the Garfield headquarters, and indeed, things were
so bad that StarTek was forced to hire another new head of sales in October 2004, who completely
revamped the sales force during the course of the fourth quarter, and during the course of January
2005. See, e.g., ¶157-58;
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(e) Defendants lacked an ability to track and forecast sales throughout the Class
Period in the pipeline. See, e.g., ¶157-58;
(f) Defendants failed to account for appropriate sales cycles, of as long as 18 to
24 months. See, e.g., ¶56;
(g) StarTek's SCM revenue pipeline was "dead by October 2003 and the
teleservices revenue side of the business (BPM) was on "life support. See, e.g., ¶66;
(h) Defendants failed to disclose that StarTek was forced to drastically reduce its
pricing in return for the contract extension with ATT.. See, e. g., ¶14, 6, 26, 38, 114;
(i) Defendants failed to disclose that StarTek lost the SCM contract with
Microsoft in early 2003. See, e.g., ¶166-68;
(j) Defendants were informed in early November 2003 that Verizon cancelled a
400 seat call center order . See, e.g., ¶171, 72, 79;
(k) StarTek failed to disclose that within six months of the TXU contract being
signed in March 2004, TXU fired StarTek. See, e.g., ¶97;
(1) During 2003, the BPM sales group had very minimal success in securing new
contracts and from mid-to late 2001 through early 2004 there were only two to three new customer
contracts with the rest of StarTek' s call center revenues coming from existing customers . See, e.g.,
¶75;
(m) In late 2003 and early 2004, StarTek was in the process of closing three new
call center services contracts with Qwest, TXU, and Cricket Communication (aka Leap Wireless).
See, e.g., ¶73;
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(n) Before Christmas 2004, McKesson had withdrawn its RFP for a call center
and notified StarTek that it had decided not to outsource to call centers. See, e.g., ¶180, 83;
(o) CFO McKenzie altered the 2Q04 financial results by directing an accounting
manager to change the numbers by pulling funds out of a particular account, allowing StarTek to
report that it met revenue and earnings projections for 2Q04. See, e.g., ¶86; and
(p) By June 2004 StarTek had lost $11 million in business from T-Mobile and
would be unable to meet 3Q04 or 4Q04 projections. See, e.g., ¶86.
LOSS CAUSATION/ECONOMIC LOSS
157. During the Class Period, defendants artificially inflated StarTek's stock price by
issuing false or misleading statements. These false statements and omissions inflated StarTek's
stock price to a Class Period high of over $40. Later, however, when the truth began to leak into the
market, StarTek's stock fell precipitously as the prior artificial inflation came out of StarTek's stock
price, eventually falling to below $12 per share after the end ofthe Class Period. As a result oftheir
purchases of inflated StarTek stock during the Class Period and the subsequent removal of that
inflation as the truth about the state of StarTek's business entered the market, plaintiffs and other
members of the Class suffered economic loss, i.e., damages, under the federal securities laws.
158. By issuing false or misleading statements, the defendants presented a misleading
picture of StarTek's business and prospects. These statements caused and maintained the artificial
inflation in StarTek's stock price throughout the Class Period and until the truth was revealed to the
market. Defendants' false and misleading statements had their intended effect and caused StarTek
stock to trade at artificially inflated levels throughout the Class Period.
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159. In early January 2005, StarTek's stock declined 11% from $28.45 to $25.25 per share
as the truth began to leak into the market that StarTek's fourth quarter would be weak and that the
Company's sales pipeline was not as strong as investors were led to believe. As a result, some ofthe
prior artificial inflation came out of StarTek's stock price, damaging investors.
160. Then, on February 18, 2005, StarTek issued a press release entitled "StarTek, Inc.
Announces Management Change, which stated that Meade had resigned as President and Chief
Executive Officer of the Company. The release disclosed that "Meade and the company's board of
directors mutually agreed that a change in leadership is in the best interests of StarTek's
stockholders, and Mr. Meade has tendered his resignation to the board to pursue other interests.
Analysts were stunned and StarTek's stock dropped almost 24% from $25.75 to $19.60, removing
more of the artificial inflation in the Company's stock.
161. Investors' fears were confirmed on March 3, 2005, and more inflation was removed,
when StarTek disclosed that "[f]ully diluted earnings per share including discontinued operations
decreased by 44% to $0.30 , compared to $0.54 for the same period in 2003. The gross margin
decline of 9.7% points from 29.7% to 20.0%, was largely the result of greater costs from the
launching ofnew call center capacity to handle anticipated volume growth that materialized at lower
levels than our clients forecasted, continuing decreases in revenue and margins in our supply chain
management platform, and increased volume billed at lower agent rates due to our tiered incentive
pricing model. After this news, StarTek stock continued to fall from almost $18 on March 2, 2005
to $15.54 on April 8, 2005. However, the stock continued to remain partially inflated.
162. Finally, on May 6, 2005, StarTek announced that its first quarter 2005 "earnings per
share from continuing operations decreased ... to $0.18 compared to $0.49 for the first quarter of
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2004. The Company also announced that its revenues declined 14.2% from the same period in
2004. The stock fell to $12.40 per share on this news.
163. In sum, as the truth was revealed, the Company's stock price plummeted, the artificial
inflation came out of the stock and plaintiffs and other members of the Class were damaged,
suffering economic losses of up to $16.05 per share.
164. The timing and magnitude of StarTek's stock price declines negate any inference that
the loss suffered by plaintiffs and other Class members was caused by changed market conditions,
macroeconomic or industry factors or Company-specific facts unrelated to the defendants' fraudulent
conduct. During the same period in which StarTek's stock price fell 56% from $28.45 in early
January 2005, as a result of defendants' fraud being revealed, the Standard & Poor's 500 securities
index was essentially flat. The economic loss, i. e., damages , suffered by plaintiffs and other
members of the Class was a direct result of defendants' fraudulent scheme to artificially inflate
StarTek's stock price and the subsequent significant decline in the value of StarTek's stock when the
truth was revealed to the market.
FIRST CLAIM FOR RELIEF
Against Defendants Meade, McKenzie, Stephenson and Morgan for Violation of §11 of theSecurities Act
165. Plaintiffs repeat and reallege ¶¶1-50, 54-164. Plaintiffs, for purposes of this claim,
disclaim any allegations of fraud.
166. This claim is brought pursuant to § 11 ofthe Securities Act, 15 U.S.C. §77k, on behalf
of the Class, against defendants Meade, McKenzie, Stephenson and Morgan and is based upon
defendants' negligence or theories of strict liability.
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167. The Registration Statement and Prospectus for the Public Offering was inaccurate and
misleading, contained untrue statements of material facts, omitted to state other facts necessary to
make the statements made not misleading, and failed to adequately disclose material facts, as
described above.
168. The defendants named in this Claim each signed the Registration Statement. None of
the defendants named herein made a reasonable investigation or possessed reasonable grounds for
the belief that the statements contained in the Registration Statement were true , did not omit any
material fact and were not misleading.
169. Each of the defendants named in this claim issued, caused to be issued and
participated in the issuance of materially false and misleading written statements to the investing
public which were contained in the Registration Statement, which misrepresented or failed to
disclose, inter alia, the facts set forth above. As a direct and proximate result ofdefendants' acts and
omissions in violation of the Securities Act, the market price of StarTek common stock was
artificially inflated and plaintiffs and the Class suffered substantial damage in connection with their
purchases of StarTek common stock when the stock declined. By reason of the conduct herein
alleged, each defendant violated, and/or controlled a person who violated, § 11 ofthe Securities Act.
170. At the times they purchased StarTek shares, plaintiffs and other members ofthe Class
were without knowledge of the facts concerning the false or misleading statements or omissions
alleged herein. Less than one year has elapsed from the time that plaintiffs discovered, or reasonably
could have discovered, the facts upon which this Complaint is based to the time that plaintiffs filed
this Complaint. Less than three years have elapsed from the time that the securities upon which this
Claim is brought were sold to the public to the time of the filing of this action.
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Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 100 of 105
SECOND CLAIM FOR RELIEF
Against the Individual Defendants for Violations of §15 of the Securities Act
171. Plaintiffs repeat and reallege ¶¶1-50, 54-170. Plaintiffs, for purposes of this claim,
disclaim any allegations of fraud.
172. This Claim is brought pursuant to § 15 of the Securities Act, 15 U.S.C. §77o, against
the Individual Defendants.
173. The Individual Defendants, by reason of their stock ownership or management
position, and/or membership or representation on the Company's Board of Directors, were
controlling persons of the Company and had the power and influence, and exercised the same, to
cause StarTek to engage in the violations of law complained of herein. These defendants are
therefore liable under § 15 of the Securities Act.
THIRD CLAIM FOR RELIEF
Against All Defendants for Violation of §10(b)of the Exchange Act and Rule lOb-5
174. Plaintiffs incorporate by reference ¶11-173.
175. Each of the Individual Defendants is liable for making false and misleading
statements, or failing to disclose material adverse facts and acting directly or indirectly as a
participant in a scheme and/or course ofbusiness which: (i) deceived the investing public regarding
StarTek, its business, products and prospects; (ii) artificially inflated the price of StarTek common
stock during the Class Period; (iii) caused Class members to purchase StarTek stock at inflated
prices; and (iv) permitted defendants to sell shares of StarTek stock at inflated prices.
176. The defendants' direct participation included the preparation and/or review of
StarTek's false and/or misleading SEC filings, its Prospectus and/or misleading press releases, and
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Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 101 of 105
giving false information to securities analysts, money and portfolio managers and institutional
investors in conference calls, on the Roadshow and in other presentations.
177. As officers, directors and/or controlling persons ofa publicly-held company and/or as
sellers of StarTek stock, each of the Individual Defendants had a duty to disseminate accurate and
truthful information promptly with regard to StarTek and to correct any previously issued statements
that had become untrue, and to disclose any adverse trends known to them that would materially
affect the operating results of StarTek, so that the market price of StarTek's stock would be based
upon truthful and accurate information. Notwithstanding their duty to refrain from selling StarTek
stock while in the possession of material, adverse, non-public information concerning StarTek,
defendants sold shares of the Company's stock, thus personally profiting from their deliberate and
dishonest acts.
178. During the Class Period, the Individual Defendants knowingly participated in a
fraudulent scheme and course of business that operated as a fraud and deceit upon purchasers of
StarTek's common stock, which conduct included acts and practices which operated as a fraud and
deceit upon plaintiffs and the other members of the Class, by making various untrue statements of
material fact, or by making statements which omitted to state material facts necessary in order to
make the statements made, in light of the circumstances under which they were made, not
misleading to plaintiffs and the other members of the Class. Pursuant thereto, the Individual
Defendants intentionally caused StarTek to make false and misleading statements of material fact
and to omit to state material facts to their stockholders and the investing public. These material
misstatements and omissions are particularized herein.
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179. Despite their knowledge of StarTek's false and misleading statements , the Individual
Defendants failed, throughout the Class Period, to disclose material adverse facts about the financial
condition and business prospects of StarTek, which caused the Prospectus, press releases and other
public statements issued during the Class Period to be materially false and misleading for the reasons
particularized herein. The Individual Defendants, directly and indirectly, knowingly engaged and
participated in a fraudulent scheme and course of conduct to conceal adverse material information
about the business, finances, financial condition and future business prospects of StarTek.
180. As a result ofthe above described acts ofthe defendants, they have violated § 10(b) of
the Exchange Act and Rule IOb-5 promulgated thereunder in that they (a) employed devices,
schemes and artifices to defraud; (b) made untrue statements of material facts or omitted to state
material facts necessary in order to make the statements made in light of the circumstances under
which they were made not misleading ; or (c) engaged in acts , practices and a course of business
which operated as a fraud or deceit upon plaintiffs and the other members ofthe Class in connection
with their purchases of StarTek stock.
181. Plaintiffs and the other members of the Class, at the time of the misrepresentations
and omissions, were ignorant of the falsity of these statements and believed them to be true. In
reliance upon the misrepresentations, the integrity ofthe market and the securities offering process,
and the fidelity, integrity and superior knowledge of defendants, and in ignorance of the truth,
plaintiffs and the other Class members were induced to and did purchase StarTek common stock.
Had plaintiffs and the other members ofthe Class known the truth, they would not have bought their
shares at the prices they paid.
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FOURTH CLAIM FOR RELIEF
Against All Defendants for Violation of §20(a) of the Exchange Act
182. Plaintiffs incorporate by reference ¶¶1-181.
183. Defendants acted as controlling persons of StarTek within the meaning of §20(a) of
the Exchange Act. By reason of their positions as officers, directors or controlling shareholders of
StarTek, defendants had the power and authority to cause StarTek to engage in the wrongful conduct
complained of herein. StarTek controlled each of its executive officers and all of its employees.
184. By reason of such wrongful conduct, defendants are liable pursuant to §20(a) of the
Exchange Act. As a direct and proximate result of these defendants' wrongful conduct, plaintiffs
and the other members of the Class suffered damages in connection with their purchases of StarTek
common stock during the Class Period.
CLASS ACTION ALLEGATIONS
185. Plaintiffs bring this action as a class action pursuant to Rule 23 of the Federal Rules
of Civil Procedure on behalf of all persons who purchased or otherwise acquired StarTek common
stock during the Class Period (the "Class ). Excluded from the Class are defendants.
186. The members of the Class are so numerous that joinder of all members is
impracticable. The disposition of their claims in a class action will provide substantial benefits to
the parties and the Court. StarTek had more than 14 million shares of stock outstanding, owned by
hundreds of persons.
187. There is a well-defined community of interest in the questions of law and fact
involved in this case. Questions of law and fact common to the members of the Class which
predominate over questions which may affect individual Class members include:
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Case 1 : 05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 104 of 105
(a) Whether the Securities Act and/or Exchange Act were violated by defendants;
(b) Whether defendants omitted and/or misrepresented material facts;
(c) Whether defendants' statements omitted material facts necessary to make the
statements made, in light of the circumstances under which they were made, not misleading;
(d) Whether defendants knew or deliberately disregarded that their statements
were false and misleading;
(e) Whether the price of StarTek common stock was artificially inflated; and
(f) The extent of damage sustained by Class members and the appropriate
measure of damages.
188. Plaintiffs' claims are typical of those of the Class because plaintiffs and the Class
sustained damages from defendants' wrongful conduct.
189. Plaintiffs will adequately protect the interests of the Class and has retained counsel
who are experienced in class action securities litigation . Plaintiffs have no interests which conflict
with those of the Class.
190. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy.
PRAYER FOR RELIEF
WHEREFORE, plaintiffs pray for judgment as follows:
A. Declaring this action to be a proper class action pursuant to FRCP 23;
B. Awarding plaintiffs and the members of the Class damages, including interest;
C. Awarding plaintiffs' reasonable costs, including attorneys' fees; and
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Case 1:05-cv-01265-PSF-MEH Document 25 Filed 03/24/2006 Page 105 of 105
D. Awarding such equitable/injunctive or other relief as the Court may deem just and
proper.
JURY DEMAND
Plaintiffs demand a trial by jury.
DATED: March 24, 2006LERACH COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP
DARREN J. ROBBINSEDWARD P. DIETRICHDAVID A. THORPE
s/ EDWARD P. DIETRICHEDWARD P. DIETRICH
S:\CasesSD\Startek\cpt00029086-1.doc
655 West Broadway, Suite 1900San Diego, CA 92101Telephone: 619/231-1058619/231-7423 (fax)
Lead Counsel for Plaintiffs
KIP B . SHUMANDYER & SHUMAN, LLP801 East 17th AvenueDenver, CO 80218-1417Telephone : 303/861-3003303/830-6920 (fax)E-mail: [email protected]
Liaison Counsel
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Case 1:05-cv-01265-PSF-MEH Document 25-2 Filed 03/24/2006 Page 1 of 6
EXHIBIT A
D&B Credit Review Initiated or in Process 1"1 = Short Form Cr•e i e^tewlnitTa ed ("'y Long Form Credit Review Initiated
90% Pro bability"-' - Approximate Go-Live Seats/Units /Revenue
Safes Exe utiv Comp any Indust Revenue. for 2003 Pro-ectian Comments/Strate /Next Steps
Teleservices
Provisioning Management
bi ut, S
80% ProbabiliAnticipated Go-Live Seats/Units /Revenue
Sates Execuliv Company Industry Revenue tar 2003 Rate Prtijecuotr _ _ C omments/SIrale /Next Ste p s
Teteservrces
Provisioning Management -oi --
Met with Matt Steckmest, Bret has to travel to Phoenix call center.
Computer/Software Intuit is looking at all of the Upgrade business (Turbo Tax) moving
intuit -(Sc'.- Service s 2,493 ,4 00.00 ; Q2 to Q3 1820000 to Ama rav DVD style packaginOComputeriSottware j Nan was unable to meet. vWnr'x.ng on setting up a facility tour for
Intuit - SCM/Direet Mail Services S 58 7.000.00 02 21000,00 _ C,arksville .
Current customer , issued new RPF for same program on 2/20/03.RFP response due back by 3/10/03. LF Credit Review positive.
NOA submitted on 2/27/03. Postive Feedback from Dan regarding
Aaoie 4arJv:are I Compute, t-iar*.vre 02 340000 85.700 000 our cro oral- Decision wii he made =n trio r.ex: ^,nc waeys.
3talfor 80.% Probability -_ $
0%and-Above Probabi(i .. t
..
Anticipated Go-Live SeatslUnlts/ReverWO
Sales Executive Company Industry Revenue for 2803 Date _Projection _ CommentsfStratgyfNeal Steps
Te term-rvicesModerately positive meeting at Sprint's site 1/28 (we needed . I
support). Awaiting word on if we made the next round; were toj make site visits likely by the end of Feb. Only feedback has been
Mark Marian Sprint PCS l TelecomlEsuipmerit _ y 5 000.000.00 _ 1-Aa4 L 2 50 _ t^ a::hev avast- evai1atino avert=n,1._B. ;ockwoo•d is researching bondedelicensed agent issue.
Working with David to prepare incentive package. Tentavie
Jeff Blair & Rick Wri ht at C)The Sgn Insurance S 3,103,000.00 l June 25 initial, amp to 70 mee:inn for mid March._StarTek must bring a piece of IVR business to XO to win the call
I center business Working with Stacy Dumas to identify potential
Jeff Blair XO Communications (7 7Elecorrr,'Eq uiome rt $ 510.000.00 June 34 seats -. - programs. _
Site visit was positive. Submiteed RFP. Expecting short list
A&E f") Cable $ 488.400.00 June 25 seats decsion by March 20. M•eetirq v,,th AET•i on March 18 in CT,
SCMCnmputnr'Software Svemitted RFP - Positive Feedback ability to secure business will
Te rry Fine-
•, pple Software & FuGilme rut SCM -Services $ 1,000 300.00 Q2 450,000.00 be determined by how StarTek responds to Hardware RFP
Current customer, issued new RPF for same program on 2/20/03.RFP response due back by 3/10/03. LF Credit Review positive.
Aaa.e l-larc•.vare Computer Hardware G2 340000 NOA stihmnt_c an 2127.03.
Total far 50% Prebata• ' $ 81 D1 400.af1
n0)CD
O01
n
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NC)Sn
1
n
m
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N01
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a)raCDN0
0
Proba
Teleservites
Marc Marion Fed Ex f j,..._-'-. - - -• - '- -- IT - - 5 ----.._.__
Verizon Online{':.Cablevision
_TeiecamEcupmenCoale/Salell + te S __.
D:rec7v f -I CabWSatelIite
Je_ff_ BlairdRick Wrisht Starz En -.or-
Jeff Stair Scn v Ericsson Ta[eCam/Equi meet I $ _,
AFLAC Insurance
_ Czntury7el(""} TeleCpm'Eq uip5
Telecom/Equipment/
Grande Communications l•}, Ca hie $
Tom Amritt Sun_Am_ erica Insurance ^^sura nce _
-^kI submitted. Awaiting RFP. Concern : their interest in
_ _ _ _ _ _ __ _ understandin ,g_qur pNshor=caaab=̂itylplar.... __ __-'--.-.^-.^_.._^
_------ -- .- -- -RFlsubmi ted Awatin feedback_-'------
_ .
Collapse of EchoStar purchase , looming ownership changes may
hat any 've ndor cnan q es.
/^
t J
255900 3 20 Seats Jan 22 our p ostponed . Rescnedulinq for e arly 02.• , --
Submitted RFP Feb. 26. SET is being "sponsored" by The CD
1.042.000.00 I 43 180 seats ig nal. Tr1e Sign a, is5 atting us phcr ie cant f or week e '?,vtarc 10 .,
MZt in Columbus on March 5 . SRT's lack of experience in
Insurance sector is BIG issue. Specifically , our lack of knowledge
and compliancy issues relating to HIPPA and GLB . Phone !
TOO 03 TBO •,_ - _ I --- mOOtinn_schedul ed for March :3. <
Submitted pricing 3/2. Schedule meeting /site visit. Successful Q
317,000 . 00 June 14 FTE IpiIot L ar ' o: writ r epo=t . n alike, 1 su pper, ` o r Cantur Tel I S P
Submi ! pilot program pricing. Set site visit. CSG connectivity issue N
needs to be finalized . Successful pilot could result in up to Q
317.000 05 June 14 FTCip ioi}_ ='• GOC cal ls per rren th .
SunAmerica looking to reduce costs.4-5K Calls a day.Tour inviteCl)qg waiting for dates. No off-shore may hinder us.nter-dad
-_
:esn7e seeds pa, nt Eagrow wt^ em. ores savvy Tl
Britesmile Health ProCUC; TBD TBD CSRs.Schedu linq tour.uus'sourced b snared aa eriL, ran , wLgn 7W-' _r OOkr'1 ^ 5-11 5-c ur el 1 C1:51omer support m._
__ _ _ __ Merc J!y G`3un In^urunOx Co._-1 _I.nsurance _ - ___- ,_
'erry Fine TheraSense tealin Product S
!rovisianinq 'ManaoEcnent .'-
Marion
eff Blair
Amritt
erry Fineanada - Verveick RobertsenfRick Wright
anada
•otal for 30% Probabltit
Sorinr i^M! Telecom/Equipment $ _
I
Can Business Cable+Sat ellit_ $
Georgia Pacific !SCMI (I -Ca:sumer Retail S
Mercury Group InSurpn_e Co. Insurance . _ ,
MvSQL. (•y Computer Software $
Bell CanOda!Sympat:c.c. S'-") Teiecom..Eacipment $
S
ecuryis .g, .. ..
TBD_,,, establish an additional touch point in their process_Scheduli - m
RFP will be received week of March 24th, decision made within !-i
2 . 0c)0,000.010 02.03 Million Units next 3 to 4 weeks.
Tim McKinley's departure reduces the a-obahility of this happen•ng
in the immedate term. Probability, start date, and potential Q
_ _revenue adjusted ccordingh_ ____,___ 0
Site visit was positive. Discussing feasibility of pilot program 0
encompassing Cox's N. Virginia commercial roll-out operations and C
SAS opportunities. Contact will assist with warm introduction to 3
TBD TBD cors.:mer arm of Cox Commun;cat: ons. CD
Vs'•vary from Site tour confirmed for 1130. Currently F••icinc a project with Terry
_1,000.009 ^C• C2 _L__._._._.___.Proiect ______...._ .__ and crew `or Co pact protect ast value 53CC-400K N
Mercury is looking to outsource level 1 customer support to
establish an additional touch point in their process. During the
meeting I explained we could provide the level of service
necessary to increase their customer satifition level. Working on
75D TBD_ __...._. scheduling tour. _TBD __.._Client eager to close, internal questions and concerns, mainly with
regards to SRT's missing FF capabilities, will have to be
addressed. PVF approved on 2/25/03 and fulfillment pricing rnetr_x CD
505,000.00 4.orr, 2003 submitted. NOA submitted. Waiting for Ops approval
QBell Canada RFP received on 3-5-03 Currently working on - Rick (^J
1 600.000.00' I Q2 100, FTE's WriGirt!
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IT/. and Above Probab EAnticipated Go-Live Seats/Uniis[Revenue
Sal Execuhv com2any Indus fry R even ue for 20113 Date Project ion Com m a nts/Stra te_ y_Ne xt Ste 5
Te to servicesDeB Posit vv.. - tour n.,^ e cost Carac:a-. cve•vlew sent: being
Rick Wrig ht Mcfsssor Pharmac utica^ TED 3 35 Seats presented to Ken Waco ische0ule0 fo r t fercr, 19)
Mark Blarion Verizon Telecom/'EquipmentIT $
Panason ic IT $Despite loss of RFP opportunity {offshore), continued dialogue in
anticipation of a domestic opportunity. Working for late March vis:'
Pr udential Finan cial si PA- (/J
Tom Amritt 02 $ ,• - - Q2-• Computer/Software SVP seemed interested in cost savings-requested more in?o-will
Earthlin k Servi nen g •. - Q3 Se t meeting in ATLU-
- -03
-^^ more ?^lnterestecive ca rom ring ans ice a sent f)Key Bank Corp Banking Servi ces ^ - _ 03 ••+nI owering costs.
Computer/Sofiurare Spoke to VP-CS-wants to learn more-outsourcing is a viable
Peachtree Software Services $ Q3 option for Peactree,
Marsh & MCClznnan Insurance $ - 03 In Process of se itirg up Meeeng! _
Computer/Software I know they've outsourced before couldn't get details of last a
Siebel Systems Services $ Q2 engagement- Worhin q tq coordinate s chedules wish th eir team- U
Jeff Blair '^eiacom (!
BellSouth CC Telecom 5 TBD TBD Continued interaction. Site vis,t rnvwtat,or TNOA expected within the month. RFP expected within two months.
Telecom TED TBID Tertai ve maetino scheduled for late March .
ComputerlSoftwareSyrnantec Services TED TBD _ Corproa fepra sentation
Futediacom Cable TED TED Corpora Preszntation
Arch wirele ss [aadnq g rvices) Telecom TED TEE Meetinv in Dalias_mid March
Amgen Pharna. TBD _I•,_ Ti3t7 _ Corp orate Present ation_Ailt el Telecom _ TED _ TED Contiinued tni eraction. Sife visit invitation G
Comcast Online Cable/ Satellit e $ TED TE D Define dates for vendo r chance.+re-evaluation. n_ _ _
GSK
-
Pharma. $ TED TED Coati mned inte raction. S it e visit irmvitafion
GE _ •• Lea d trom XO. Detln e ^) auorunity__Y_ 3
TracFone Wireless- Telecom Wpricina wine Leanra to define off-shore. [ C hile] cap abilities. CD
Express Scoots Health ProductsComouterfScftware
$ _ - TBD TED RFP expected Q4. Continued i n teraction.Made the cut from round 1. Will be receiving an RFI for Round 2 N
Terry Fine Intuit Call Center fTi I Services_ 1,500,000.00 Q3 _ week of Ma rch 24t h . _ 1
Presented blended offering including SCM and Teleservices
Contract Packaging complete with Credit Card processing and fulfillment. Customer
Blended Service SCM will be doing national launch in Q2-Q3 timefram. Working on
Mus:c Nation & Tn!eservices/"';• $500,000 02.03 253.000-3000M00 Credit chSW to advance customer us o:oelirip.
Provisioning ManaciemerdTotal orders per month: 20,000 for Teleco's client, RFP for Phase tprogram: 5,000 provisioning orders. RFP in hands by mid-March, Q
Rick Wright Adventis Consultinq TeleCom TBD Q3 100 tour being scheduled
Mark PAeri'.n Verizon(") Telecom/Equipment $ - C(JJSCM
Pricing has not gone in yet for HP/Epson. It will go in 3!2-;,C2 to J%j
Bob Nelson Costco (") Specialized Packaging $ 3,000,000.00 Q3 Not Kown Mike Parriott.They have special packaging needs like Costco. I have talked to N
Sams Club All Retail Packaging $ _ 2,000,000.00 Q3 Not Known Packaging manager. Next scheduled visitMa
v .
j j They are moving part of the Camera div. to CO. Rochester is going
to make the decission on internal packaging or external. They like
Kodak Camera Div. $ 1,000,000.00 Q4 Not Kn own UV sealing because it does not affect the components
Cost is still the factor, with not only tooling costs, but clam. Blister
WaterPix House Wares $ 1 000 000 00 Q4 250 000 's at the Paramount., , . ,Lawn and garden company. We will meet at the lawn and garden 0)
Nelsons Lawn and Garden $e
Q1 2004 TED show for pricing.
Dell Com uter/Hardwar Q4 TBD Workin g on settin g u p initial meeting
0
0)
CD Stomper_i LabelCD ing $ S 1^b00.00 Q4 $250,0 00 Meeting will be for the last week of May.
procure automation . Open to guareented contract with amortizedequipment cost, partial equipment payment up front etc...
Strategic Integ ration ( SCM) (') Advertising.Media $ TBD 0 Conference call scheduled Monday to discuss further.
Western Forge (SCM) (" ) Hdwe. Manufacturer $ 960,000.00 Q3 800000 Trip to Colorado Springs will not be until 4/1/03
Pinnacle Systems So, ware _ $ 1 000,000 .0 0 '. Q3 800000 Patrick wants t o do an office tour in May for fall business.Talked w/ CEO ( Richard Merzon. Wants vendor to produce
product for CA stores ( Costco ). Want assembly and packaging.Case- It make games backpack for Xbox , Sony Playstation. Clam
Accs. for Game Shells and Inserts . Packaging and some turnkey. Opportunity for
Case-It Industry ____ , $ __ 1,400,000 .00 3 1000000 business in UK._Credit has been approved and first order will be 3/24/03 for PID's.
Catalysis $-_,._____._ 518,000.00 March 370000 Second order will be for 150K folders and CD's
Computer/Software Will target with SCM letter as well as free ticket offer. Set meeting
Terry Fine UBI Soft Services during trip to Nort hern California.
JMTek Retail Displays $ 56, 000.00 Q2 J 40000 Submitted pricing awaiting feedback week of March 24th.Working on setting up a facility tour for the Clarksville plant in
Electronic Arts (SCM) (") ___ , Entertainment/Games , $ __ -,_ _-__. 1,639,99 8.36 . Q2 3999996 February/March.
Eidos ( SCM) Entertainmen t/Games- . $ .,.__ _-1 600,0 00.00 Q3 10000 0 0 RFP has been delayed until Q1 03! ._
Client toured facility - Positive Feedback, awaiting budget andforecasting information to determine capacity allocation. Forecast
Seqa (SM) Entertainment/Games_$ Q2 1575000 data available April
Computer/Software 11 Meeting with Jim on 3/25/03 to present StarTek value proposition
Activision Services $_-____,_.__._-, 2,000,00.00 2M to 3M and discuss potential next steps.
Computer/Software Currently using Future Media. Working with John Munn at Future
THQ Services $ -.. ... Q3 Media to schedule meeting.Trying to schedule meeting. Leveraging Eddie Pritchard's contacts
Com puter/Soft ware at Rock Star Games, a subsidiary of Take 2. Currently using Allied
Take 2 Services---$ Q3
Vaughn . ._._
Meet with Jason last fall. Started utilizing SonoPress after tiring
Computer/Software Technicolor end of Q2 02 . Jason express some dissatisfaction with
Lucas Arts Services $ Q2/Q3 2M SonoPress during last discussions . Set meeting for end of March.
Computer/Software Client would like to see some preliminary GameCube pricing. Will
Konami Service s be submitting pricing matrix week of 3/10/03.Working on securing meeting for next trip to NY . Currently using
Computer/Software Metatec and John Ma has some concerns with their financial
Acclaim Services _ I $ situation and long term viability.--'- Positive facility tour held on 2/3/03. Received request for quote on
Consumer Goods 3/5/03/ Client samples arrived @ StarTek 3/20/03, pricing due
Xpedx (") _ Packaging $ back to custom er 4/1/03.
Computer/Software Met with Dan Brown - nothing immediate - expressed concerns
Adobe Services $ over our concentration of Microsoft business.
Consumer Goods Positive facility tour held on 2/3/03. Working in a capabilities list to
Unisource
3
Q send to Tim. Set up joint sales colts
Computer/Software Positive meeting last week. StarTek will be included in RFP due
Roxio ervices Q3 March /April time frame, Modus Media contract expires in July 03..Project delayed due to John ' s customer issues. Received project
Computer/Software specs will matrix for negotiation during meeting 3/24/03 in Los
Future Media ( SCM ) ' Services 1 , 151.500.00 Q1 2350000 An g eles..
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• Opportunity scope defined. O•utsovrcin, opportunity of 40 seats to start-
Meeting with Robert Stark scheduled for March 18. Rogers confirmed
Rogers Cable Cabfe.rSatellit 1.20C,CC0.00 43 n•; Sea cs _ meeDng a[ C auadlan lrao e show. _
Working to set meeting with Richard Graham and VP Strategic
CI BC Bang TBD T G Outsourciao. Will kn ow more next week.i ghtMet Don Cornier to discuss euisourciv.g requirements. Requires n
service to handle customer services operations and handle call spike
I volume associated with power outages. Potential to grow to 20 seats in
CCay 4 Hydro _flnergv Cemaanie s_ t „- 04 10 seats i ear V,--re.
Nortel is using Cap Gemini as its Call Centre consultant to recommend
outsourcing call centers. Have meeting with John Moran, VP (1)
A - Telecommunications/ Outsourcing of Cap Gemini to determine partnership capabilities with Cl)
Ng2el Netwon[s 03 TED __- _- SiarTek CD
Non Banking Finans=al - Yrvir•.g to s:nedule meeting with Vania Re-c"e. Current strateg:c
Certas Ore s - _esjerd_ns Group I nsurance TBP TED Ousourcinp p;ae r5 bein g v._ivhflu o.iL
C)Telecommunications/ Partnership talks about bidding for future opportunities into the
Cone•
=oulumen; 03 TBD _ eovernmen r-for Tecnr[ca l Suaoort or. networks
esure Time Industries -
Air Franca Canada SAirlines TED - - TED O n Hold until April tr ee a show . Confirmed al.erl4snq Lo 5 rTW bov!n.-
Director Card Services helping to set rnee tino withJames McIntyre I
TED TED
,CEO 6MG Life Ins ruanceajS gq nGordon H
Bank of Krtreai Bank-
- .idiP E&
Bea ury Rock
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rO to scuss meresidentMeeting arranged with Stan Body. C
inbound call handing requirements. March 12 b V conference Call._
• f Non Banking Financial -
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AirCanada Aii l n es S - financial raven and Lrlpn_ :snue5. _
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Case 1:05-cv-01265-PSF-MEH Document 25-3 Filed 03/24/2006 Page 1 of 4
EXHIBIT B
Case 1:05-cv-01265-PSF-MEH Document 25-3
CUSTOMER
STARTEK REVENUE BY CUSTOMER
1998-2002
1998 1999 2000 2001
Filed 03/24/2006 Page 2 of 4
# Years
2002 Grand Total CAGR SRT Acct.
1st Quartile (Top 10)
Microsoft $102,230,847 $159,086,878 $141,161,710 $88,369,596 $71,510,652 $562,359,683 -6.9% 5 SCMAT&T Wireless $519,990 $12,119,672 $15,113,760 $34,898,303 $54,642,238 $117,293 ,963 153.7% 5AT&T Frame Relay $14,067,402 $19,743,936 $27,580,035 $61,391 ,372 25.2% 3America Online - TS $8,928,381 $13,076,667 $16,059,399 $13,008,982 $5,422,416 $56,495, 845 -9.5% 5Voicestream $0 $11,825,746 $25,297,621 $37,123,367 46.3% 2
Hewlett - Packard $13,246,308 $4,198,872 $3,542,646 $4,057,571 $4,024,359 $29,069,756 -21.2% 5 SCMApple Hardware Tennessee $0 $3,272,145 $7,866,541 $11, 138,686 55.1% 2 SCM
Canon $1,889,047 $4,285,540 $1,043,090 $663,101 $108,699 $7,989,477 -43.5% 5 E-COM/SCNikon $616,526 $1,574,335 $2,721,642 $4,912,503 64.0% 3
Infogrames $1,124,333 $1,509 $3,425,985 $051,828 45.0% 3 SCM
Average Revenue Top 10
(including Microsoft) $25,362 ,914 $38 , 553,526 $24,091,108 $17 , 741,522 $20 ,260,019 $25 ,201,818
Average Revenue Top 10
(excluding Microsoft) $6,145 ,931 $8 ,420,188 $7,366,737 $9,893,959 $14,565,504 $9,278,464
Total Revenue Top 10
(including Microsoft) $126,814 ,572 $192, 767,629 $192,728,866 $177,415,224 $202,600,188 $892 ,326,479Total Revenue Top 10
(excluding Microsoft) $24,583 ,725 $33 , 680,751 $51 ,567,156 $89,045,628 $131 ,089,536 $329 ,966,797
Remainder of 1st Quartile
Polaroid $452,746 $1,077,977 $1,448,114 $1,121,765 $0 $4,100 ,601 -100% 4
Broderbund $3,231,406 $0 $3,231 ,406 -100% 1 SCM
Netzero $0 $2,365,175 $420,460 $0 $2,785,635 -100% 2 SCM
Electronic Arts/Virgin Interactive $2,285,009 $412,095 $17,518 $1,745 $0 $2,716 ,366 -100% 4 SCM
Gifts.Com $0 $1,101,742 $1,014,554 $0 $2,116,296 -100% 2 E-COM/SC
Casio $78,571 $453,729 $486,725 $582,591 $507,974 $2,109 ,590 45.2% 5
Time Warner $2,007,358 $2,007 ,358 N/A 1
Scansoft $0 $691,030 $709,116 $330,429 $56,041 $1, 786,616 -46.6% 4
The Learning Co $18,014 $1,502,905 $158,359 $344 $0 $ 1,679 ,623 -100% 4
Accolade $1,090,617 $215,883 $18,428 ($19) $23,039 $1,347,948 -53.8% 5 SCM
Quepasa.Com $1,158,300 $0 $ 1,158 ,300 -100% 1 SCM
Simon & Schuster $423,945 $292,457 $138,870 $160,262 $140,585 $1,156,119 -19.8% 5
Interplay $1,002,609 $14,371 $1, 016,979 -100% 2
South Peak $323,434 $581,272 $58,734 $0 $963,440 3
FiloFax $29,660 $145,889 $221,294 $266,190 $288,066 $951,099 5Swatch $22,350 $825,842 $98 ,500 $946,692 3
Insignia Customer Service $450,012 $424, 528 $874,540 2 E-COM/SC
Xerox $175,114 $507,821 $4,492 $0 $687,428 3
Monolith Productions, Inc. $610,718 $29,975 $640,693 2 SCM
Acclaim $671,519 ($107,208) $4,062 $41,491 $20,860 $630,725 5 SCM
Oracle $100,314 $156,917 $143,705 $126,153 $55,760 $582,849 5Logiteck Inc. $484,705 $79,674 $564,380 2 SCM
One off CD Shop - Denver $298,052 $161,738 $64,996 $15,763 $0 $540,549 4 SCM
Take 2 $0 $149,063 $126,945 $74,365 $173,444 $523,816 4
Hasbro - UK $143,089 $219,821 $147,233 $0 $510,143 3Infotainment $28,845 $447,245 $476,091 2 SCM
My Business $201,119 $184,098 $60,769 $445,985 3Live Picture $355,839 $61,724 $417,562 2
Titus Software Corp $0 $240,830 $120,437 $39,282 $106 $400,655 4 SCM
Disney $753 $114 $376,368 $377,235 3 SCM
$12,254,221 $11,226,651 $3,770,416 $3,770,416 $3,808,870 $37,746,721
Average Revenue of entire 1st
Quartile ( incl. Microsoft) $5,562 ,752 $7 ,034,286 $6, 549,976 $6 ,710,579 $8,974,307 $23,251,830
Average Revenue of entire 1st
Quartile (ex. Microsoft) $1,256,103 $1 ,603,836 $1 ,908,192 $3,569,848 $6, 131,746 $9,428,552
Total Revenue of entire 1st
quartile (incl. Microsoft) $139,068 ,793 $203,994,280 $196 ,499,282 $181 , 185,640 $211 ,574,495 $930,073,200Total Revenue of entire 1st
Quartile (ex. Microsoft) $36,837 ,946 $44,907,403 $55,337 , 572 $92,816,044 $134,898,406 $367 ,713,518
2nd QuartileInforgenie $0 $26,126 $149,327 $83,396 $89,749 $348,597 4
Domain Weddings $116,159 $220,295 $336,454 2
V-Tech $0 $144,698 $188,604 $2,219 $0 $335,521 3
Modus Media -Pkg $228,469 $43,358 $2,973 $29,422 $0 $304,223 4 SCM
Airlines.com $274,594 $274,594 1
Alphasmart $34,497 $160,295 $63,817 $258,609 3
Case 1:05-cv-01265-PSF-MEH Document 25-3 Filed 03/24/2006 Page 3 of 4
Other $132,999 $182,671 $47,654 $175,455 ($286,678) $252,100 5
MediaGold $22,086 $71,965 $140,836 $234,887 3Princeton - TS $107,344 $103,620 $4,046 $0 $215,010 3Starplay $53,299 $89,995 $50,225 $21,579 ($2,058) $213,041 5 SCM
HealthETech $206,345 $206,345 1 SCM
Appleton & Lange $123,646 $36,830 $18,237 $16,632 $4,859 $200,203 5 SCMFWB $199,833 $0 $199,833Sigma Designs $92,682 $88,580 $13,945 $0 $195,207 3Novalogic $0 $14,595 $56,375 $69,835 $54,294 $195,099 4Kaplan $100,027 $84,687 $1,653 $0 $186,367 3Surf Control $19,641 $72,677 $92,130 $184,448 3Bestware UK $65,815 $137,376 ($19,900) $0 $183,291 3Cable & Wireless $0 $117,206 $61,693 $1,439 $0 $180,337 3Legos $174,218 $2,404 $176,622 2
Quantum $169,781 $169,781Money Gram - Packaging $156,768 $0 $156,768 1 SCMAshton Court $153,079 $153,079ThinkStream $152,377 $1 $152,379 2 SCM
Panasonic $45,408 $80,974 $24,511 $150,893 3Weddings.com $147,014 $147,014
Pixology $8,307 $123,572 ($313) $131,565 3Knight Frank $39,287 $64,067 $22,957 $126,310 3Crave $0 $17,584 $32,974 $32,936 $33,267 $116,760 4Domain Airlines $34,610 $76,183 $110,793 2Web TV $5,279 $10,385 $90,538 $106,202 3 SCMBungie Software $93,591 $2,850 $96,441 2 SCMExpamet $24,161 $70,900 $95,061 2Mediaphex Prod $0 $91,665 $91,665 1 SCMNew Mexico State University $0 $84,957 $84,957 1 SCMCustomer Com. Group $37,237 $34,529 $71,766 2 SCM3DO Company $71,583 $0 $71,583 1 SCMFront Range Solutions $71,267 $71,267 1 SCM
MITSUI ADV MEDIA - PKG $26,590 $660 $18,323 $24,576 $0 $70,149 4 SCM
20th Century Fox $66,000 $0 $66,000 1 SCM
Average Revenue 2nd Quartile $100,400 $65,490 $47,968 $70,416 $71,052 $173,031
Total Revenue 2nd Quartile $1,706,807 $1,375,293 $1,151,233 $1,337,902 $1,349,988 $6,921,224
3rd QuartileFidelity $30,000 $30,000 $2,500 $0 $62,500 3Guidesoft $60,156 $0 $60,156 1 SCM3D Labs Inc $0 $53,215 $2,580 $0 $55,795 2 SCM
Ziosoft $54,877 $54,877 1 SCM
BMG - UK $45,818 $0 $45,818
Electronics.Net $20,000 $25,000 $45,000 2Value Added - Pkg $44,270 ($2) $44,268 2
Fuji $0 $43,613 $43,613Laserfile $38,530 $1,942 $40,472 2 SCM
Prentice Hall $18,000 $18,000 $2,017 $0 $38,017 3Creative Source $24,365 $13,114 $37,479 2 SCMDecision Mark $36,073 $0 $36,073IBM Tucson $25,603 $10,413 $36,016 2Joytech $7,293 $11,734 $10,479 $29,506 3Trigem - TS $29,357 $0 $29,357Exabyte $27,059 $0 $27,059 1 SCM
Manheim Auctions $26,230 $0 $26,230Metro Radio $0 $24,392 $24,392
Micron Biosystems $22,772 $0 $22,772
Buzzsoft $0 $9,782 $12,717 $0 $22,499 2
MathSoft $21,989 $0 $21,989Prompt Software $20,578 $974 $21,552 2 SCM
Duke Communications $4,502 $14,613 $0 $19,115 2 SCM
1 Vision Software $14,200 $1,031 $394 $15,625 3 SCM
Classic Packaging $0 $15,610 $0 $15,610 1 SCMGartner Group $15,000 $0 $15,000Interactive Partners $11,571 $3,205 $78 $0 $14,854 3
Wholesale.com $13,500 $13,500Binks Sames $12,731 $58 $12,789 2 SCM
SMT Plus Inc. $8,744 $2,085 $10,829 2 SCM
Ubisoft $7,382 $2,396 $0 $9,778 2Recoil $0 $9,635 $9,635Zane Publishing $7,280 $0 $7,280 1 SCM
Alphagraphics $0 $6,214 $582 $6,797 2Webster-Merriam $6,446 $0 $6,446 1SI Media $4,472 $1,606 $0 $6,078 2World Book $5,338 $0 $5,338 1SalesLink $5,255 $5,255 1 SCM
Tenth Planet PKG $5,199 $0 $5,199 1 SCM
Case 1:05-cv-01265-PSF-MEH Document 25-3 Filed 03/24/2006 Page 4 of 4
Motorola $5,185 $0 $5,185
Average Revenue 3rd Quartile $22,732 $14,802 $5,774 $7,832 $14,181 $25,244
Total Revenue 3rd Quartile $568,296 $251,640 $57,741 $46,989 $85,088 $1,009,754
4th Quartile
Viacom $5,000 $0 $5,000 1 SCMElectronics.com $0 $1,448 $3,495 $4,943 2Frequent Flyer.com $4,619 $4,619Currency.com $4,354 $4,354
Speech Teach $4,035 $4,035 1 SCMDomain Wholesale $32 $3,993 $4,024 2First Prespertian Church $0 $3,909 $3,909Probate Software $3,580 $0 $3,580 1 SCMBurrus Research Association $1,950 $1,307 $3,257 2 SCM
Sound Media Design $0 $3,009 $3,009 1 SCMOdyssey Tales, Inc $0 $1,720 $900 $0 $2,620 2General Comm., Inc. - Internet $2,500 $0 $2,500 1 SCMMy Software $2,500 $0 $2,500
KinderActive $2,324 $0 $2,324
Seaward Electronics $2,081 $0 $2,081
Marco International-PKG $2,000 $0 $2,000Sony $1,600 $0 $1,600Birthdays.com $0 $127 $1,351 $1,477 2
Patient Education Institute-PKG $1,040 $0 $1,040
PASE - United Kingdom $1,023 $0 $1,023
Bookings.oom $0 $263 $532 $795 2Line Up Police Product $781 $0 $781
Annuities.com $0 $28 $661 $689 2Animatek $544 $0 $544 1 SCM
FastForward/Cascade $504 $0 $504
Domain Investments $73 $27 $59 $159 3
Doctors.com $38 $30 $64 $133 3KAO Infosystems $121 $0 $121 1 SCM
Guidebook.com $0 $28 $69 $97 2Profit.com $89 $89Technology.com $34 $38 $0 $72 2
Firearms.com $57 $0 $57
Ships.com $0 $26 $30 $56 2Hospitals.com $0 $44 $0 $44
Anniversaries.com $36 $36Museum.com $0 $27 $0 $27 1
Communications.com $26 $26 1Intuit ($90) $0 ($90) 1Piranha ($1,659) $0 ($1,659) 1
Waranty Reserve ($453,916) ($574,004) $125,000 $0 ($902,921) 3
Average Revenue 4th Quartile ($23,784) ($112,812) $18,019 $506 $1,387.09 ($21,014)
Total Revenue 4th Quartile ($428,117) ($564,060) $126,134 $6,077 $19,419 ($840,546) 353
Case 1:05-cv-01265-PSF-MEH Document 25-4 Filed 03/24/2006 Page 1 of 4
EXHIBIT C
Case 1:05-cv-01265-PSF-MEH Document 25-4 Filed 03/24/2006 Page 2 of 4
Pagel I (All)
Sum of Value ColumnRow 1998 1999 2000 2001 2002 Grand TotalMicrosoft $102,230,847 $159,086,878 $141,161,710 $88,369,596 $71,510,652 $562,359,683AT&T Wireless $15,113,760 $34,898,303 $54,642,238 $104,654,301AT&T Frame Relay $14,067,402 $19,743,936 $27,580,035 $61,391,372America Online - TS $8,928,381 $13,076,667 $16,059,399 $13,008,982 $5,422,416 $56,495,845Voicestream $0 $11,825,746 $25,297,621 $37,123,367Hewlett - Packard $13,246,308 $4,198,872 $3,542,646 $4,057,571 $4,024,359 $29,069,756AT&T $519,990 $12,119,672 $12,639,662Apple Hardware Tennessee $0 $3,272,145 $7,866,541 $11,138,686Canon $1,889,047 $4,285,540 $1,043,090 $663,101 $108,699 $7,989,477Nikon $616,526 $1,574,335 $2,721,642 $4,912,503Infogrames $1,124,333 $1,509 $3,425,985 $4,551,828Polaroid $452,746 $1,077,977 $1,448,114 $1,121,765 $0 $4,100,601Broderbund $3,231,406 $0 $3,231,406Netzero $0 $2,365,175 $420,460 $0 $2,785,635ElectronicArts/Virgin Interactive $2,285,009 $412,095 $17,518 $1,745 $0 $2,716,366Gifts.Com $0 $1,101,742 $1,014,554 $0 $2,116,296Casio $78,571 $453,729 $486,725 $582,591 $507,974 $2,109,590Time Warner $2,007,358 $2,007,358Scansoft $0 $691,030 $709,116 $330,429 $56,041 $1,786,616The Learning Co $18,014 $1,502,905 $158,359 $344 $0 $1,679,623Accolade $1,090,617 $215,883 $18,428 ($19) $23,039 $1,347,948Quepasa.Com $1,158,300 $0 $1,158,300Simon & Schuster $423,945 $292,457 $138,870 $160,262 $140,585 $1,156,119Interplay $1,002,609 $14,371 $1,016,979South Peak $323,434 $581,272 $58,734 $0 $963,440FiloFax $29,660 $145,889 $221,294 $266,190 $288,066 $951,099Swatch $22,350 $825,842 $98,500 $946,692Insignia Customer Service $450,012 $424,528 $874,540Xerox $175,114 $507,821 $4,492 $0 $687,428Monolith Productions, Inc. $610,718 $29,975 $640,693Acclaim $671,519 ($107,208) $4,062 $41,491 $20,860 $630,725Oracle $100,314 $156,917 $143,705 $126,153 $55,760 $582,849Logiteck Inc. $484,705 $79,674 $564,380One off CD Shop - Denver $298,052 $161,738 $64,996 $15,763 $0 $540,549Take 2 $0 $149,063 $126,945 $74,365 $173,444 $523,816Hasbro - UK $143,089 $219,821 $147,233 $0 $510,143Infotainment $28,845 $447,245 $476,091My Business $201,119 $184,098 $60,769 $445,985Live Picture $355,839 $61,724 $417,562Titus Software Corp $0 $240,830 $120,437 $39,282 $106 $400,655Disney $753 $114 $376,368 $377,235Inforgenie $0 $26,126 $149,327 $83,396 $89,749 $348,597Domain Weddings $116,159 $220,295 $336,454V-Tech $0 $144,698 $188,604 $2,219 $0 $335,521Modus Media -Pkg $228,469 $43,358 $2,973 $29,422 $0 $304,223Airlines.com $274,594 $274,594Alphasmart $34,497 $160,295 $63,817 $258,609Other $132,999 $182,671 $47,654 $175,455 ($286,678) $252,100MediaGold $22,086 $71,965 $140,836 $234,887Princeton - TS $107,344 $103,620 $4,046 $0 $215,010Starplay $53,299 $89,995 $50,225 $21,579 ($2,058) $213,041HealthETech $206,345 $206,345Appleton & Lange $123,646 $36,830 $18,237 $16,632 $4,859 $200,203FWB $199,833 $0 $199,833Sigma Designs $92,682 $88,580 $13,945 $0 $195,207Novalogic $0 $14,595 $56,375 $69,835 $54,294 $195,099Kaplan $100,027 $84,687 $1,653 $0 $186,367Surf Control $19,641 $72,677 $92,130 $184,448Bestware UK $65,815 $137,376 ($19,900) $0 $183,291Cable & Wireless $0 $117,206 $61,693 $1,439 $0 $180,337Legos $174,218 $2,404 $176,622
CAGR-6.9%53.5%25.2%-9.5%46.3%-21.2%-100%55.1%-43.5%64.0%45.0%-100%-100%-100%-100%-100%45.2%NIA
-46.6%-100%-53.8%-100%-19.8%-100%
Case 1:05-cv-01265-PSF-MEH Document 25-4 Filed 03/24/2006 Page 3 of 4
QuantumMoney Gram - PackagingAshton CourtThinkStreamPanasonicWeddings.comPixologyKnight FrankCraveDomain AirlinesWeb TVBungie SoftwareExpametMediaphex ProdNew Mexico State UniversityCustomer Com. Group3DO CompanyFront Range SolutionsMITSUI ADV MEDIA - PKG20th Century FoxFidelityGuidesoft3D Labs IncZiosoftBMG - UKElectronics.NetValue Added - PkgFujiLaserFilePrentice HallCreative SourceDecision MarkIBM TucsonJoytechTrigem - TSExabyteManheim AuctionsMetro RadioMicron BiosystemsBuzzsoftMathSoftPrompt SoftwareDuke Communications1 Vision SoftwareClassic PackagingGartner GroupInteractive PartnersWholesale.comBinks SamesSMT Plus Inc.UbisoftRecoilZane PublishingAlphagraphicsWebster-MerriamSI MediaWorld BookSalesLinkTenth Planet PKGMotorolaViacomElectronics.comFrequent Flyer.comCurrency.comSpeech Teach
$169,781 I $169,781$156,768 $0 $156,768
$153,079 $153,079$152,377 $1 $152,379
$45,408 $80,974 $24,511 $150,893$147,014 $147,014
$8,307 $123,572 ($313) $131,565$39,287 $64,067 $22,957 $126,310
$0 $17,584 $32,974 $32,936 $33,267 $116,760$34,610 $76,183 $110,793$5,279 $10,385 $90,538 $106,202
$93,591 $2,850 $96,441$24,161 $70,900 $95,061
$0 $91,665 $91,665$0 $84,957 $84,957
$37,237 $34,529 $71,766$71,583 $0 $71,583
$71,267 $71,267$26,590 $660 $18,323 $24,576 $0 $70,149$66,000 $0 $66,000$30,000 $30,000 $2,500 $0 $62,500$60,156 $0 $60,156
$0 $53,215 $2,580 $0 $55,795$54,877 $54,877
$45,818 $0 $45,818$20,000 $25,000 $45,000$44,270 ($2) $44,268
$0 $43,613 $43,613$38,530 $1,942 $40,472$18,000 $18,000 $2,017 $0 $38,017$24,365 $13,114 $37,479$36,073 $0 $36,073$25,603 $10,413 $36,016
$7,293 $11,734 $10,479 $29,506$29,357 $0 $29,357$27,059 $0 $27,059$26,230 $0 $26,230
$0 $24,392 $24,392$22,772 $0 $22,772
$0 $9,782 $12,717 $0 $22,499$21,989 $0 $21,989$20,578 $974 $21,552
$4,502 $14,613 $0 $19,115$14,200 $1,031 $394 $15,625
$0 $15,610 $0 $15,610$15,000 $0 $15,000$11,571 $3,205 $78 $0 $14,854
$13,500 $13,500$12,731 $58 $12,789$8,744 $2,085 $10,829
$7,382 $2,396 $0 $9,778$0 $9,635 $9,635
$7,280 $0 $7,280$0 $6,214 $582 $6,797
$6,446 $0 $6,446$4,472 $1,606 $0 $6,078
$5,338 $0 $5,338$5,255 $5,255
$5,199 $0 $5,199$5,185 $0 $5,185$5,000 $0 $5,000
$0 $1,448 $3,495 $4,943$4,619 $4,619$4,354 $4,354$4,035 $4,035
Case 1:05-cv-01265-PSF-MEH Document 25-4 Filed 03/24/2006 Page 4 of 4
Domain Wholesale $32 $3,993 $4,024First Prespertian Church $0 $3,909 $3,909Probate Software $3,580 $0 $3,580Burrus Research Association $1,950 $1,307 $3,257Sound Media Design $0 $3,009 $3,009Odyssey Tales, Inc $0 $1,720 $900 $0 $2,620General Comm., Inc. - Internet $2,500 $0 $2,500My Software $2,500 $0 $2,500KinderActive $2,324 $0 $2,324Seaward Electronics $2,081 $0 $2,081Marco International-PKG $2,000 $0 $2,000Sony $1,600 $0 $1,600Birthdays.com $0 $127 $1,351 $1,477Patient Education Institute-PKG $1,040 $0 $1,040PASE - United Kingdom $1,023 $0 $1,023Bookings.com $0 $263 $532 $795Line Up Police Product $781 $0 $781Annuities.com $0 $28 $661 $689Animatek $544 $0 $544FastForward/Cascade $504 $0 $504Domain Investments $73 $27 $59 $159Doctors.com $38 $30 $64 $133KAOlnfosystems $121 $0 $121Guidebook.com $0 $28 $69 $97Profit.com $89 $89Technology.com $34 $38 $0 $72Firearms.com $57 $0 $57Ships.com $0 $26 $30 $56Hospitals.com $0 $44 $0 $44Anniversaries.com $36 $36Museum .com $0 $27 $0 $27Communications.com $26 $26Intuit ($90) $0 ($90;Piranha ($1,659) $0 ($1,659;Waranty Reserve ($453,916) ($574,004) $125,000 $0 ($902,921;Grand Total 140915779.2 205057154.1 200750536.6 182576609 207863553.4 937163632.1