10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to

Commission file number 1-12793

StarTek, Inc.

(Exact name of registrant as specified in its charter)

Delaware	84-1370538
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	Identification No.)
44 Cook Street, 4th Floor
Denver, Colorado	80206
(Address of principal executive offices)	(Zip code)

(303) 399-2400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes o  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o     Nox

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 Par Value — 15,107,515 shares as of October 15, 2010.

STARTEK, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009
	Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 6.	Exhibits
SIGNATURES

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including the following:

·certain statements, including possible or assumed future results of operations, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

·any statements contained herein regarding the prospects for our business or any of our services;

·any statements preceded by, followed by or that include the words “may”, “will”, “should”, “seeks”, “believes”, “expects,” “anticipates,” “intends,” “continue,” “estimate,” “plans,” “future,” “targets,” “predicts,” “budgeted,” “projections”, “outlooks”, “attempts”, “is scheduled”, or similar expressions; and

·other statements contained herein regarding matters that are not historical facts.

Our business and results of operations are subject to risks and uncertainties, many of which are beyond our ability to control or predict. Because of these risks and uncertainties, actual results may differ materially from those expressed or implied by forward-looking statements, and investors are cautioned not to place undue reliance on such statements, which speak only as of the date thereof.  Important factors that could cause actual results to differ materially from our expectations and may adversely affect our business and results of operations, include, but are not limited to, those items described herein or set forth in Item 1A. “Risk Factors” appearing in our Annual Report on Form 10-K for the year ended December 31, 2009.

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Part I. Financial Information

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

STARTEK, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenue	$	65,598		$	72,462		$	200,684		$	216,463
Cost of services	58,964			58,988			179,279			179,137
Gross profit	6,634			13,474			21,405			37,326
Selling, general and administrative expenses	10,327			11,084			31,485			31,665
Impairment losses and restructuring charges	450			—			1,214			6,437
Operating (loss) income	(4,143		)	2,390			(11,294		)	(776		)
Net interest and other income (expense)	29			(38		)	243			(216		)
(Loss) income from continuing operations before income taxes	(4,114		)	2,352			(11,051		)	(992		)
Income tax expense (benefit)	368			557			1,770			(126		)
Net (loss) income from continuing operations	(4,482		)	1,795			(12,821		)	(866		)
Income from discontinued operations, net of tax	—			—			—			4,640
Net (loss) income	$	(4,482	)	$	1,795		$	(12,821	)	$	3,774
Basic net (loss) income per share from:
Continuing operations	$	(0.30	)	$	0.12		$	(0.86	)	$	(0.06	)
Discontinued operations	—			—			—			0.32
Net (loss) income	$	(0.30	)	$	0.12		$	(0.86	)	$	0.26
Diluted net (loss) income per share from:
Continuing operations	$	(0.30	)	$	0.12		$	(0.86	)	$	(0.06	)
Discontinued operations	—			—			—			0.32
Net (loss) income	$	(0.30	)	$	0.12		$	(0.86	)	$	0.26
Weighted average shares outstanding
Basic	14,916			14,808			14,888			14,781
Diluted	14,916			15,012			14,888			14,781

See notes to condensed consolidated financial statements.

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STARTEK, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share and per share data)

	As of
	September 30, 2010		December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	21,314	$	19,591
Investments	—		500
Trade accounts receivable, net	46,948		50,521
Income tax receivable	—		6,292
Deferred income tax assets	121		511
Derivative asset	1,042		628
Prepaid expenses	4,419		5,979
Assets held for sale	810		—
Current portion of note receivable	660		—
Other current assets	708		1,384
Total current assets	76,022		85,406
Property, plant and equipment, net	53,250		58,045
Long-term deferred income tax assets	4,126		4,529
Long-term note receivable, net of current portion	2,145		—
Other assets	1,983		1,088
Total assets	$	137,526	$	149,068
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,990	$	4,884
Accrued liabilities:
Accrued payroll	9,653		9,253
Accrued compensated absences	3,326		4,016
Accrued restructuring costs	658		1,317
Other accrued liabilities	2,788		1,897
Deferred revenue	1,264		1,019
Deferred income tax liabilities	2,195		1,470
Other current liabilities	643		1,117
Total current liabilities	25,517		24,973
Accrued restructuring charges	1,358		2,663
Deferred rent	3,123		4,144
Other liabilities	610		572
Total liabilities	30,608		32,352
Commitments and contingencies
Stockholders’ equity:
Common stock, 32,000,000 non-convertible shares, $0.01 par value, authorized; 15,086,098 and 14,882,990 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively	151		149
Additional paid-in capital	68,556		66,699
Accumulated other comprehensive income	3,537		2,373
Retained earnings	34,674		47,495
Total stockholders’ equity	106,918		116,716
Total liabilities and stockholders’ equity	$	137,526	$	149,068

See notes to condensed consolidated financial statements.

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STARTEK, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2010			2009
Operating Activities
Net (loss) income	$	(12,821	)	$	3,774
Income from discontinued operations	—			4,640
Loss from continuing operations	(12,821		)	(866		)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation	12,830			11,808
Impairment of property, plant and equipment	3,063			1,756
Non-cash compensation cost	1,585			1,437
Deferred income taxes	1,728			2,711
Other, net	(161		)	22
Changes in operating assets and liabilities:
Trade accounts receivable, net	4,564			(1,972		)
Prepaid expenses and other assets	97			(1,943		)
Accounts payable	455			783
Income taxes, net	5,831			620
Accrued and other liabilities	(2,702		)	568
Net cash provided by continuing operating activities	14,469			14,924
Cash used in discontinued operating activities	—			(2,335		)
Net cash provided by operating activities	14,469			12,589
Investing Activities
Proceeds from disposition of investments available for sale	606			8,021
Proceeds from note receivable	110			—
Purchases of property, plant and equipment	(13,749		)	(10,581		)
Net cash used in continuing investing activities	(13,033		)	(2,560		)
Cash provided by discontinued investing activities	—			7,075
Net cash (used in) provided by investing activities	(13,033		)	4,515
Financing Activities
Principal payments on borrowings	—			(6,855		)
Principal payments on line of credit	(1,776		)	(22,236		)
Proceeds from line of credit	1,776			22,236
Proceeds from issuance of common stock	272			190
Principal payments on capital lease obligations	(126		)	(181		)
Net cash provided by (used in) continuing financing activities	146			(6,846		)
Cash provided by discontinued financing activities	—			—
Net cash provided by (used in) financing activities	146			(6,846		)
Effect of exchange rate changes on cash	141			625
Net increase in cash and cash equivalents	1,723			10,883
Cash and cash equivalents at beginning of period	19,591			9,580
Cash and cash equivalents at end of period	$	21,314		$	20,463
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	47		$	148
Income taxes paid	$	233		$	726
Property, plant and equipment acquired or refinanced under long-term debt	$	—		$	257
Property, plant and equipment sold under a note receivable	$	2,915		$	—

See notes to condensed consolidated financial statements.

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STARTEK, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

1.  BASIS OF PRESENTATION

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  These financial statements reflect all adjustments (consisting only of normal recurring entries, except as noted) which, in the opinion of management, are necessary for fair presentation.  Operating results during the three and nine months ended September 30, 2010, are not necessarily indicative of operating results that may be expected during any other interim period of 2010 or the year ending December 31, 2010.

The consolidated balance sheet as of December 31, 2009 was derived from audited financial statements at that date, but does not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  For further information, refer to the consolidated financial statements and footnotes thereto included in the StarTek, Inc. Annual Report on Form 10-K for the year ended December 31, 2009.

Certain reclassifications have been made to 2009 information to conform to the 2010 presentation.

Unless otherwise noted in this report, any description of “us” refers to StarTek, Inc. and our subsidiaries.  The assets and liabilities of our foreign operations that are recorded in foreign currencies are translated into U.S. dollars at exchange rates prevailing at the balance sheet date.  Revenues and expenses are translated at the weighted-average exchange rate during the reporting period.

Recently Adopted Accounting Pronouncements

Accounting Standards Update No. 2010-06 “Improving Disclosures about Fair Value Measurements” (“ASU No. 2010-06”)

In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-06. This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after December 15, 2009, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010. We adopted ASU No. 2010-06 related to Levels 1 and 2 disclosures effective April 1, 2010, and the adoption of this guidance did not have a material effect on our Condensed Consolidated Financial Statements.

2.  SEGMENT INFORMATION

We operate within three business segments: U.S., Canada and Offshore.  The business segments align with those regions in which our services are rendered.  As of September 30, 2010, our U.S. segment included the operations of eleven facilities in the U.S.; our Canada segment included the operations of four facilities in Canada; and our Offshore segment included the operations of two facilities in the Philippines and one in Costa Rica.  We use gross profit as our measure of profit and loss for each business segment and do not allocate selling, general and administrative expenses to our business segments.

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Information about our reportable segments, which correspond to the geographic areas in which we operate, is as follows:

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2010			2009		2010			2009
Revenue:
United States	$	40,838		$	50,490	$	128,932		$	151,887
Canada	15,169			18,799		49,690			57,212
Offshore	9,591			3,173		22,062			7,364
Total	$	65,598		$	72,462	$	200,684		$	216,463
Gross profit:
United States	$	6,164		$	9,848	$	19,526		$	28,730
Canada	841			3,400		3,978			8,414
Offshore	(371		)	226		(2,099		)	182
Total	$	6,634		$	13,474	$	21,405		$	37,326

3.  NET (LOSS) INCOME PER SHARE

Basic and diluted net (loss) income per common share is computed on the basis of our weighted average number of common shares outstanding, as determined by using the calculations outlined below:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010			2009		2010			2009
(Loss) income from continuing operations	$	(4,482	)	$	1,795	$	(12,821	)	$	(866	)
Income from discontinued operations, net of tax	—			—		—			4,640
Net (loss) income	$	(4,482	)	$	1,795	$	(12,821	)	$	3,774
Weighted average shares of common stock	14,916			14,808		14,888			14,781
Dilutive effect of stock options	—			204		—			—
Common stock and common stock equivalents	14,916			15,012		14,888			14,781
Basic net (loss) income per share from:
Continuing operations	$	(0.30	)	$	0.12	$	(0.86	)	$	(0.06	)
Discontinued operations	—			—		—			0.32
Net (loss) income	$	(0.30	)	$	0.12	$	(0.86	)	$	0.26
Diluted net (loss) income per share from:
Continuing operations	$	(0.30	)	$	0.12	$	(0.86	)	$	(0.06	)
Discontinued operations	—			—		—			0.32
Net (loss) income	$	(0.30	)	$	0.12	$	(0.86	)	$	0.26

Diluted earnings per share is computed on the basis of our weighted average number of common shares outstanding plus the effect of dilutive outstanding stock options and non-vested restricted stock using the treasury stock method.  Anti-dilutive securities totaling 2,407 and 2,407 in the three and nine months ended September 30, 2010, respectively, and 2,187 in the nine months ended September 30, 2009, were not included in our calculation due to our net loss from continuing operations during those periods, and anti-dilutive securities totaling 847 in the three months ended September 30, 2009, were not included in our calculation because the stock options’ exercise prices were greater than the average market price of our common shares during the period.

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4.  IMPAIRMENT LOSSES AND RESTRUCTURING CHARGES

Impairment Losses

During the three and nine months ended September 30, 2010, we recorded approximately $450 (all in our U.S. segment) and $3,063 of impairment losses ($2,655 in our U.S. segment and $408 in our Canadian segment), due to the impairment of certain long-lived assets for which the carrying value of those assets is not recoverable.  The impairment losses recorded during the three months ended September 30, 2010, related to certain long-lived assets including furniture, fixtures and equipment located in two sites that are impacted by the loss of AT&T’s wireline business (described further in Note 6) whereby the future cash flows do not support the carrying value of the assets.  In the first nine months of 2010 we have committed to a plan to sell the building at our closed facility in Laramie, Wyoming.  We received an estimate of the selling price, and have reduced the value of the building to fair value or approximately $810.  We reclassified these long-lived assets as a current asset held for sale on our Condensed Consolidated Balance Sheet.  In order for an asset to be held for sale, management must determine that the asset is to be held for sale in its current condition, an active plan to complete the sale of the asset has been initiated and the sale of the asset is probable within one year.  We evaluated the facility during the first nine months of 2010 and determined these assets meet all the criteria for an asset held for sale.  The remainder of the impairment losses recorded during the nine months ended September 30, 2010 in U.S. and our Canadian segments relate to computer and telephone equipment, furniture and fixtures, leasehold improvements and software for locations where the carrying value is not recoverable.

During the nine months ended September 30, 2009, we incurred $1,756 of impairment losses in our Canadian segment, due to the impairment of certain long-lived assets for which the carrying value of those assets was not recoverable.

Restructuring Charges

We have closed the following facilities, and have recorded restructuring charges related to lease costs and other expenses related to the facility closures.  We record expenses in addition to the initially recognized expense when a change in estimate occurs or to accrete a discounted liability to the amount expected to be paid.  We recognized the liability when it was incurred, instead of upon commitment to a plan.

·      Regina, Saskatchewan, Canada — February 2009

·      Victoria, Texas — January 2010

·      Laramie, Wyoming — January 2010

·      Thunder Bay, Ontario, Canada — March 2010

During the nine months ended September 30, 2010, we entered into sublease agreements for our Thunder Bay, Ontario, Canada and Victoria, Texas facilities through the remainder of their respective lease terms.  We assumed a sublease in our estimated restructuring liabilities for Thunder Bay and Victoria and do not expect to incur material changes to the restructuring liabilities in future periods as a result of the subleases.

The cumulative amount paid as of September 30, 2010 related to the above closures was $456 in our U.S. segment and $2,333 in our Canadian segment.  We expect to incur $387 in our U.S. segment and $4,082 in our Canadian segment in expense relating to the above closures.  We expect completion of the Regina and Laramie restructuring plans no later than 2013and 2011, respectively; however, it may be earlier or later depending on our ability to sublease the facility, buy-out the lease or sell the facility.  We have made certain assumptions related to our ability to sublease these facilities.  Refer to Note 8, “Fair Value Measurements,” of this Form 10-Q, for additional information on the fair value measurements for all assets and liabilities, including restructuring charges, that are measured at fair value in the Condensed Consolidated Financial Statements.

A summary of the activity under the restructuring plans as of September 30, 2010, and changes during the nine months ended September 30, 2010, is presented below:

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	Facility-Related Costs
	Regina			Thunder Bay			Canada Total			Victoria			Laramie			U.S. Total			Company Total
Balance as of January 1, 2010	$	3,980		$	—		$	3,980		$	—		$	—		$	—		$	3,980
Expense	(1,802		)	(422		)	(2,224		)	288			87			375			(1,849		)
Payments, net of receipts for sublease	(1,039		)	(332		)	(1,371		)	(401		)	(55		)	(456		)	(1,827		)
Reclassification of long-term liability	170			701			871			766			3			769			1,640
Foreign currency translation adjustment	19			53			72			—			—			—			72
Balance as of September 30, 2010	$	1,328		$	—		$	1,328		$	653		$	35		$	688		$	2,016

Note Receivable

In connection with the sublease of our Victoria, Texas facility, the sublessee is making payments to us for certain furniture, fixtures, equipment and leasehold improvements in the facility.  The payments will be made over the remainder of the lease term, after which time the sublessee will own the assets.  As of September 30, 2010, we have recorded a total note receivable of $2.8 million for the payments due under this agreement.

5.  DISCONTINUED OPERATIONS

During the nine months ended September 30, 2009, we recorded income from discontinued operations, net of tax, of $4,640 due to the sale of the assets of Domain.com, our then-wholly owned subsidiary, to A. Emmet Stephenson, Jr., Inc. (“Mr. Stephenson”).  Mr. Stephenson is one of our co-founders, managed the Domain.com subsidiary since 2006 and owns approximately 20% of our common shares outstanding.  Because the transaction involved a related party, the Audit Committee of our Board of Directors considered and approved the transaction.  The assets were sold in exchange for cash of $7,075, which resulted in a gain on the sale of $6,937.  Operating income from Domain.com prior to the sale was $27 and tax expense totaled $2,324, which resulted in $4,640 in income from discontinued operations, net of tax.  The results of operations and cash flows of Domain.com have been reported in the Condensed Consolidated Statements of Operations as discontinued operations.

6.  PRINCIPAL CLIENTS

The following table represents revenue concentration of our principal clients.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
AT&T Services, Inc. and AT&T Mobility, LLC, subsidiaries of AT&T, Inc.	66.2	%	62.7	%	67.2	%	63.9	%
T-Mobile USA, Inc., a subsidiary of Deutsche Telekom	18.3	%	21.9	%	17.8	%	21.6	%

The loss of a principal client, a material reduction in the amount of business we receive from a principal client, renegotiation of price by a principal client, or the loss, delay or termination of a principal client’s product launch or service offering would adversely affect our business, revenue and operating results. We may not be able to retain our principal clients or, if we were to lose any of our principal clients, we may not be able to timely replace the revenue generated by the lost clients. Loss of a principal client could result from many factors, including consolidation or economic downturns in our clients’ industries, as discussed further below.

In July 2010, we executed agreements with AT&T to ramp-down certain wireline services that we provide them.  Approximately 260 full-time equivalent agent positions in two of our U.S. sites will be eliminated through the first half of 2011 as the business declines.  We plan to close one of the sites, which is located in Greeley, Colorado, by the end of 2010 (except for a small number of corporate personnel).  Agents in this site that work on other customers or lines of business will be relocated to our other facility in Greeley, Colorado.

Our work for AT&T is covered by several contracts for a variety of different lines of AT&T business.  Some of these contracts expire in 2011 and others in 2012.  Although we have negotiated extended terms for several of these contracts, others may not be extended past their initial terms.  The initial term of our master services agreement covering all AT&T work expired in January 2010.  After the initial term, the agreement automatically renews month-to-month thereafter.  We are currently negotiating a new master services agreement and expect to execute the agreement during the fourth quarter of 2010. Until the new agreement is signed, our services provided to AT&T are covered under the existing master services agreement. On October 27, 2010, we entered into an agreement with AT&T for the renewal of certain services we provide to them with regard to their wireless consumer customers. During the third quarter of 2010, this business represented approximately 52% of our revenue with AT&T. The agreement is effective through September 1, 2012. The agreement is filed as Exhibit 10.1 to this Form 10-Q.

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Our call center services agreement with T-Mobile became effective as of October 1, 2007 and has an initial term of two years.  After the initial term, the contract automatically renews thereafter, unless either party provides written notice of termination at least 60 days prior to the expiration of the then-current term.  Although the initial term of the contract ended on September 30, 2009, the contract automatically renewed through October 31, 2010.  In August 2010, T-Mobile indicated that they would hold a formal process for selecting vendors for approximately half of the work that we currently service along with an additional, significant opportunity with work that we do not currently perform for T-Mobile.  We participated in the first stage of this process and have been selected to submit a full formal response.  We expect a final decision to be made by the end of 2010.  We expect to be selected as a continuing vendor for T-Mobile but we can provide no assurance that this will be the case nor that if we are selected that we will be selected to perform work at the level that we currently provide, or that the terms of any new agreement will be comparable to those currently provided for under our existing agreement.  If we are not selected as a vendor, if we are selected as a vendor but at a significantly reduced level, or if the terms of any new agreement are less favorable than the existing agreement, it would have a material adverse effect on our business, results of operations, and financial condition.  Until the process is complete, we continue to provide services to T-Mobile under the existing agreement.

7.  DERIVATIVE INSTRUMENTS

We use derivatives to partially offset our business exposure to foreign currency exchange risk. We enter into foreign currency exchange contracts to hedge our anticipated operating commitments that are denominated in foreign currencies.  The contracts cover periods commensurate with expected exposure, generally three to nine months, and are principally unsecured foreign exchange contracts.  The market risk exposure is essentially limited to risk related to currency rate movements.  We operate in Canada, the Philippines and Costa Rica.  The functional currencies of our Canadian and Philippine operations are the Canadian dollar and the Philippine peso, respectively, which are used to pay labor and other operating costs in those countries. However, our client contracts primarily generate revenues which are paid to us in U.S. dollars.  In Costa Rica, our functional currency is the U.S. dollar and the majority of our costs are denominated in U.S. dollars.  We have elected to follow cash flow hedge accounting in order to associate the results of the hedges with forecasted future expenses.  The current mark-to-market gain or loss is recorded in accumulated other comprehensive income (“AOCI”) as a component of stockholders’ equity and will be re-classified to operations as the forecasted expenses are incurred, typically within one year.  During the three and nine months ended September 30, 2010 and 2009, our cash flow hedges were highly effective and there were no amounts charged to the Condensed Consolidated Statements of Operations for hedge ineffectiveness.

During the three and nine months ended September 30, 2010, we entered into Canadian dollar forward contracts with UMB Bank and US Bank for a notional amount of 17,400 and 47,000 Canadian dollars, respectively, to hedge our foreign currency risk with respect to labor costs in Canada.  During the three and nine months ended September 30, 2010, we entered into non-deliverable forward contracts with respect to the Philippine peso with UMB Bank and US Bank for a notional amount of 288,000 and 610,000 Philippine pesos, respectively, to hedge our foreign currency risk with respect to labor costs in the Philippines.  As of September 30, 2010, we have not entered into any arrangements to hedge our exposure to fluctuations in the Costa Rican colon relative to the U.S. dollar.

The following table shows the notional principal of our derivative instruments as of September 30, 2010:

	Currency	Notional Principal
Instruments qualifying as accounting hedges:
Foreign exchange contracts	Canadian dollar	CDN	32,000
Foreign exchange contracts	Philippine peso	PHP	288,000

The above Canadian dollar foreign exchange contracts are to be delivered periodically through June 2011 at a purchase price of approximately $30,253, and the above Philippine peso foreign exchange contracts are to be delivered periodically through December 2010 at a purchase price of approximately $6,360, and as such we expect unrealized gains and losses reported in AOCI will be reclassified to earnings during the next twelve months.  The estimates of fair value are based on applicable and commonly used pricing models and prevailing financial market information as of September 30, 2010.  Refer to Note 8, “Fair Value Measurements,” of this Form 10-Q, for additional information on the fair value measurements for all assets and liabilities, including derivative assets and derivative liabilities, that are measured at fair value in the Condensed Consolidated Financial Statements.

The following table shows our derivative instruments measured at gross fair value as reflected in the Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009:

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	As of
	September 30, 2010		December 31, 2009
Derivative assets:
Foreign exchange contracts	$	1,042	$	628

The following table shows the effect of our derivative instruments designated as cash flow hedges in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended
	September 30, 2010				September 30, 2009
	Gain Recognized in AOCI, net of tax		Gain Reclassified from AOCI into Income		Loss Recognized in AOCI, net of tax			Gain Reclassified from AOCI into Income		Location of Gain Reclassified from AOCI into Income
Cash flow hedges:
Foreign exchange contracts	$	1,100	$	267	$	(220	)	$	1,125	Cost of services

	Nine Months Ended
	September 30, 2010					September 30, 2009
	Loss Recognized in AOCI, net of tax			Gain Reclassified from AOCI into Income		Gain Recognized in AOCI, net of tax		Loss Reclassified from AOCI into Income			Location of Gain (Loss) Reclassified from AOCI into Income
Cash flow hedges:
Foreign exchange contracts	$	(300	)	$	1,138	$	2,806	$	(506	)	Cost of services

8.  FAIR VALUE MEASUREMENTS

Derivative Instruments and Hedging Activities

Our derivative instruments are valued using third-party broker or counterparty statements, derived from pricing models using inputs based upon market information, including contractual terms, market prices and yield curves.  The inputs to the valuation pricing models are observable in the market, and as such are generally classified as Level 2 in the fair value hierarchy.

Restructuring Charges

As described in Note 4, “Impairment Losses and Restructuring Charges,” during the first nine months of 2010 we closed facilities in Thunder Bay, Ontario, Victoria, Texas and Laramie, Wyoming.  In February 2009, we closed our facility in Regina, Saskatchewan.  We estimated the fair value of our restructuring charges using a discounted cash flow model.  The cash flows consist of the future lease payment obligations required under the lease agreements.  Future cash flows also include estimated property taxes through the remainder of the lease terms, which are valued based upon historical tax payments.  The future cash flows were discounted using a rate of 3%.  In the restructuring plans for Thunder Bay, Victoria and Regina, we made an assumption that we would be able to sublease the facilities prior to the lease expiration based on a third-party broker’s assessment of our ability to successfully negotiate early termination agreements with landlords and/or to sublease the facility.  Given that the restructuring charges were valued using our internal estimates using a discounted cash flow model, we have classified the accrued restructuring costs as Level 3 in the fair value hierarchy.

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Long-Lived Assets

As described in Note 4, “Impairment Losses and Restructuring Charges,” during the three and nine months ended September 30, 2010, we recorded approximately $450 (all in our U.S. segment) and $3,063 of impairment losses ($2,655 in our U.S. segment and $408 in our Canadian segment), respectively, due to the impairment of certain long-lived assets.  The long-lived assets primarily include computer and telephone equipment, furniture and fixtures, leasehold improvements and software.  For assets which were not recoverable through future cash flows or could not be used in another facility, we reduced the carrying value to fair value.  The fair value of these long-lived assets after the impairment charge was $5,874 for the assets impaired during the three months ended September 30, 2010 and $9,029 for the assets impaired during the nine months ended September 30, 2010.  Given that the impairment losses were valued using internal estimates, we have classified the remaining fair value of long-lived assets as Level 3 in the fair value hierarchy.

Included in impairment losses during the nine months ended September 30, 2010, is $200 related to a change in estimated fair value of the building in our Laramie, Wyoming location, which we have classified as held for sale.  During the nine months ended September 30, 2010, we committed to a plan to sell the assets in this closed location.  The measurement of the fair value of the building was based upon our third-party real estate broker’s estimate of fair value using the sale prices of comparable assets.  As these inputs to the determination of fair value are based upon non-identical assets and use significant unobservable inputs, we have classified the assets as Level 3 in the fair value hierarchy.

Fair Value Hierarchy

The following tables set forth our assets and liabilities measured at fair value on a recurring basis and a non-recurring basis by level within the fair value hierarchy.  Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	Assets Measured at Fair Value
	on a Recurring Basis as of September 30, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Foreign exchange contracts	$	—	$	1,042	$	—	$	1,042
Total fair value of assets measured on a recurring basis	$	—	$	1,042	$	—	$	1,042

	Assets and Liabilities Measured at Fair Value on a
	Non-Recurring Basis During the Nine Months ended September 30, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Assets held for sale	$	—	$	—	$	810	$	810
Property, plant and equipment, net	—		—		9,029		9,029
Total fair value of assets measured on a non-recurring basis	$	—	$	—	$	9,839	$	9,839
Liabilities:
Accrued restructuring costs	$	—	$	—	$	2,587	$	2,587
Total fair value of liabilities measured on a non-recurring basis	$	—	$	—	$	2,587	$	2,587

9.  DEBT

On July 28, 2010, we entered into a business loan agreement and a promissory note (together the “Agreement”) with UMB Bank Colorado, N.A. (“UMB Bank”), effective August 1, 2010, to renew our $15 million secured revolving line of credit under a previous business loan agreement with UMB Bank that expired by its terms on August 1, 2010.  The Agreement is effective through August 1, 2011.  There was no balance outstanding on the line of credit as of September 30, 2010.

Borrowings under the Agreement bear interest, at our option at the time of the borrowing, of the thirty, sixty or ninety day LIBOR index, plus 1.75%.  The interest rate shall never be less than 3.25% per annum.  Under the Agreement, we granted UMB Bank a

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security interest in all of our present and future accounts receivable, general intangibles, and owned real property.  In addition, under the Agreement, we are subject to certain financial covenants, which include maintaining 1) a ratio of total liabilities to tangible net worth of less than 1.0 to 1.0, 2) a tangible net worth of at least $100 million, 3) unencumbered liquid assets, defined as cash, certificates of deposit and marketable securities, of at least $10 million measured on the last day of each fiscal quarter and 4) a cash flow coverage ratio, as defined in the Agreement, of greater than 1.50 to 1.0 measured on the last day of each fiscal quarter for the previous twelve months.  As of September 30, 2010, we were in compliance with our debt covenants.

10.  ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following represents the components of other comprehensive (loss) income:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010			2009		2010			2009
Net (loss) income	$	(4,482	)	$	1,795	$	(12,821	)	$	3,774
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of tax	1,038			495		752			631
Change in fair value of derivative instruments, net of tax	1,267			358		412			2,365
Comprehensive (loss) income	$	(2,177	)	$	2,648	$	(11,657	)	$	6,770

Accumulated other comprehensive income (loss) consisted of the following items:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Accumulated foreign currency translation adjustments:
Beginning balance	$	1,693		$	1,226		$	1,979		$	1,090
Translation adjustments	1,032			800			783			1,018
Taxes associated with translation adjustments	6			(305		)	(31		)	(387		)
Ending balance	$	2,731		$	1,721		$	2,731		$	1,721
Accumulated unrealized derivative gains (losses) :
Beginning balance	$	(461	)	$	563		$	394		$	(1,444	)
Gain (loss) reclassified to earnings, net of tax	167			578			712			(441		)
Change in fair value of cash flow hedges, net of tax	1,100			(220		)	(300		)	2,806
Ending balance	$	806		$	921		$	806		$	921

11.  SHARE-BASED COMPENSATION

Our share-based compensation arrangements include grants of stock options and restricted stock awards under the StarTek, Inc. 2008 Equity Incentive Plan, which replaced the StarTek, Inc. Stock Option Plan and StarTek, Inc. Directors’ Stock Option Plan, certain awards granted outside of these plans and our Employee Stock Purchase Plan.  Refer to Note 11, “Share-Based Compensation,” in Item 8. “Financial Statements and Supplementary Financial Data” appearing in our Annual Report on Form 10-K for the year ended December 31, 2009 for further information on our share-based compensation arrangements.  The compensation cost that has been charged against income related to share-based compensation for the three months ended September 30, 2010 and 2009 was $561 and $500, respectively, and is included in selling, general and administrative expense in our Condensed Consolidated Statements of Operations.  The compensation cost that has been charged against income related to share-based compensation for the nine months ended September 30, 2010 and 2009 was $1,585 and $1,437, respectively.  As of September 30, 2010, there was $2,825 of total unrecognized compensation cost related to non-vested stock options and $586 related to non-vested restricted stock awards.  That cost is expected to be recognized over a weighted-average period of 2.4 years and 2.0 years for the stock options and restricted stock awards, respectively.

12.  INCOME TAXES

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered

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or settled.  The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period during which such rates are enacted.

We consider all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable.  Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), and projected taxable income in assessing the realizability of deferred tax assets.  In making such judgments, significant weight is given to evidence that can be objectively verified.  Based on all available evidence, in particular our three-year historical cumulative losses, recent operating losses and an expected U.S. pre-tax loss for the fiscal year ending December 31, 2010, we recorded a valuation allowance against our U.S. net deferred tax assets, which increased tax expense by $6,310 during the nine months ended September 30, 2010.  The valuation allowance for deferred tax assets as of September 30, 2010 was $6,483.  No valuation allowance was recorded as of December 31, 2009.  In order to fully realize the U.S. deferred tax assets, we will need to generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.

13.  SUBSEQUENT EVENT

On October 27, 2010, we entered into an agreement with AT&T Services, Inc. for the renewal of certain services we provide to them with regard to their wireless consumer customers.  During the third quarter of 2010, this business represented approximately 52% of our revenue with AT&T.  The agreement is effective through September 1, 2012.  The agreement is filed as Exhibit 10.1 to this Form 10-Q.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q, the Consolidated Financial Statements and related Notes included in our Annual Report on Form 10-K for the year ended December 31, 2009, and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2009.

Unless otherwise noted in this report, any description of “us” or “we” refers to StarTek, Inc. and our subsidiaries.  Financial information in this report is presented in U.S. dollars.

BUSINESS DESCRIPTION AND OVERVIEW

StarTek is a provider of business process outsourcing services.  We partner with our clients to meet their business objectives and improve customer retention, increase revenues and reduce costs through an improved customer experience.  Our solutions leverage industry knowledge, best business practices, skilled agents, proven operational excellence and flexible technology.  The StarTek comprehensive service suite includes customer care, sales support, complex order processing, accounts receivable management, technical and product support and other industry-specific processes.

We seek to become a market leader in providing high-value services to clients. Our approach is to develop relationships with our clients that are partnering and collaborative in nature and create industry-based solutions to meet our clients’ business needs.  To be a leader in the market, our strategy is to:

·grow our existing client base by deepening and broadening our relationships,

·add new clients and continue to diversify our client base,

·improve the profitability of our business through operational improvements and securing higher margin business,

·achieve site optimization at our facilities and close facilities that are not financially viable long-term,

·expand our global delivery platform by growing internationally in Asia and Latin America,

·invest in our StarTek@Home platform to increase our presence of home agents,

·broaden our service offerings by providing more technology solutions,

·enter new vertical markets, including healthcare, insurance and technology to diversify our client base and

·make prudent acquisitions to expand our business scale and service offerings.

We operate within three business segments: U.S., Canada and Offshore.  The business segments align with the regions in which our services are rendered.  As of September 30, 2010, our U.S. segment included the operations of eleven facilities in the U.S.; our Canada segment included the operations of four facilities in Canada; and our Offshore segment included the operations of two facilities in the Philippines and one in Costa Rica.  As of September 30, 2009, there were thirteen, five and one facilities in the U.S., Canada and Offshore segments, respectively.  We use gross profit as our measure of profit and loss for each business segment and do not allocate selling, general and administrative expenses to our business segments.

Overall economic conditions have impacted the telecommunications industry and our clients.  We have continued to notice a downturn in this sector which adversely affected our results in the first nine months of 2010.  The growth in wireless subscribers appears to be slowing, and our clients serving traditional “wireline,” or landline telephone services, are experiencing decreased demand.  We observed lower call volumes in our North American facilities in the first nine months of 2010 from our two largest customers compared to the first nine months of 2009, which adversely affected our results.  We expect North American call volumes

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to continue to decline throughout the remainder of 2010.  However, in the first nine months of 2010, we have seen strong demand for our Offshore call center services, primarily in the Philippines, which we expect to continue.

In response to overall economic conditions and the industry slowdown, we have observed a greater focus on cutting costs by our customers.  The cost cutting by our customers impacted us during the second quarter of 2010 when AT&T decided to ramp down a majority of its wireline business with us.  Approximately 260 full-time equivalent agent positions in two of our U.S. sites will be eliminated through the first half of 2011 as the business declines.  We plan to close one of the sites, which is located in Greeley, Colorado, by the end of 2010 (except for a small number of corporate personnel).  Agents in this site that work on other customers or lines of business will be relocated to our other facility in Greeley, Colorado.

We have observed that in order to reduce their costs, customers are concentrated on 1) shifting a larger portion of their customer care offshore, 2) increasing their use of outsourced providers and 3) decreasing the number of agents handling calls.  In addition, the telecommunications space continues to shift away from wireline services, to wireless services as many consumers disconnect their home telephone lines in favor of using wireless devices, leading to lower call volumes among wireline clients.  These telecommunications industry trends could adversely impact our financial results for the remainder of 2010; however, the shift toward outsourced and offshore providers could positively impact our business because of our increased presence in Costa Rica and the Philippines.  Given that over 95% of our revenue is concentrated in the telecommunications industry, the speed and intensity in which these trends develop could adversely affect our business.  Our strategy includes expanding into other vertical markets, including healthcare, insurance and technology, diversifying our client base in order to reduce our exposure to the risks relating to the telecommunications industry, and expanding our offshore platform to keep pace with the anticipated higher demand for those services.

SIGNIFICANT DEVELOPMENTS DURING THE THREE MONTHS ENDED SEPTEMBER 30, 2010

Site Closures

As a result of the loss of a majority of our wireline business with AT&T described above, we decided to close our site in Greeley, Colorado by the end of 2010 (except for a small number of corporate personnel).  Agents in this site that work on other customers or lines of business will be relocated to our other facility in Greeley, Colorado.  In connection with this lost business, our cash flows from the site in Greeley, Colorado that we expect to close and the other affected site do not support the carrying value of the assets, and as such we recorded approximately $0.5 million of impairment losses during the three months ended September 30, 2010.

RESULTS OF OPERATIONS — THREE MONTHS ENDED SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009

The following table presents selected items from our Condensed Consolidated Statements of Operations in thousands of dollars and as a percentage of revenue for the periods indicated.

	Three Months Ended September 30, 2010			% of Revenue		Three Months Ended September 30, 2009			% of Revenue		% Change Q3 2009 to Q3 2010
Revenue	$	65,598		100.0	%	$	72,462		100.0	%	-9.5	%
Cost of services	58,964			89.9	%	58,988			81.4	%	0.0	%
Gross profit	6,634			10.1	%	13,474			18.6	%	-50.8	%
Selling, general and administrative expenses	10,327			15.7	%	11,084			15.3	%	-6.8	%
Impairment losses and restructuring charges	450			0.7	%	—			0.0	%	100.0	%
Operating (loss) income	(4,143		)	-6.3	%	2,390			3.3	%	NM
Net interest and other income (expense)	29			0.0	%	(38		)	-0.1	%	NM
(Loss) income before income taxes	(4,114		)	-6.3	%	2,352			3.2	%	NM
Income tax expense	368			0.5	%	557			0.7	%	-33.9	%
Net (loss) income	$	(4,482	)	-6.8	%	$	1,795		2.5	%	NM

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The following table summarizes our revenues and gross profit for the periods indicated, by reporting segment:

	For the Three Months Ended September 30,
	2010					2009
	(in 000s)			(% of Total)		(in 000s)			(% of Total)
United States:
Revenue	$	40,838		62.3	%	$	50,490		69.7	%
Cost of services	34,674			58.8	%	40,642			68.9	%
Gross profit	$	6,164		92.9	%	$	9,848		73.1	%
Gross profit %	15.1		%			19.5		%
Canada:
Revenue	$	15,169		23.1	%	$	18,799		25.9	%
Cost of services	14,328			24.3	%	15,399			26.6	%
Gross profit	$	841		12.7	%	$	3,400		25.2	%
Gross profit %	5.5		%			18.1		%
Offshore:
Revenue	$	9,591		14.6	%	$	3,173		4.4	%
Cost of services	9,962			16.9	%	2,947			5.0	%
Gross profit	$	(371	)	-5.6	%	$	226		1.7	%
Gross profit %	-3.9		%			7.1		%

Revenue

Revenue decreased by $6.9 million, or 9.5%, from $72.5 million in the third quarter of 2009 to $65.6 million in the third quarter of 2010.  The decrease was driven by a $9.7 million decline in revenue in our U.S. segment. Of this decrease, $2.8 million is attributable to the closure of two sites in the first quarter of 2010 (Victoria, Texas and Laramie, Wyoming).  Revenue declined approximately $6.9 million among our other sites driven by a decline in call volumes from our two largest wireless clients and telecommunications clients serving the traditional “wireline” or land telephone services.  Revenue in our Canadian segment declined by $3.6 million in the third quarter of 2010 compared to the third quarter of 2009.  Of this decrease, $1.3 million is attributable to the closure of our Thunder Bay, Ontario facility in March 2010.  Revenue in the Canadian segment also decreased approximately $2.2 million from the third quarter of 2009 to the third quarter of 2010 from our Sarnia, Ontario location, which we expect to close in December 2010.  Revenue from our Offshore segment increased by $6.4 million, from $3.2 million in the third quarter of 2009 to $9.6 million in the third quarter of 2010.  The increase was due primarily to our two new sites in Ortigas, Philippines and Heredia, Costa Rica, which contributed $4.5 million in revenue.  The remainder was a result of the ramp-up of our Makati, Philippines facility, which contributed $1.9 million in additional revenue in the third quarter of 2010.

Cost of Services and Gross Profit

Cost of services was flat at $59.0 million in the third quarter of 2010 and 2009.  Cost of services in the U.S. decreased by approximately $6.0 million.  Gross profit as a percentage of revenue in the U.S. decreased from 19.5% in the third quarter of 2009 to 15.1% in the third quarter of 2010.  The decrease in cost of services in the U.S. was driven by a $3.4 million decline related to the two site closures in the first quarter of 2010, as discussed above, which positively affected gross profit by $0.6 million as the sites were producing negative gross profit in 2009.  Also contributing to the decrease in cost of services in the U.S. period over period was the reduction in full-time equivalent agents due to the lower call volumes from our two largest wireless clients and certain wireline telecommunications customers, described above.  Cost of services in Canada declined by $1.1 million in the third quarter of 2010 from the third quarter of 2009, of which $1.4 million was due to the closure of the facility in Thunder Bay, Ontario.  Cost of services for our Offshore segment increased by approximately $7.0 million due to the opening of two new sites in Ortigas, Philippines and Heredia, Costa Rica, and the ramp-up of our Makati, Philippines location, which increased the number of full-time equivalent agents in our Offshore segment from 454 in the third quarter of 2009 to 1,562 in the third quarter of 2010.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $0.8 million, or 6.8%, from $11.1 million in the third quarter of 2009 to $10.3 million in the third quarter of 2010.  The decrease in selling, general and administrative expenses was primarily due to an approximately $0.4 million decline in hiring expense, a $0.2 million decline in bonus expense and a $0.1 million decline in personnel expense.  As a percentage of revenue, selling, general and administrative expenses increased from 15.3% to 15.7% period over period.

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Impairment Losses and Restructuring Charges

During the three months ended September 30, 2010, we recorded approximately $0.5 million of impairment losses related to our U.S. segment.  The impairment losses were recorded for certain long-lived assets including furniture, fixtures and equipment for which the carrying value of those assets is not recoverable.  The assets are located in sites that are impacted by the loss of AT&T’s wireline business whereby the future cash flows do not support the carrying value of the assets.  During the three months ended September 30, 2009, we did not incur any impairment losses or restructuring charges.

Operating (Loss) Income

We had an operating loss of $4.1 million in the third quarter of 2010 and operating income of $2.4 million in the third quarter of 2009.  Operating (loss) income as a percentage of revenue was (6.3%) for the third quarter of 2010 compared to 3.3% for the third quarter of 2009.  The loss was primarily due to lower revenue and gross profit, partially offset by lower selling, general and administrative expenses, as discussed previously.

Income Tax

Income tax expense during the three months ended September 30, 2010 and 2009 was $0.4 million and $0.6 million, respectively.  We recorded income tax expense during the three months ended September 30, 2010 despite our loss from continuing operations due to the establishment of a valuation allowance for substantially all of our U.S. net deferred tax assets during the second quarter of 2010.  Until we generate U.S. income from continuing operations, we will be unable to utilize the tax benefit related to our net operating loss carryforwards.  As such, we did not record any U.S. income tax benefit during the three months ended September 30, 2010.  The expense recorded during the three months ended September 30, 2010 was primarily related to taxable income from our Canadian operations.

Net (Loss) Income

Net loss was $4.5 million for the third quarter of 2010 compared to net income of approximately $1.8 million during the third quarter of 2009.  The decrease in net income was primarily due to lower revenue and gross profit, partially offset by lower selling, general and administrative expenses, as discussed previously.

RESULTS OF OPERATIONS — NINE MONTHS ENDED SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009

The following table presents selected items from our Condensed Consolidated Statements of Operations in thousands of dollars and as a percentage of revenue for the periods indicated.

	Nine Months Ended September 30, 2010			% of Revenue		Nine Months Ended September 30, 2009			% of Revenue		% Change YTD September 30, 2009 to 2010
Revenue	$	200,684		100.0	%	$	216,463		100.0	%	-7.3	%
Cost of services	179,279			89.3	%	179,137			82.8	%	0.1	%
Gross profit	21,405			10.7	%	37,326			17.2	%	-42.7	%
Selling, general and administrative expenses	31,485			15.7	%	31,665			14.6	%	-0.6	%
Impairment losses and restructuring charges	1,214			0.6	%	6,437			3.0	%	-81.1	%
Operating loss	(11,294		)	-5.6	%	(776		)	-0.4	%	NM
Net interest and other income (expense)	243			0.1	%	(216		)	-0.1	%	NM
Loss from continuing operations before income taxes	(11,051		)	-5.5	%	(992		)	-0.5	%	NM
Income tax expense (benefit)	1,770			0.9	%	(126		)	-0.1	%	NM
Net loss from continuing operations	(12,821		)	-6.4	%	(866		)	-0.4	%	NM
Income from discontinued operations, net of tax	—			0.0	%	4,640			2.1	%	NM
Net (loss) income	$	(12,821	)	-6.4	%	$	3,774		1.7	%	NM

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The following table summarizes our revenues and gross profit for the periods indicated, by reporting segment:

	For the Nine Months Ended September 30,
	2010					2009
	(in 000s)			(% of Total)		(in 000s)			(% of Total)
United States:
Revenue	$	128,932		64.2	%	$	151,887		70.2	%
Cost of services	109,406			61.0	%	123,157			68.8	%
Gross profit	$	19,526		91.2	%	$	28,730		77.0	%
Gross profit %	15.1		%			18.9		%
Canada:
Revenue	$	49,690		24.8	%	$	57,212		26.4	%
Cost of services	45,712			25.5	%	48,798			27.2	%
Gross profit	$	3,978		18.6	%	$	8,414		22.5	%
Gross profit %	8.0		%			14.7		%
Offshore:
Revenue	$	22,062		11.0	%	$	7,364		3.4	%
Cost of services	24,161			13.5	%	7,182			4.0	%
Gross profit	$	(2,099	)	-9.8	%	$	182		0.5	%
Gross profit %	-9.5		%			2.5		%

Revenue

Revenue decreased by $15.8 million, or 7.3%, from $216.5 million in the first nine months of 2009 to $200.7 million in the first nine months of 2010.  The decrease was driven by a $23.0 million decline in revenue in our U.S. segment. Of this decrease, $9.6 million is attributable to the closure of two sites in the first half of 2010 (Victoria, Texas and Laramie, Wyoming).  Revenue declined approximately $13.4 million among our other U.S. sites, driven by a decline in call volumes from our two largest wireless clients and certain telecommunications clients serving the traditional “wireline” or land telephone services.  Revenue in our Canadian segment declined by $7.5 million in the first nine months of 2010 compared to the first nine months of 2009.  The decrease was driven by the closure of our Regina, Saskatchewan facility in February 2009, which had contributed $0.9 million in revenue in the first nine months of 2009, and the closure of our Thunder Bay, Ontario facility in March 2010, which caused a decline in revenue in the first nine months of 2010 of approximately $3.0 million as compared to the first nine months of 2009.  Revenue from our Sarnia, Ontario location decreased by approximately $3.8 million in the first nine months of 2010 compared to the first nine months of 2009.  We expect to close this location in December 2010.  Revenue from our Offshore segment increased by $14.7 million.  The increase was due to our two new sites in Ortigas, Philippines and Heredia, Costa Rica, which contributed $7.7 million in revenue and the ramp-up of our Makati, Philippines facility, which contributed incremental revenue of $7.0 million in the first nine months of 2010compared to the first nine months of 2009.

Cost of Services and Gross Profit

Cost of services increased by $0.1 million, or 0.1%, from approximately $179.1 million in the first nine months of 2009 to $179.3 million in the first nine months of 2010.  Cost of services in the U.S. decreased by approximately $13.8 million.  Gross profit as a percentage of revenue in the U.S. decreased from 18.9% in the first nine months of 2009 to 15.1% in the first nine months of 2010.  The decrease in cost of services in the U.S. was driven by a $10.2 million decline related to the two site closures in the first nine months of 2010, as discussed above, as well as a reduction in full-time equivalent agents due to the lower call volumes from our two largest clients and telecommunications clients serving the traditional “wireline” or land telephone services, described above.  Cost of services in Canada declined by $3.1 million in the first nine months of 2010 from the first nine months of 2009, of which $4.5 million was due to the closure of the facilities in Regina, Saskatchewan and Thunder Bay, Ontario.  This was partially offset by an increase to cost of services of $3.0 million due to declines in the Canadian to U.S. dollar exchange rate.  Cost of services for our Offshore segment increased by $17.0 million in the first nine months of 2010 compared to the first nine months of 2009 due to our two new sites in Ortigas, Philippines and Heredia, Costa Rica, and the ramp-up of our Makati, Philippines facility.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $0.2 million, or 0.6%, from $31.7 million in the first nine months of 2009 to $31.5 million in the first nine months of 2010.  As a percentage of revenue, selling, general and administrative expenses increased from 14.6% to 15.7% period over period.  Selling, general and administrative expenses were less in the first nine months of 2010 due in part to the absence of $0.6 million in expense recorded in the first nine months of 2009 for the settlement of a shareholder lawsuit,

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as well as a decline of $0.3 million in hiring expense.  This was partially offset by an increase in depreciation expense of $0.7 million period over period.

Impairment Losses and Restructuring Charges

During the nine months ended September 30, 2010, we recorded approximately $1.2 million of impairment losses and restructuring charges.  We recorded approximately $3.1 million of impairment losses ($2.6 million in our U.S. segment and $0.5 million in our Canadian segment), due to the impairment of certain long-lived assets for which the carrying value of those assets is not recoverable.  The impairment losses were offset by a $1.9 million reduction of restructuring charges due to a change in the sublease estimate at one of our facilities.  During the nine months ended September 30, 2009, we incurred $1.7 million of impairment losses and $4.7 million in restructuring charges in our Canadian segment.

Operating Loss

We had an operating loss of $11.3 million in the first nine months of 2010 and an operating loss of $0.8 million in the first nine months of 2009.  Operating loss as a percentage of revenue was 5.6% for the first nine months of 2010 compared to 0.4% for the first nine months of 2009.  The increase in the loss was primarily due to lower revenue and gross profit, partially offset by lower impairment and restructuring charges, as discussed previously.

Net Interest and Other Income (Expense)

Net interest and other income was approximately $0.2 million during the first nine months of 2010, compared to net interest and other expense of approximately $0.2 million during the first nine months of 2009.  The increase was due to a decrease in interest expense of approximately $0.3 million period over period due to the pay-off of certain notes payable in 2009, and a realized gain of approximately $0.1 million for the recovery of a previously impaired investment.

Income Tax

The provision for income taxes of $1.8 million in the nine months ended September 30, 2010 reflects the establishment of a valuation allowance for substantially all of our U.S. net deferred tax assets. During the first nine months of 2010, we evaluated all positive and negative evidence related to our ability to utilize our deferred tax assets and recorded a valuation allowance due to our three-year historical cumulative losses, recent operating losses and an expected U.S. pre-tax loss for fiscal year ending December 31, 2010, which increased income tax expense by $6.3 million for the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009.

Income from Discontinued Operations, net of tax

Income from discontinued operations was $0 during the first nine months of 2010 and approximately $4.6 million during the first nine months of 2009.  The income from discontinued operations in the first nine months of 2009 was due to the sale of Domain.com, our then wholly-owned subsidiary, for cash of approximately $7.1 million.  We had a gain on the sale of approximately $6.9 million, less taxes of approximately $2.3 million.

Net (Loss) Income

Net loss was $12.8 million in the first nine months of 2010 compared to net income of approximately $3.8 million in the first nine months of 2009.  The decrease in net income was primarily due to lower revenue and gross profit, the absence of income from discontinued operations, and a valuation allowance taken against net deferred tax assets, partially offset by the lower impairment and restructuring charges, as discussed previously.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2010, working capital totaled $50.5 million and our current ratio was 2.98:1, compared to working capital of $60.4 million and a current ratio of 3.42:1 at December 31, 2009.

We have historically financed our operations, liquidity requirements, capital expenditures, and capacity expansion primarily through cash flows from operations, and to a lesser degree, through various forms of debt and leasing arrangements. In addition to funding basic operations, our primary uses of cash typically relate to capital expenditures to upgrade our existing information technologies and service offerings and investments in our facilities.  We believe that cash flows from operations and cash provided by our line of credit will adequately meet our ongoing operating requirements.  Due to the timing of our collections of large billings with our major customers, we have historically needed to draw on our line of credit for ongoing operating activities.

We renewed our $15 million revolving line of credit with UMB Bank Colorado, N.A. for one year, from August 1, 2010 to August 1, 2011.  We expect to use the line of credit for regular operating activities.  Any significant future expansion of our business may require us to secure additional cash resources.  If we enter into an acquisition, it may require us to use our cash, draw on our line of credit or obtain additional financing, which could decrease cash available for operations.  The current poor conditions of the U.S. credit markets may adversely impact our ability to obtain financing and could significantly impact our liquidity.  In addition, a

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decrease in demand for our services, particularly from any of our principal clients, which could arise from a number of factors, including, but not limited to, competitive pressures, adverse trends in the business process outsourcing market, industry consolidation, adverse circumstances with respect to the industries we service, and any of the other factors we describe more fully herein and in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2009 could adversely affect our business.  During the nine months ended September 30, 2010 and 2009 we used $1.8 million and $22.2 million on the line of credit, respectively, for regular operating activities.  During the nine months ended September 30, 2010 and 2009, we re-paid $1.8 million and $22.2 million, respectively, on the line of credit and there was no balance outstanding as of September 30, 2010.

	Nine Months Ended September 30,
	2010			2009
	(in thousands)
Net cash provided by (used in):
Operating activities	$	14,469		$	12,589
Investing activities	(13,033		)	4,515
Financing activities	146			(6,846		)
Effect of foreign exchange rates on cash	141			625
Net increase in cash and cash equivalents	$	1,723		$	10,883

Our balance of cash and cash equivalents was $21.3 million at September 30, 2010, compared to a balance of $19.6 million at December 31, 2009.

Operating Activities.  Net cash provided by operating activities increased $1.9 million from $12.6 million for the nine months ended September 30, 2009 to $14.5 million for the nine months ended September 30, 2010.  Net cash provided by operating activities for continuing operations declined by $0.4 million from $14.9 million for the nine months ended September 30, 2009 to $14.5 million for the nine months ended September 30, 2010.  The decline in cash provided by operating activities from continuing operations was driven by the $12.0 million greater loss in the nine months ended 2010 compared to the same period in 2009, partially offset by the following:  1) $6.5 million higher collections of accounts receivable period over period due to the timing of collections of large billings and 2) $5.2 million greater decrease in our income tax receivable period over period due to a large income tax refund collected in the first quarter of 2010.

Investing Activities.  Net cash used in investing activities was $13.0 million in the first nine months of 2010, compared to cash provided by investing activities of $4.5 million in the first nine months of 2009.  The decrease was due primarily to 1) the absence of proceeds from the sale of Domain.com of $7.1 million that was recorded in the first nine months of 2009, 2) a $7.4 million decrease in the proceeds from the sale of investments and 3) an increase of $3.2 million in purchases of property, plant and equipment due to new site openings in Costa Rica in March 2010 and the Philippines in April 2010.

Financing Activities.  Net cash provided by financing activities was $0.1 million in the first nine months of 2010, compared to cash used in financing activities of $6.8 million in the first nine months of 2009.  The change was due to the absence of payments on long-term debt which were $6.9 million in the first nine months of 2009 as we paid off two equipment loans in the second quarter of 2009.

Contractual Obligations.Other than operating and capital leases for certain equipment, real estate and leases and commitments to purchase goods and services in the future, we have no off-balance sheet transactions, unconditional purchase obligations or similar instruments, and we are not a guarantor of any other entities’ debt or other financial obligations.  We maintain a $15 million revolving line of credit with UMB Bank Colorado, N.A. which we use to finance regular, short-term operating expenses.  The line of credit expires on August 1, 2011.  During the three and nine months ended September 30, 2010, we used $0 and $1.8 million on the line of credit, respectively, for regular operating activities.  During the three and nine months ended September 30, 2010, we re-paid $0 and $1.8 million, respectively.  During the three and nine months ended September 30, 2009, we used $0 and $22.2 million on the line of credit, respectively, for regular operating activities.  During the three and nine months ended September 30, 2009, we re-paid $0 and $22.2 million, respectively.  There was no balance outstanding on the line of credit as of September 30, 2010.  As of September 30, 2010, we were in compliance with our debt covenants.

In January 2010, we entered into a lease agreement for the rental of a facility in Ortigas, Philippines.  The lease has an initial term of five years with a tenant option for an additional five years.  The first phase of the facility opened in April 2010.  In May 2010, we entered into a lease for additional space in this facility.  The additional space is approximately 65,000 square feet, which brings total available space to approximately 223,500 square feet in this location.  Total lease commitments for the additional space are approximately $4.1 million over the initial term of the lease, or approximately five years.

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During the nine months ended September 30, 2010, there were no other material changes in our contractual obligations.  For a complete discussion of our contractual obligations as of December 31, 2009, see Item 7. “Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2009.

Other Factors Impacting Liquidity. Effective November 4, 2004, our board of directors authorized purchases of up to $25.0 million of our common stock.  The repurchase program will remain in effect until terminated by the board of directors and allows us to repurchase shares of our common stock from time to time on the open market, in block trades and in privately-negotiated transactions.  Repurchases will be implemented by the Chief Financial Officer consistent with the guidelines adopted by the board of directors and will depend on market conditions and other factors.  Any repurchases of shares will be made in accordance with Securities and Exchange Commission rules.  We have not yet repurchased any shares pursuant to this board authorization.

Our business currently has a high concentration of a few principal clients.  The loss of a principal client and/or changes in timing or termination of a principal client’s product launch or service offering would have a material adverse effect on our business, liquidity, operating results, and financial condition.  These client relationships are further discussed in Note 6, “Principal Clients,” to our Condensed Consolidated Financial Statements, which are included at Item 1, “Financial Statements,” of this Quarterly Report on Form 10-Q.  To limit our credit risk, management from time to time will perform credit evaluations of our clients. Although we are directly impacted by the economic conditions in which our clients operate, management does not believe substantial credit risk existed as of September 30, 2010.  Refer to Item 1A. “Risk Factors” appearing in our Annual Report on Form 10-K for the year ended December 31, 2009 for further information regarding these risks.

There is a risk that the counterparties to our hedging instruments could suffer financial difficulties due to economic conditions or other reasons, and we could realize losses on these arrangements which could impact our liquidity.  However, we do not believe we are exposed to more than a nominal amount of credit risk in our derivative hedging activities, as the counterparties are established, well-capitalized financial institutions.

Because we service relatively few, large clients, the availability of cash is highly dependent on the timing of cash receipts from accounts receivable.  As a result, from time to time, we borrow cash from our line of credit to cover short-term cash needs.  These borrowings are typically outstanding for a short period of time before they are repaid.  However, our debt balance can fluctuate significantly during any given quarter as part of our ordinary course of business.  Accordingly, our debt balance at the end of any given period is not necessarily indicative of the debt balance at any other time during that period.

Although management cannot accurately anticipate effects of domestic and foreign inflation on our operations, management does not believe inflation has had a material adverse effect on our results of operations or financial condition.  However, there is a risk that inflation could occur in certain countries in which we operate which could have an adverse affect on our financial results.  We engage in hedging activities which may reduce this risk; however, currency hedges do not, and will not, eliminate our exposure to foreign inflation.

VARIABILITY OF OPERATING RESULTS

Our business has been seasonal only to the extent that our clients’ marketing programs and product launches are geared toward the winter holiday buying season.  We have experienced and expect to continue to experience some quarterly variations in revenue and operating results due to a variety of factors, many of which are outside our control, including: (i) timing and amount of costs incurred to expand capacity in order to provide for volume growth from existing and future clients; (ii) changes in the volume of services provided to principal clients; (iii) expiration or termination of client projects or contracts; (iv) timing of existing and future client product launches or service offerings; (v) seasonal nature of certain clients’ businesses; and (vi) variability in demand for our services by our clients depending on demand for their products or services and/or depending on our performance.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America, management must undertake decisions that impact the reported amounts and related disclosures.  Such decisions include the selection of the appropriate accounting principles to be applied and assumptions upon which accounting estimates are based.  Management applies its best judgment based on its understanding and analysis of the relevant circumstances to reach these decisions.  By their nature, these judgments are subject to an inherent degree of uncertainty.  Accordingly, actual results may vary significantly from the estimates we have applied.

Our critical accounting policies and estimates are consistent with those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009.  Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2009, for a complete description of our Critical Accounting Policies and Estimates.

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Recently Adopted Accounting Pronouncements

Accounting Standards Update No. 2010-06 “Improving Disclosures about Fair Value Measurements” (“ASU No. 2010-06”)

In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-06. This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after December 15, 2009, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010. We adopted ASU No. 2010-06 related to Levels 1 and 2 disclosures effective April 1, 2010, and the adoption of this guidance did not have a material effect on our condensed consolidated financial statements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, we are exposed to certain market risks related to changes in interest rates and other general market risks, and foreign currency exchange rates.  This information should be read in conjunction with the information set forth in Part II, Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2009, in addition to the interim Unaudited Condensed Consolidated Financial Statements, accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in Items 1 and 2 of this Quarterly Report on Form 10-Q.

Interest Rate Risk

We are exposed to interest rate risk with respect to our cash and cash equivalents and debt obligations.  Cash and cash equivalents are not restricted.  We consider cash equivalents to be short-term, highly liquid investments readily convertible to known amounts of cash, and so near their maturity they present insignificant risk of changes in value because of changes in interest rates.  Management would not expect our cash and cash equivalents to be affected, to any significant degree, by any sudden changes in market interest rates. Declines in interest rates over time will, however, reduce our interest income derived from cash and cash equivalents.  We currently have a $15 million secured revolving line of credit.  The interest rate on our line of credit is variable based upon the LIBOR index, and therefore, is affected by changes in market interest rates.  We drew $1.8 million on the line of credit and repaid all of such amount during the nine months ended September 30, 2010, and as of September 30, 2010, there was no amount outstanding on the line of credit.  If the LIBOR increased 100 basis points, there would not be a material impact to our Condensed Consolidated Financial Statements.

Foreign Currency Exchange Risks

We enter into foreign currency exchange contracts to hedge our anticipated operating commitments that are denominated in foreign currencies.  The contracts cover periods commensurate with expected exposure, generally three to nine months, and are principally unsecured foreign exchange contracts.  The market risk exposure is essentially limited to risk related to currency rate movements.  We operate in Canada, the Philippines and Costa Rica.  The functional currencies of our Canadian and Philippine operations are the Canadian dollar and the Philippine peso, respectively, which are used to pay labor and other operating costs in those countries. However, our client contracts primarily generate revenues which are paid to us in U.S. dollars.  In Costa Rica, our functional currency is the U.S. dollar and the majority of our costs are denominate in U.S. dollars.  During the three months ended September 30, 2010, we entered into Canadian dollar forward contracts for a notional amount of 17.4 million Canadian dollars to hedge our foreign currency risk with respect to labor costs in Canada.  During the three months ended September 30, 2010, we entered into non-deliverable forward contracts with respect to the Philippine peso for a notional amount of 288 million Philippine pesos to hedge our foreign currency risk with respect to labor costs in the Philippines.  As of September 30, 2010, we have not entered into any arrangements to hedge our exposure to fluctuations in the Costa Rican colon relative to the U.S. dollar.  As of September 30, 2010, we had contracted to purchase 32.0 million Canadian dollars to be delivered periodically through June 2011 at a purchase price of approximately $30.3 million and we had contracted to purchase 288 million Philippine pesos to be delivered periodically through December 2010 at a purchase price of approximately $6.4 million.

During the nine months ended September 30, 2010, there were no other material changes in our market risk exposure.  For a complete discussion of our market risks associated with foreign currency and interest rate risks as of December 31, 2009, see Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2009.  Also, refer to Part II, Item IA. “Risk Factors” in this Quarterly Report on Form 10-Q and Part I. Item 1A. “Risk Factors” appearing in our Annual Report on Form 10-K for the year ended December 31, 2009 for further information regarding these risks.

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ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.As of September 30, 2010, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).  Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2010, our disclosure controls and procedures were effective and were designed to ensure that all information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in internal controls over financial reporting.There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II.  Other Information

ITEM 1.  LEGAL PROCEEDINGS

We have been involved from time to time in litigation arising in the normal course of business, none of which is expected by management to have a material adverse effect on our business, financial condition or results of operations.

ITEM 1A.  RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009, except for the additions and modifications reflected in the risk factors below.

Our client base is concentrated in the communications industry and our strategy partially depends on a trend of communications companies continuing to outsource non-core services. If the communications industry suffers a downturn or the trend toward outsourcing reverses, our business will suffer.

Our current clients are almost exclusively communications companies, which include companies in the wire-line, wireless, cable and broadband lines of business.  Over 95% of our revenue in 2009 and the first nine months of 2010 was concentrated in the telecommunications industry.  During the first nine months of 2010, we experienced lower call volumes from our customers in the wire-line and wireless businesses which adversely affected our results.  Currently, our business is largely dependent on continued demand for our services from clients in this industry and on trends in this industry to purchase outsourced services. The continuing economic instability has weakened the demand for the products and services offered by our clients in the telecommunications sector and could continue to affect this demand in the future which would consequently weaken the demand for our services.  The weakened demand for our clients’ products and services could also cause a slowdown or reversal of the trend in the telecommunications industry to outsource the services we provide.  These factors could adversely affect our business, results of operations, growth prospects, and financial condition in the future.

Over 80% of our revenue in the first nine months of 2010 and the years ended December 31, 2009 and 2008, has been received from our two largest clients. The loss or reduction in business from either of these clients would adversely affect our business and results of operations.

The following table represents revenue concentration of our principal clients:

	Nine Months Ended		Year Ended December 31,
	September 30, 2010		2009		2008
AT&T Services, Inc. and AT&T Mobility, LLC, subsidiaries of AT&T, Inc.	67.2	%	63.6	%	55.0	%
T-Mobile USA, Inc., a subsidiary of Deutsche Telekom	17.8	%	21.5	%	26.8	%

The loss of a principal client, a material reduction in the amount of business we receive from a principal client, renegotiation of price by a principal client, or the loss, delay or termination of a principal client’s product launch or service offering would adversely affect our business, revenue and operating results. We may not be able to retain our principal clients or, if we were to lose any of our principal clients, we may not be able to timely replace the revenue generated by the lost clients. Loss of a principal client could result from many factors, including consolidation or economic downturns in our clients’ industries, as discussed further below.

In July 2010, we executed agreements with AT&T to ramp-down certain wireline services that we provide them.  Approximately 260 full-time equivalent agent positions in two of our U.S. sites will be eliminated through the first half of 2011 as the business declines.

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We plan to close one of the sites, which is located in Greeley, Colorado, by the end of 2010 (except for a small number of corporate personnel).  Agents in this site that work on other customers or lines of business will be relocated to our other facility in Greeley, Colorado.

Our work for AT&T is covered by several contracts for a variety of different lines of AT&T business.  Some of these contracts expire in 2011 and others in 2012.  Although we have negotiated extended terms for several of these contracts, others may not be extended past their initial terms.  The initial term of our master services agreement covering all AT&T work expired in January 2010.  After the initial term, the agreement automatically renews month-to-month thereafter.  We are currently negotiating a new master services agreement and expect to execute the agreement during the fourth quarter of 2010. Until the new agreement is signed, our services provided to AT&T are covered under the existing master services agreement. On October 27, 2010, we entered into an agreement with AT&T for the renewal of certain services we provide to them with regard to their wireless consumer customers.  During the third quarter of 2010, this business represented approximately 52% of our revenue with AT&T.  The agreement is effective through September 1, 2012.  The agreement is filed as Exhibit 10.1 to this Form 10-Q.

Our call center services agreement with T-Mobile became effective as of October 1, 2007 and has an initial term of two years.  After the initial term, the contract automatically renews thereafter, unless either party provides written notice of termination at least 60 days prior to the expiration of the then-current term.  Although the initial term of the contract ended on September 30, 2009, the contract automatically renewed through October 1, 2011.  In August 2010, T-Mobile indicated that they would hold a formal process for selecting vendors for approximately half of the work that we currently service along with an additional, significant opportunity with work that we do not currently perform for T-Mobile.  We participated in the first stage of this process and have been selected to submit a full formal response.  We expect a final decision to be made by the end of 2010.  We expect to be selected as a continuing vendor for T-Mobile but we can provide no assurance that this will be the case nor that if we are selected that we will be selected to perform work at the level that we currently provide, or that the terms of any new agreement will be comparable to those currently provided for under our existing agreement.  If we are not selected as a vendor, if we are selected as a vendor but at a significantly reduced level, or if the terms of any new agreement are less favorable than the existing agreement, it would have a material adverse effect on our business, results of operations, and financial condition.  Until the process is complete, we continue to provide services to T-Mobile under the existing agreement.

The future revenue we generate from our principal clients may decline or grow at a slower rate than expected or than it has in the past. In the event we lose any of our principal clients or do not receive call volumes anticipated from these clients, we may suffer from the costs of underutilized capacity because of our inability to eliminate all of the costs associated with conducting business with that client, which could exacerbate the effect that the loss of a principal client would have on our operating results and financial condition.  For example, there are no guarantees of volume under the current contract with AT&T.  In addition, the current contract with AT&T provides for a tiered incentive pricing structure that provides for lower pricing at higher volumes. Additional productivity gains could be necessary to offset the negative impact that lower per-minute revenue at higher volume levels would have on our margins in future periods.

ITEM 5. OTHER INFORMATION

On October 27, 2010, we entered into an agreement with AT&T Services, Inc. for the renewal of certain services we provide to them with regard to their wireless consumer customers.  During the third quarter of 2010, this business represented approximately 52% of our revenue with AT&T.  The agreement is effective through September 1, 2012.  The agreement is filed as Exhibit 10.1 to this Form 10-Q.

ITEM 6. EXHIBITS

An Index of Exhibits follows the signature page of this Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

STARTEK, INC.
(REGISTRANT)
By:	/s/A. LAURENCE JONES	Date: October 29, 2010
	A. Laurence Jones
	President and Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ DAVID G. DURHAM	Date: October 29, 2010
	David G. Durham
	Executive Vice President, Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

		Incorporated Herein by Reference
Exhibit	Description	Form	Exhibit	Filing Date
3.1	Restated Certificate of Incorporation of StarTek, Inc.	S-1	3.1	1/29/1997
3.2	Restated Bylaws of StarTek, Inc.	8-K	3.2	8/2/2007
3.3	Certificate of Amendment to the Certificate of Incorporation of StarTek, Inc. filed with the Delaware Secretary of State on May 21, 1999.	10-K	3.3	3/8/2000
3.4	Certificate of Amendment to the Certificate of Incorporation of StarTek, Inc. filed with the Delaware Secretary of State on May 23, 2000.	10-Q	3.4	8/14/2000
4.1	Specimen Common Stock certificate.	10-Q	4.2	11/6/2007
10.1*&	Work Order No. 20070105.006.S.019 effective October 27, 2010 pursuant to Master Services Agreement No. 20070105.006.C dated January 26, 2007 between StarTek, Inc. and AT&T Services, Inc.
31.1*	Certification of A. Laurence Jones pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of David G. Durham pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Written Statement of the Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*Filed with this Form 10-Q.

&Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.

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EX-10.1

EXHIBIT 10.1

[*] = Certain confidential information contained in this document, marked with brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment made pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

This Order No. 20070105.006.S.019 (“Order”) is issued pursuant to the Contact Center Agreement No. 20070105.006.C dated January 26, 2007 (“Agreement”) between AT&T Services, Inc. (“AT&T”) and StarTek, Inc. (“Supplier”) and the Agreement is incorporated by reference herein.  Capitalized terms used in this Order not otherwise defined herein shall have the definitions specified in the Agreement.  If the Order conflicts with the terms and conditions of the Agreement, the terms and conditions of the Agreement shall control unless set forth in the “Special Considerations” section of this Order in which case the Order shall govern and control.  Notwithstanding anything to the contrary, this Order shall supersede and replace Order numbers GAMSA-STAR081106-00.S.001 and 20080122.003.C.

AT&T hereby authorizes Supplier to perform the following Services:

1.SCOPE OF WORK

1.1Supplier consumer customer services representatives (“CSRs”) shall take and handle inbound customer care inquiries by program (“Program”) as set forth in Exhibit C attached hereto in accordance with the AT&T hours of operation (“Hours of Operation”) set forth in Exhibit D attached hereto subject to applicable laws at the rates set forth in Exhibit B attached hereto, Specialty CSRs set forth in Exhibit E attached hereto, and Contract Positions set forth in Exhibit F attached hereto.  Any other customer care activities,  changes that result in the nature or type, market or mix of calls to change, including any changes to the mix of Program project(s) supported by Site as set forth in Exhibit C attached hereto, shall be subject to Section 4.22 (Change Management) of the Agreement.

2.PRIMARY CONTACT INFORMATION

2.1The following will perform the function of primary AT&T Contact and primary Supplier Contact.  Supplier shall use reasonable efforts to retain the Supplier Contact during the term of this Order.

AT&T Contact	Supplier Contact
Name: [*] Address: [*] Phone: [*] E-mail: [*]	Name: [*] Address: [*] Phone: [*] Cell: [*] E-mail: [*]

3.TERM

3.1The Term of this Order shall commence on the date when signed by the last Party (“Effective Date”), and shall continue until midnight on September 1, 2012 (the “Initial Term). Supplier shall commence providing Services on September 1, 2010.

4.SERVICE SPECIFICATIONS AND REQUIREMENTS

4.1Supplier shall deliver to AT&T the deliverables set forth in Exhibit A “Deliverables Matrix” (the “Deliverables”), attached hereto and incorporated herein.  Additional adhoc reports may be requested by AT&T and shall be provided by Supplier as mutually agreed upon by the Parties.

PRIVATE/PROPRIETARY/LOCK

The information contained in this Agreement is not for use or disclosure outside AT&T, Supplier, their affiliated companies and their third party representatives, except under written Agreement by the contracting Parties.

Order No:  20070105.006.S.019

Agreement No:  20070105.006.C

5.AT&T SYSTEMS USE AND DOWNTIME

5.1Should AT&T systems become unavailable to Supplier, Supplier shall follow the notification instructions contained in AT&T’s Downtime Policy as provided by AT&T.  Supplier shall utilize downtime forms to capture call information on the AT&T-provided downtime forms and shall input into AT&T systems as soon as reasonably possible after restoration of the impacted systems.  AT&T shall pay the applicable Billable Hour rate for this function.  Supplier shall be excused from Performance Standards for the duration of the system outage. Supplier shall provide immediate notification to AT&T’s National Call Center Operations (“NCCO”) in the event of any outage. If AT&T Mobility directs Supplier CSR’s to “sign” off of the phones, Supplier shall manually track the time and invoice back as a separate line item.

5.2If the telecommunications systems are in failure due to AT&T, AT&T may require Supplier CSRs to go into pure AUX state, whereby they are not receiving calls.  AT&T shall still be charged the actual outage time incurred for the amount of time affected.  Supplier shall be excused from Performance Standards for the duration of the outage. If AT&T directs Supplier CSR’s to “sign” off of the phones, Supplier shall manually track the time and invoice back as a separate line item.

5.3The AT&T system will be completely down during certain after-hour times and other scheduled times throughout the year for maintenance.  When practical, AT&T will advise Supplier of the scheduled maintenance at least [*] prior to the times and dates that the systems will not be available due to maintenance.

5.4Notwithstanding the foregoing, in the event of a Supplier system/telecommunications outage, Supplier shall utilize CSRs’ [*] for offline work and training for the duration of the outage.  AT&T shall [*] for unutilized hours for the duration of a Supplier system outage, subject to the Vendor Incident Report as described in Exhibit A and included as billing back-up.

6.PERFORMANCE STANDARDS:

6.1AT&T and Supplier have developed the standards set forth in this Order, (hereinafter “Performance Standards”) to ensure the delivery of high quality, efficient customer service.  Effective  on the Effective Date, Performance Standard measurements for Sites existing on the Effective Date, shall begin the month following the Effective Date, or for the Performance Standards related to WAVE First Call Resolution and Total Resolved, the next full calendar quarter. Performance Standards for Sites opening after the Effective Date shall be applicable to Services performed from a particular Site/Program [*] after the first Production call is taken. Performance Standards hereunder shall be measured by Program at each Site and shall exclude calls subject to waivers as set forth herein this Order.  Any invoice credits owed or debits earned by Supplier shall only apply to the Services invoiced for the particular Site/Program subject to Section 1.2 herein for which it was measured and shall be assessed, respectively to CSE Programs Billable Hours in Production only.

6.2Call Volume Forecasting / Staffing.  Each month on a by Site/Program basis, AT&T shall provide Supplier [*] written forecasts to be used by Supplier as a guide for recruitment, planning and staffing activities.  The [*] written forecasts are as follows:

1.  [*] Day Outlook Forecast with the required number of Full Time Equivalents (“FTEs”) by Site/Program for recruitment purposes.

2.  [*] Day Locked Forecast with the estimated monthly number of calls by Site/Program for planning purposes as well as forecasted modification training for the applicable month  (“[*] Day Lock”).

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3.  [*] Day Forecast with daily/interval call arrival patterns by Site/Program .

Supplier shall provide FTE staffing pursuant to the mutually agreed upon [*] Day Lock based upon the [*] Day Outlook Forecast, which will include an assumption of the current training and nesting requirements set forth in Exhibit D.  Notwithstanding the foregoing, in the event that AT&T requests training to extend beyond the current requirements set forth in Exhibit D, the Parties shall address the change subject to Section 4.22 (Change Management) of the Agreement.

The mutually agreed upon [*] Day Lock represents a commitment by AT&T and Supplier with respect to staffing levels.  Once the [*] Day Lock is agreed to, AT&T agrees to compensate Supplier for the Billable Hours incurred for the applicable month, and it is Supplier’s responsibility to staff to the [*] Day Lock as mutually agreed upon.  In cases where Supplier has duplicate Programs across Sites, AT&T and Supplier shall mutually agree upon volume changes at a Site level as long as the [*] Day Lock remains unchanged.  In the event that actual volumes are less than the [*] Day Lock, Supplier shall use reasonable efforts to ensure productive utilization of  CSRs by offering voluntary go home (“VGH”), internal training, etc.

Each [*] Day Forecast will be prepared on a Site/Program basis in [*] intervals and will include estimated call volumes, estimated average handle times, estimated required FTE, shrinkage percentages and, when available, any other information which would be relevant for Supplier in providing the Services.

Both AT&T and Supplier will need to agree upon the volume forecasts and related staffing when the [*] Day Lock represents +/- [*]% change from the previous [*] Day Outlook Forecast, as it may require additional new hire training.  The Parties shall mutually agree upon adjusted staffing for the modified forecast volumes pursuant to Section 4.22 (Change Management) of the Agreement.   Notwithstanding the foregoing, in the event a Site requires a reduction of more than [*] CSRs, Supplier shall have [*] days from receipt of written notice, or the minimum number of days required to maintain compliance with the laws applicable in the affected Site’s location, to comply with the AT&T provided forecast.

a)The Performance Standards outlined here in this Order may be changed by AT&T upon [*] days written notice to Supplier per the procedure outlined in Section 4.22 (Change Management) of the Agreement.

b)Notwithstanding the foregoing, Supplier shall be waived for Performance Standards in breach and/or AT&T invoice credits under this Order or the Agreement to the extent caused by AT&T or if actual call volume for such Program exceeds the [*] Day Lock for such Site/Program by more than [*] or as otherwise set forth in this Order or the Agreement.

c)Failure to meet the same Performance Standard at the same Site/Program for [*] consecutive months shall be considered a breach of this Order and may be subject to Section 3.4 (Cancellation and Termination) of the Agreement unless otherwise waived in accordance with the terms and conditions set forth herein.

d)Supplier shall provide at least [*] of the staffing pursuant to the [*] Day Lock and in any case shall use reasonable efforts to achieve [*] of the staffing pursuant to the [*] Day Lock, and AT&T shall provide at least [*] of the Billable Hours pursuant to the [*] Day Lock.  If Supplier fails to staff at least [*] of the [*] Day Lock and the shortage materially impacts AT&T’s ability to provide services to its customers, Supplier failure will be considered a breach of this Order and may be subject to Section 3.4 (Cancellation and Termination) of the Agreement unless otherwise waived in accordance with the terms and conditions set forth herein.

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At the request of AT&T, Supplier shall provide a corrective action plan for such breach.

Post shrink “in-seat” requirements and overtime:  Post shrink “in-seat” requirements shall be provided by AT&T to Supplier in the [*] Day Lock file (labeled: “[*] Day active FTE committed” in the [*] Day Lock file).  The Parties shall mutually agree upon these requirements.  If Supplier actual in-seat FTEs are below agreed upon in-seat, based on the [*]-day lock (hereinafter “FTE In-Seat Shortage”), Supplier shall use reasonable efforts to solicit and fund overtime to meet the in-seat requirements where shortages exists.  AT&T may request and fund overtime for in-seat FTE hours that are in excess of the [*] Day Lock commitments but this must be approved in advance by AT&T.  Supplier will be excused from funding overtime in excess of the [*] Day Lock commitment.

e)Supplier shall be excused from Performance Standards and/or AT&T invoice credits under this Order in the event the Parties determine that the components and/or assumptions used to determine the [*] Day Lock are inaccurate resulting in Supplier failing to meet Performance Standards.  The parties will mutually agree upon which component and/or assumption is inaccurate, will correct and re-run current and future forecasts utilizing the corrected components and/or assumptions.  Variable assumptions and/or components include, but shall not be limited to call volume, AHT assumption, occupancy, and modification/upgrade training hours.

6.3Customer Service Experience (“CSE”) Standards:  The following Performance Standards shall be measured on a Site basis and shall apply to the CSE Program only, and shall be subject to material default and the applicable AT&T invoice credit, Supplier earned debit to AT&T’s invoice credit, or Bonus set forth herein.  Notwithstanding the foregoing, AT&T may request that additional Programs be subject to the Performance Standards subject to Section 4.22 (Change Management) of the Agreement.   All results will be rounded to the nearest whole number percentage.  New sites will be subject to these Performance Standards [*] months after the first call received in Production. Converted sites (Sites subject to Conversion training as described in Exhibit B herein) will be measured [*] months after the first call received in Production.

6.3.1First Call Resolution Rate (“FCR”): FCR WAVE will be measured quarterly by Site and shall be ranked against Like Sites’ national average, contingent up a sample size of at least [*] per Site.  Sample sizes of less than [*] shall be excluded from the quarterly measurement.  AT&T or AT&T vendor sites with samples sites of less than [*] shall not be included in the stack ranking.  FCR shall be waived in the event Supplier’ results  are within the top [*] of stacked ranking or better, measured by region, regardless if Supplier results fall within the [*] or [*] quartile when measured against the national average for overall Like Sites.

Example:

Assumptions:

Overall Like Sites national average results:	[*]%
Results for top [*] of Like Sites measured by region:	[*]%-[*]%
Supplier results:	[*]%

Supplier results within the top [*] of the results measured by region.  FCR Performance Standard and associated AT&T invoice credit is waived.

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AT&T invoice credits and Supplier earned offset debits will be applied at the end of the quarter, by Site/Program.  The AT&T invoice credits and Supplier earned offset debits will be applied in the following fashion based on FCR scores:

below [*]% of Like Sites	[*]% AT&T invoice credit
[*]-[*]% of Like Sites	[*]% AT&T invoice credit
[*]-[*]% of Like Sites	[*]% Supplier earned offset debit
[*]%+ of Like Sites	[*]% Supplier earned offset debit

Note: Earned offset debits are not bonus opportunities and can only be used to offset credits within the same Site and quarter.  Earned offset debits cannot exceed total credits for the Site.

A [*] bonus may apply on a per Site basis if the FCR stretch target is achieved in any quarter (“Bonus”) and the minimum TR goal is met ([*]% in 2010). The stretch target for First Call Resolution is [*] or better for 2010.  The stretch target will be adjusted annually based on current year goals.  The minimum 2010 FCR goal is [*].  The Bonus shall be calculated as follows:  (1) the quarterly invoice credit(s)/debit(s) shall be calculated (“Offset Result”), then (2) the Bonus shall be applied to the Offset Result.

6.3.2Total Resolved (“TR”): will be measured quarterly by Site and ranked against Like Sites’ national average, contingent up a sample size of at least [*] per Site.  Sample sizes of less than [*] shall be excluded from the quarterly measurement.   TR shall be waived in the event Supplier’s results are within the top [*] of stacked ranking or better, measured by region, regardless if Supplier results fall within the [*] or [*] quartile when measured against the national average for overall Like Sites.

Example:

Assumptions:

Overall Like Sites national average results:	[*]%
Results for top [*] of Like Sites measured by region:	[*]%-[*]%
Supplier results:	[*]%

Supplier results within the top [*] of the results measured by region.  TR Performance Standard and associated AT&T invoice credit is waived.

AT&T invoice credits and Supplier earned offset debits will be applied at the end of the quarter, by Site/Program. The AT&T invoice credits and Supplier earned offset debits will be applied in the following fashion based on TR scores:

below [*]% of Like Sites	[*]% AT&T invoice credit
[*]-[*]% of Like Sites	[*]% AT&T invoice credit
[*]-[*]% of Like Sites	[*]% Supplier earned offset debit
[*]%+ of Like Sites	[*]% Supplier earned offset debit

Note: Earned offset debits are not bonus opportunities and can only be used to offset credits within the same Site and quarter.  Earned offset debits cannot exceed total credits for the Site.

A [*] bonus may apply on a per Site basis if the TR stretch target is achieved in any quarter (“Bonus”).  The stretch target for TR is [*] or better in 2010.  The stretch target will be adjusted annually based on current year goals.  The minimum 2010 TR goal is [*]%.  The

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Bonus shall be calculated as follows:  (1) the quarterly invoice credit(s)/debits(s) shall be calculated (“Offset Result”), then (2) the Bonus shall be applied to the Offset Result.

6.3.3Occupancy Rate Target of [*]-[*]%: The Occupancy Rate will be measured monthly, excluding CSE Program After Hours Queue (After Hours Queue is defined as those hours used to support Customers when normal CSE queues have closed), and shall be determined by subtracting total idle (waiting to serve) time from total logged in time and dividing the difference by total logged in time. If Supplier fails to meet the Occupancy performance standard and the monthly call volume is less than [*]% of the [*]- Day lock then the AT&T invoice credit will be waived. The AT&T invoice credits and Supplier earned bonus will be applied in the following fashion based on Occupancy Rate scores:

below [*]% [*]% AT&T invoice credit

A bonus may apply as follows on a per Site basis if the Occupancy stretch target is achieved for any quarter (“Bonus”). The stretch target for Occupancy is [*] or better in 2010. The stretch target will be adjusted annually on current year goals.

[*]% plus	[*]% Supplier earned bonus
above [*]%	[*]% Supplier earned bonus

The Bonus shall be calculated as follows: (1) the quarterly invoice credit(s) shall be calculated (“Offset Result”), then (2) the Bonus shall be applied to the Offset Result.  Notwithstanding the foregoing, Supplier may earn a Bonus for Occupancy Performance if it meets or exceeds the post shrink in-seat requirements (active [*] day committed) mutually agreed upon in the [*] Day Lock.

6.3.4Availability % (“Availability”) Target of [*]%: The measurement for Availability will be measured monthly and shall be calculated as follows based on AT&T SRS standard:  subtract hold time from the sum of talk time and wait time and divide the result by logged-in time.  In the event Supplier’s business process for calculating Availability (i.e., use of telephony system for tracking offline or development time) differs from the AT&T SRS standard, the Parties shall agree in writing to an alternate calculation provided however that such calculation meets the intent of measuring Availability. The AT&T invoice credits will be applied in the following fashion based on Availability results (all results should be rounded to the nearest percentage):

For Sites with an Availability score lower than [*]%:	[*]% AT&T invoice credit shall apply
Sites with an Availability score of [*]% or greater:	[*]% Supplier earned offset debit of

6.3.5Average Handle Time (“AHT”): The AHT target shall be measured monthly by Site/Program shall be the current calendar month AHT average of all Like Sites per region, plus [*] (“AHT Target”).  Change management procedures set forth in Section 4.22 (Change Management) of the Agreement will be invoked if AHT targets need to change.  The AT&T invoice credits will be applied in the following fashion:

above AHT Target [*]% AT&T invoice credit

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7.CAP

The resulting AT&T invoice credits and Supplier earned offset debits and Bonuses for the applicable CSE and Prepaid Care Programs Performance Standards set forth in Section 6 will only be applied to the applicable Site’s CSE and Prepaid Care Program Billable Hours.  The total AT&T invoice credit for all Performance Standards in aggregate in any month cannot exceed a maximum of [*] per Site invoice.  The total Supplier earned offset debits against AT&T invoice credits for all Performance Standards in aggregate in any month cannot exceed a maximum of [*] per Site invoice.  Supplier earned offset debits can only be used to offset AT&T invoice credits within the same Site during the same month and are not a bonus opportunity.  Notwithstanding the foregoing, Supplier may earn a [*] Bonus per quarter upon attainment of both FCR and TR stretch targets as well as an additional [*] Bonus per quarter for Occupancy (maximum [*]% Bonus in total).

8.PERFORMANCE STANDARDS WAIVERS

8.1In addition to any other waivers set forth herein this Order, Supplier shall be excused for failures to meet any Performance Standard and shall not be in breach of this Order if such failure is caused by: a) AT&T; and/or b) third parties (hired or contracted) to provide system applications and/or system application services to or for AT&T (including carriers) (a and b collectively referred to as “AT&T/Service Provider”) including without limitation acts or omissions of AT&T/Service Provider.

8.2Notwithstanding anything to the contrary herein, in addition to waivers set forth herein this Order, AT&T may choose to waive Performance Standards and applicable penalties at its sole discretion.  AT&T must invoke this option in writing within [*] days of a missed Performance Standard.

9.PRICE

9.1Services shall be compensated by AT&T to Supplier pursuant to the rates and charges detailed in Exhibit B which is attached hereto and fully incorporated herein by this reference.  Such rates and charges do not include all applicable taxes.

10.CANCELLATION AND TERMINATION

a.AT&T may Terminate this Order for convenience with at least [*] days prior written notice to Supplier. Supplier shall have the minimum number of days required to maintain compliance with the laws applicable in the affected Site’s location, from receipt of written notice.

b.In addition to all other rights or remedies provided for in this Order or by law, either Party may immediately Cancel this Order if:  (1) the other Party becomes insolvent or makes a general assignment for the benefit of creditors; (2) the other Party admits in writing the inability to pay debts as they mature; (3) Any court appoints a trustee or receiver with respect to the other Party or any substantial part of the other Party’s assets; or (4) An action is taken by or against other Party under any bankruptcy or insolvency laws or laws relating to the relief of debtors, including the Federal Bankruptcy Act.

11.DISPUTE RESOLUTION

Either Party may give the other Party written notice of any dispute not resolved in the normal course of business.  The Parties will attempt in good faith to promptly resolve any issue, dispute, or controversy arising out of or relating to this Order promptly by negotiation between the managers set forth below.   Within ten (10) days after delivery of such notice, representatives of both Parties will meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute within the time frames here:

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	AT&T	Supplier
Within [*] days	[*]	[*]
Within [*] days	[*]	[*]
Within [*] days	[*]	[*]

If any dispute is not resolved in accordance with this process after [*] days, the Parties will escalate to the respective executive levels.  Both Parties agree to continue performance during the negotiation period set forth in this section of the Order.

12.SPECIAL CONSIDERATIONS

12.1Definitions

12.1.1“Billable Hour” is defined as the time between the time when a CSR clocks into and clocks out of Supplier’ time keeping system for the purpose of performing agreed upon work for AT&T.  The Billable Hour includes time for Paid Breaks, as well as actual time spent by a CSR for coaching and development, team meetings and huddles, and continuing education training, subject to the provisions in Section 12.5 of this Order.  The Billable Hour does not include lunches, sick time, vacations, or Supplier-sponsored events such as non-AT&T focus groups and non-AT&T development.

12.1.2“Full Time Equivalent” (“FTE”) shall mean [*] hours of scheduled time per week.

12.1.3“Growth” means a number of FTE by Site that are incremental to the Historical FTE Peak.

12.1.4“Historical FTE Peak” means the largest count of FTE by Site starting from the time Supplier began performing Services at such Site.

12.1.5“Like Sites” means those locations, both insourced and outsourced, supporting the same programs as set forth in Section 1.1.

12.1.6“Overtime” means production hours invoiced at a premium rate, as defined in Exhibit B, will be applied whenever an agent works in addition to their normal scheduled hours during a time additional staffing has been requested by AT&T. This is contingent on Supplier meeting their daily FTE commitment based on the [*]-Day lock.

12.1.7“Paid Break” is not the actual time that a CSR is recorded in such state on the switch but rather a calculated measure based on Production time not sign on time. Paid Break will be calculated at [*] per Production hour (including outbound and billable idle).

12.1.8“Production” is defined as the mode when CSRs, after successfully completing the proscribed classroom new hire training, are handling live calls from AT&T customers.

12.1.9“Shrink” means the difference between scheduled FTE and actual on-phone FTE, (i.e. absenteeism and preplanned off-phone time) excluding outbound.

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12.2Supplier Responsibilities

a.Except as otherwise set forth in this Order or the Agreement, Supplier shall be responsible for providing all Supplier personnel, facilities, technology, services and materials necessary to perform the Services in accordance with the terms and conditions set forth in this Order.

b.As of the Effective Date of this Order, Supplier shall provide the necessary voice and data infrastructure and PCs based on current requirements (or thin client applications in lieu of PCs) at Supplier’s Site(s) from the point of demarcation within Supplier’s data center(s) for voice and data communications in accordance with Exhibit G (Technology Requirements) at Supplier’s sole expense.  The point of demarcation is the point where AT&T-owned circuits/equipment end and Supplier-owned circuits/equipment begin.  AT&T will provide any intelligent call management (ICM) routing and screen-pop equipment as required; or, alternatively Supplier will provide ICM and screen-pop equipment.  Supplier’s PCs shall reside on the Supplier network and access AT&T’s systems via web, Citrix, or other thin client connectivity.

12.3CSR to Supervisor Ratio

Supplier shall adhere to a CSR to Supervisor ratio of 15:1.

12.4Background Checks and Drug Screens

Supplier shall conduct background checks (including drug screens) in accordance with the terms and conditions of the Agreement for all new hire CSRs.

12.5Training

a.Training costs shall be billed as listed under Exhibit B.

b.Initial new hire training:  Supplier shall provide training pursuant to Exhibit D attached hereto, to Supplier’s CSRs in accordance with AT&T provided training materials, and all retraining, ongoing soft-skills training, and customer service training at the rates set forth in Exhibit B, in order to perform the Services described in this Order.  If mutually agreed between the Parties subject to Section 4.22 (Change Management) of the Agreement, AT&T may provide AT&T trainers for initial train-the-trainer training programs.

c.AT&T may request to extend the duration of initial Program training subject to Section 4.22 (Change Management) of the Agreement.

d.Supplier shall provide up to [*] hours of continuing education training (“CE Training”) per CSR per month at no additional charge to AT&T.  The use of CE Training hours must be preapproved by AT&T in writing.  CE Training hours may be used for, but not limited to,  technical training, program updates, changes to programs, software and system updates and/or changes, scripting changes, or other topics related to the WO and the Services provided hereunder.   ADDITIONAL TRAINING FOR PERFORMANCE ISSUES SHALL BE FREE OF CHARGE TO AT&T AND SHALL NOT COUNT TOWARD THE CE TRAINING HOURS. Supplier must staff appropriately in order to complete the [*] hours/training/CSR/month.

e.In the event CE Training above [*] hours per month per CSR is required by AT&T, AT&T shall be charged the CE Training rate in Exhibit B, unless otherwise mutually agreed.

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f.If this Order is amended to add new or different AT&T Program(s) and such Programs require CSR conversion training (“Conversion Training”) AT&T will be charged the Conversion Training rate in Exhibit B, unless otherwise mutually agreed.

g.If Supplier provides Services in support of multiple AT&T Programs pursuant to this Order, Supplier may cross train CSRs between Programs.  Such training shall be delivered at no cost to AT&T.  Supplier’s plan for cross training, if any, shall be shared with AT&T.

h.At Suppliers expense, new trainers shall:

i.Attend a [*] PRT (Program Ready Trainer) call.

ii.Complete [*] of classroom performance training.

iii.Attend [*] certification course to prepare new trainers for delivering AT&T curriculum to New Hires.

iv.Co-facilitate one New Hire training class with a certified trainer for a minimum of [*] weeks.

AT&T may at its sole discretion choose to pay for Supplier’s travel related expenses directly related to new trainers participation in subsection iii above, provided however that Supplier secures AT&T prior written approval for such expenses and such new trainer successfully completes the certification course.

12.6Quality Assessment

Supplier shall provide enough Quality Assessment (“QA”) to CSRs to meet the average number of observations monthly.  Each CSR is monitored an average of [*] scored evaluations per month by QA and Production staff/personnel collectively and other informal evaluations as agreed upon by the parties based upon individual CSR performance.  Supervisors shall use reasonable efforts to provide feedback for the assessments that they conduct by the end of shift.  Using reasonable efforts, QA assessments will be coached within shift with failing assessments specifically flagged to the Supervisors and coached within [*] minutes of delivery to the Supervisor.  Agents needing improvement will receive additional evaluations via various methods (side by side, additional monitoring, remote monitoring, double jacking, etc).  QA agents will shadow CSRs while on the call without the CSR being aware they are being monitored.  Calibration sessions between Supplier QA agents, Supplier supervisors and AT&T representatives will be held bi-weekly to ensure scoring and feedback to CSRs is consistent.  If Supplier fails to meet performance criteria described in this Section, Supplier will be advised of such deficiencies and Supplier will have [*] days to bring performance back to objective’s standards.  AT&T and Supplier may mutually agree to modify the standards upon written agreement signed by both Parties.

12.7Offshore Work Permitted Under Special Conditions

a)[*], the physical location where the work is to be performed; the Services to be performed at such location; and, if applicable, the identity of any Subcontractor performing such work, shall be specifically set forth in this Order.  Prior to making any additions or deletions to the physical locations or changes in Subcontractors performing work at an Offshore Location the Parties shall amend this Order.  A change in the location where a Service is performed from one Offshore Location to another AT&T approved Offshore Location shall not require an amendment to this Order.  The requirements of this section shall be in addition to Sections 3.3 (Assignment) and 4.18 (Work Done by Others) of the Agreement.

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b)[*], in which event Supplier shall continue to perform such work at a location within the United States and the Parties shall amend this Order accordingly.

c)Supplier’s compliance with this Section, and all Services performed in Offshore Locations with [*], shall be subject to Section 3.31 (Records and Audits) of the Agreement.  Supplier shall provide, and shall ensure all Subcontractors provide at no cost to AT&T, AT&T with physical access to inspect all Offshore Locations.

d)To the extent Supplier interconnects with, or otherwise has access to, the AT&T network, Supplier shall not access, or establish network connections that would allow access, to the AT&T network from an Offshore Location without the prior written consent of AT&T.

e)Any Services under this Order performed by Supplier or any subcontractor in an Offshore Location [*] shall be a material breach of this Order and, in addition to any other legal rights or remedies available to AT&T in law or in equity, AT&T may immediately Cancel and/or Terminate this Order without cost, liability or penalty to AT&T.

f)[*], Supplier shall remain fully responsible for compliance with any applicable foreign, federal, state or local law for such Services regardless of whether the Service is being performed by Supplier or a Subcontractor.  Nothing contained within this Agreement is intended to extend, nor does it extend, any rights or benefits to any Subcontractor, and no third party beneficiary right is intended or granted to any third party hereby.

g)Supplier shall advise AT&T as early as possible prior to any change of Control of the Supplier. AT&T may, but shall not be obligated to, terminate all or part of the Order if, without prior consent of AT&T, through merger of acquisition or other means, there is a change in the Control of the Supplier.  “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies by one person or entity or a group of persons or entities acting in concert; provided, however, that the legal or beneficial ownership, directly or indirectly, by persons or entities, including governmental entities, acting alone or in concert, of more than thirty percent (30%) of the voting stock for the election of directors of a party shall always be deemed Control.

12.8Location

Supplier shall perform the Work at the following locations:

[*]

[*]

[*]

[*]

[*]

11

13.NAME OF AFFILIATE ORDERING SERVICES

AT&T Mobility LLC

14.MBE/WBE/DVBE

Supplier shall make good faith efforts to comply with Section 3.22 (MBE/WBE/DVBE [and Appendices]) of the Agreement which calls for [*] goal for MBE/WBE and DVBE participation.  In addition, Supplier will, in good faith, endeavor to spend the following percentages of its total AT&T spend under this Order through one or more diverse (M/W/DVBE) suppliers:

Year	Supplier Target
2010	[*]%
2011	[*]%
2012	[*]%

In the event this Order is extended beyond the original Term and such extension includes all or a portion of 2013 or beyond, Supplier will, in good faith, endeavor to spend the following percentage of its total AT&T spend under this Order through one or more diverse (M/W/DVBE) suppliers:

Year	Supplier Target
2013 & beyond	[*]%

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Original signature transmitted and received via facsimile or other electronic transmission of a scanned document, (e.g., .pdf or similar format) are true and valid signatures for all purposes hereunder and shall bind the Parties to the same extent as that of an original signature.  This Order may be executed in multiple counterparts, each of which shall be deemed to constitute an original but all of which together shall constitute only one document.

IN WITNESS WHEREOF, the Parties have caused this Order to be executed by their duly authorized representatives:

StarTek, Inc.		AT&T Mobility LLC by its authorized agent AT&T Services, Inc.
By:	/s/ A. Laurence Jones	By:	/s/ Tim Harden
Printed Name: A. Laurence Jones		Printed Name: Tim Harden
Title: President & CEO		Title: President-Supply Chain & Fleet Operations
Date: 10/27/2010		Date: 10/20/2010

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Exhibit A

Deliverables/Specifications/Requirements

Deliverable Set # 1 — Reporting

Note: The list of reports below are required only if requested by AT&T and may not be needed on a recurring basis.  AT&T and Supplier will work together to determine what reports may be needed including additional reports that may not be listed below.

ACD Report: Comprehensive report with data taken directly from the switch.  Details total calls offered, calls handled, calls abandoned, average speed of answer, average handle time by live CSR and downtime.  Delivered to AT&T daily.

Agent (PAR) Report:  CSR or Personal Accountability Reports provide queue performance statistics broken down by CSR.  Data elements include the number of ACD calls answered, the average time spent on each ACD call, the average time spent waiting between ACD calls, the time spend doing post-call work, the time spent logged into the system, short calls, transfer rates, availability etc.  Delivered to AT&T daily.

Vendor Incident Report: Report provides a listing of the date, time, duration and description of any system outages to Supplier systems, root cause analysis, and preventive measures.  Delivered to AT&T when system outages occur.

Call Comparison:  Compares forecasted to actual call volume and answer performance.

Combined FTE:  Report provides headcount and training data, as well as weekly attrition.  Delivered to AT&T weekly.

Attrition Training:  Report provides ongoing attrition training data, with class details (class size, dates, etc.).  Delivered to AT&T weekly.

Interval:  report provides one-half hour (1/2) interval call volume data.  Delivered to AT&T daily.

Invoice Detail:  Invoices will include detailed documentation including but not limited to, for each CSR; a list of CSR names, hours logged via the ACD, hours logged, and indicator for training or Production status.

Weekly Quality Report: Weekly roll up of quality performance to include: scores from evaluations completed by Supplier quality team, scores from evaluations completed by Supplier leadership team (team leads/supervisors), QA/Team Lead score variance, combined score, total evaluations completed by QA team, total evaluations completed by Team Leads.

Monthly Quality Report Monthly roll up of quality performance to include: scores from evaluations completed by Supplier quality team, scores from evaluations completed by Supplier leadership team (team leads/supervisors), QA/Team Lead score variance, combined score, total evaluations completed by QA team, total evaluations completed by Team Leads.

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Deliverable Set # 2 — Quarterly Program Reviews

·If requested by AT&T, Supplier shall conduct quarterly Program reviews in person at AT&T headquarters to cover Program highlights, overall account activity, budget analysis, review key reports and metrics at a management level, the incentive programs that were run and their results, and to ensure that stated agreed upon Program objectives are being met.  If Program objectives are not being met, Supplier shall establish an action plan to be implemented within [*] days to achieve measurable results within [*] days.

15

Exhibit B

Price

For Services performed under this Order, Supplier shall be compensated in accordance with this Exhibit B and one of the applicable pricing tables shown in the Appendices of Exhibit B attached hereto.

a.Except as otherwise stated in an Order, the total amount payable by AT&T for the Services shall be determined by applying the stated rate of compensation to the Services actually performed by Supplier. The Premium and Overtime Rate shall apply if Supplier is able to and AT&T agrees to offer premium and overtime hours (to the extent such hours are in excess of 40 hours per week per CSR). The premium rate for Overtime shall apply if the Supplier is able to and AT&T agrees to offer overtime hours contingent to Section 6.2 d. of this Order. Holiday Rates shall apply based on applicable Holidays at the Site as follows:

United States Holidays: New Years Day, Thanksgiving Day, Labor Day, Christmas Day, Memorial Day, and Independence Day.

Philippines Holidays:  New Year’s Day, Maundy Thursday,Arawng Kagitngan, Good Friday, Labor Day, Independence Day, Ninoy Aquino Day, National Hero’s Day, Eid’l Fitr, Eid’ I Adha, All Saints Day, Bonifacio Day, Christmas Day, Rizal Day,and New Year’s Eve (Last Day of the Year)  Note: Philippine Holidays are proclaimed yearly and the list above may change slightly year to year. Taking into consideration the time zone, the holiday will follow the PHT Time Zone (GMT +8 Hours).

Canadian Holidays:  New Years Day, Family Day, Good Friday, Victoria Day, Canada Day, Labor Day, Thanksgiving Day, Christmas Day, and Boxing Day.

b.Domestic Inbound/Outbound telecom.  AT&T shall be client of record on the (800) service.  Subject to AT&T’s prior written approval of usage, domestic inbound and outbound telecom charges shall be [*].

c.Postage, shredding, express mail, printing, and courier services, trunking and circuits, reproduction (other than reattrition training which is borne by Supplier), and travel (Pre-approved by AT&T) will all be charged at [*].

d.New Hire/Growth training rate shall be applicable to Growth training only.  Supplier shall secure prior written approval from AT&T before incurring Growth training costs.

Classroom training hours not to exceed the maximum classroom training hours for FTE delivered into Production and sustained for [*] consecutive weeks.  From the inception of each new-hire/growth period, the maximum classroom training hours shall be calculated as follows: N(number of training days per week * number of training hours per day * number of training weeks), where N = the total number of FTEs per Site.  Example: 100*(5 * 8 * 5) = 20,000.  Supplier shall invoice monthly based on accrued hours per month until the maximum classroom training hours is surpassed.  Supplier shall [*] associated with any additional training after the maximum new-hire/growth classroom training hours is surpassed.

e.The Nesting Rate will apply for the first [*] of Abay only. The remaining time a CSR is in abay will be invoiced back at the applicable hour rate.

f.The Conversion rate will apply for training required when CSRs are transferred from one AT&T Program to another AT&T Program where “Conversion” training is required.

g.Billable CE training hours shall be calculated in aggregate at Site level and not at the employee level.  For example, if first [*] are free to AT&T per the pricing schedules in this exhibit and 300 active FTE are in the center

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for the month then there shall be no billing of CE training to AT&T unless total such hours exceed [*] hours ([*] hrs x 300 FTE).

h.Contract Positions are billed at [*] by Program/Site as Appendix 1 and 2 of Exhibit B.  Contract Positions are not to exceed [*] hours per week without prior approval of the AT&T Contract identified in Section 2.1 of this Order). Ratios and position descriptions are outlined in Exhibit F.

i.Specialty CSR’s are billed at [*] by Program/Site as Appendix 1 and 2 of Exhibit B.  Specialty CSR’s are not to exceed [*] hours per week without prior approval of the AT&T Contract identified in 2.1 of this Order). Ratios and position descriptions are outlined in Exhibit E.

j.Clerical Support Positions are billed at $[*] per hour for domestic sites and $[*] per hour for offshore sites (not to exceed [*] hours per week without prior approval of the AT&T contact identified in 2.1 of this Work Order). Functions shall include, but not be limited to, the following tasks:

·Login ordering, tracking, retiring and maintenance

·SOX contact for all AT&T Mobility audits

·Clarify maintenance

·Submitting and tracking Credits and Adjustments

·Sessions Enrollments for training

·AT&T Mobility University setups and retires

·Course enrollments and completions

·Tracking and follow through of all Office of the President requests

·Back up to LRP for all AT&T Mobility reporting

·Distribute and ensure follow up on feedback items (Clarify, Wave, PCS, Tier II, SOA, Direct Fulfillment, etc.), compile results

·Gather and summarize results of initiatives (PAR/SRS, migrations, etc.)

k.Sales Analyst Positions are billed at $[*] per hour for domestic sites and $[*] per hour for offshore sites (not to exceed [*] hours per week without prior approval of the AT&T contact identified in Section 2.1 of this  Order).  The Sales Analyst handles all tracking, trending, analyzing and summarizing of sales reporting. Duties include AT&T requested reporting and analysis, team presentations, explaining results, maintaining reporting back-up documents, collaboration on action plans and sales recognition programs.

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Exhibit B, Appendix 1

Price

[*]

PROGRAM NAME	CONSUMER CUSTOMER CARE
LOCATIONS	[*]

BILLABLE HOUR RATE for CSR’s (Including Contract Positions and Specialty CSR’s)	Tenure	Regular Hours	After Hours and Sunday Support
	[*]	$[*]	$[*]
	[*]	$[*]	$[*]
	[*]	$[*]	$[*]
BILLABLE HOUR RATE for TSD/Tech Support (Including Contract Positions and Specialty CSR’s)	[*]	$[*]	$[*]
	[*]	$[*]	$[*]
	[*]	$[*]	$[*]

DRUG SCREEN & BACKGROUND CHECK	Passed through at cost (Checks required as a result of attrition will be the responsibility of Supplier.)
OVERTIME RATE	[*]% premium above the applicable Billable Hour rate. Applies to CSRs, Specialty CSR’s and Contract Positions
HOLIDAY RATE	[*]% premium above the applicable Billable Hour rate. Applies to CSRs, Specialty CSR’s and Contract Positions
	New Hire/Growth $[*]
	Nesting: $[*]
TRAINING RATE	Continuing Education Training: [*]
	Conversion Training as defined in section 12.5.e, [*]
	All Attrition: [*]

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Exhibit B, Appendix 2

Price

[*]

PROGRAM NAME	CONSUMER CUSTOMER CARE
LOCATION	[*]

BILLABLE HOUR RATE for CSR’s (Including Contract Positions and Specialty CSR’s)	Tenure	Regular Hours	After Hours
	[*]	$[*]	$[*]
	[*]	$[*]	$[*]
	[*]	$[*]	$[*]
BILLABLE HOUR RATE for TSD/Tech Support (Including Contract Positions and Specialty CSR’s)	[*]	$[*]	$[*]
	[*]	$[*]	$[*]
	[*]	$[*]	$[*]

DRUG SCREEN & BACKGROUND CHECK	Passed through at cost (Checks required as a result of attrition will be the responsibility of Supplier.)
OVERTIME RATE	[*]% premium above the applicable Billable Hour rate. Applies to CSRs, Specialty CSR’s and Contract Positions
HOLIDAY RATE	[*]% premium above the applicable Billable Hour rate. Applies to CSRs, Specialty CSR’s and Contract Positions
	New Hire/Growth $[*]
	Nesting: $[*]
TRAINING RATE	Continuing Education Training: [*]
	Conversion Training as defined in section 12.5.e, [*]
	All Attrition: [*]

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Exhibit B, Appendix 3

Price

[*]

PROGRAM NAME	CONSUMER CUSTOMER CARE
LOCATION	[*]
BILLABLE HOUR RATE (March 1st, 2010 —September 30th, 2010) Includes Contract Positions and Specialty CSR’s	$[*]*
BILLABLE HOUR RATE ( September 1st, 2010 — September 30th, 2012) Includes Contract Positions and Specialty CSR’s	$[*]*
DRUG SCREEN & BACKGROUND CHECK	Passed through at cost (Checks required as a result of attrition will be the responsibility of Supplier.)*
OVERTIME	Premium Rate: [*]% premium above the Billable Hour Rate
HOLIDAY RATE	[*]% premium above the applicable Billable Hour rate. Applies to CSRs, Specialty CSR’s and Contract Positions.
	New Hire/Growth $[*]
	Nesting: $[*]
TRAINING RATE	Continuing Education Training: [*]
	Conversion Training as defined in section 12.5.e [*]
	All Attrition: [*]

* Ramp Specific Notes

·AT&T will not be charged for New Hire Training and associated Drug Screen & Background Check for the first [*] CSRs that successfully complete New Hire training.

·Any CSRs beyond the initial [*] will be considered as growth and all costs associated with New Hire training, Background checks and Drug Screen tests will be passed through to AT&T.

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Exhibit C

Program Descriptions

Program Name	Program Description	Program Projects by Sites Any changes to the mix of Program project(s) supported by Site shall be subject to Section 4.22 (Change Management) of the Agreement.
Customer Service Experience (“CSE”)	Inbound calls from post paid consumer subscribers. Duties include the following account maintenance activities: billing statement questions, adjustments, changes to features/services, changes of billing information, customer issues relative to price plans, customer cancellation inquiries, adding / deleting promotions & features, contract inquiries and termination dates, rate plan changes, account updates, lost / stolen phone resolutions, cancel requests, promotion / plan clarification, programming phones, equipment and features instructions, voice mail resets, respond to coverage concerns, equipment (wireless cell phones and PDAs) changes, assisting with handset issues and upgrading equipment, migration of customers between billing application, completion of downtime form and offline services, escalated services/resolution. Clerical/User ID Services include Activities directly related to data entry, updating, typing, filing, creation of job aids, updating CSR communication web sites, maintenance of AT&T user IDs and such other activities as are approved by AT&T in writing.	[*]

21

Transfer of Business Responsibility (ToBR)	Inbound calls from post paid subscribers to change ownership and financial responsibility for a line/s of service from one account holder to another. Duties include verification of authorization, determine eligibility and process credit check; set expectations for deposits, contract end dates, roll over minutes, advise of process fee/s and send collateral. Maintenance activities: Process upgrades on the receiving account if eligible; provision new rate plans, features, services and promotions. Handle inquiries for billing, customer cancellations, troubleshooting and escalated services/resolution/appeals.	[*]
Technical Support	Primary point of contact for issues relating to call and data processing, roaming wireless network, prepaid network, provisioning and TDMA, GSM and data technology. Offline work to support technical services can include filing cases and escalating resolution, and a filter team may exist to review case quality before routing to Tier III network groups.	[*]
Specialty CSR’s Including but not limited to Commitment Rep, CAF, Production RSD, ICU Caseworkers, Abay RSD, M&P Specialist and Abay Coach	Services for unique business types including call handling for escalated customer care issues specific to billing, equipment, coverage and account details.	[*]

22

Exhibit D

Hours of Operations and Training Durations

Hours of Operation may be amended from time to time as set forth in Section 4.22 (Change Management) of the Agreement.   AT&T reserves the right to modify (decrease or increase) Services Hours of Operation upon [*] calendar days written notice to Supplier.

Program Names	Project	Site	Hours of  OperationAll Times  Listed in CST	Maximum New Hire TrainingDays	Maximum Nesting Days
Customer Service Experience (“CSE”)	Southeast CSE	[*]	[*]	[*]	[*]
	South Central CSE	[*]	[*]	[*]	[*]
	North Central CSE	[*]	[*]	[*]	[*]
Technical Support	South East	[*]	[*]	[*]	[*]
	North Central	[*]	[*]	[*]	[*]
Transfer of Business Responsibility (“ToBR”)	National	[*]	[*]	[*]	[*]
Specialty CSRs	Commitment Rep, Credit and Adjustment Rep (CAF), Production RSD, Abay RSD, Abay Coach, ICU Caseworker, M&P Specialist	[*]	[*]	[*]	[*]

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Exhibit E

Specialty CSR’s

Ratios and Descriptions

The Parties acknowledge that Supplier shall begin providing Services related to Specialty CSRs for any given Site only upon receipt of a Change Notice from AT&T as described in Section 4.22 (Change Management) of the Agreement. In addition, AT&T may terminate such Services associated with Specialty CSR’s by delivering a Change Notice to Supplier at any time.  The Parties acknowledge that these Services will be provided, if at all, at AT&T’s sole discretion.

Position Name	Required Ratio
Commitment Rep	[*]
ICU Caseworker	[*]
CAF (Credits and Adjustments) Rep	[*]
Production RSD	[*]
Abay RSD	[*]
Abay Coach	[*]
M&P Specialist	[*]

Specialty CSR Descriptions

a)Commitment Rep

A Commitment Rep makes outbound customer care calls in response to commitments set by customer care.  The purpose is to follow up with the customer at a later time to test resolutions and/or provide resolutions for issues such as equipment ordering, troubleshooting and bill reviews.

b)ICU Caseworker

An ICU Caseworker identifies solutions to unresolved customer needs and global affecting issues. They partner with resources in all departments to determine the best possible course of action, educate agents in huddles, provide feedback/coaching opportunities and create trending reports.

c)Credits and Adjustments Rep

A Credits and Adjustments Rep monitors/researches and tracks the approval of all credits and adjustment forms that exceed inbound care CSRs Schedule of Authorization’s.

d)Production RSD

A Production RSD is a CSR who walk the call center floor providing assistance to call taking CSRs by guiding them on how/where to find answers, appropriate tool usage and policies/procedures.  Interactions are tracked in order to identify trends and educational opportunities. This position also requires a minimum amount of time taking inbound calls to keep up their skills.

e)Abay Coach

A Nesting Coach is a non-call taking support CSR who partners closely with Nesting supervisors to develop newly hired CSRs and facilitate team meetings.  Duties include reviewing performance metrics, creating SMART coaching plans and live call monitoring.

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f)Abay RSD

A Nesting RSD is a non-call taking support CSR who walk the Site floor providing assistance to call taking CSRs by guiding them on how/where to find answers, appropriate tool usage and policies/procedures.  Interactions are tracked in order to identify trends and educational opportunities.  Resources are monitored in real time to improve efficiencies.

g)M&P Specialist

An M&P Specialist handles functions of a Site by tracking, compiling, summarizing and distributing information for tasks involving quality and performance management.  Other duties include but are not limited to, audits, Clarify maintenance and application troubleshooting, high level credits/adjustments, creating center communications and various special projects.

30

Exhibit F

Contract Positions Descriptions

The Parties acknowledge that Supplier shall begin providing Services related to a Contract Position for any given Site only upon receipt of a Change Notice from AT&T as described in Section 4.22 (Change Management) of the Agreement. In addition, AT&T may terminate such Services associated with Contract Positions by delivering a Change Notice to Supplier at any time.  The Parties acknowledge that these Services will be provided, if at all, at AT&T’s sole discretion.

Contract Position Descriptions

a.Quality Champion

A Quality Champion interacts with all departments to coordinate quality assurance training, analyze reporting and to create effective action plans. Duties include tracking, trending, researching and identifying/removing obstacles; creating job aids, speaking in huddles and communicating effectively with AT&T.

b.Sales Champion

A Sales Champion interacts with all departments to communicate sales goals.  Duties include motivating employees, troubleshooting performance issues, providing effective coaching, creating job aids and posting performance results.

c.ICU Lead

Manages the urgent case process within the Site. Duties include tracking, trending, researching and identifying/removing obstacles, case assignment and performance review to ICU Caseworkers when applicable.

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Exhibit G

Technology Requirements

1.1Desktop

Whereas AT&T Vendor Management will deliver to Supplier, an updated AT&T Desktop Configuration Checklist where Supplier shall provide and support desktop hardware and software in compliance with the AT&T Desktop Configuration Checklist, Supplier shall only be required to refresh desktop hardware every three (3) years to ensure optimal performance is maintained for AT&T applications.

1.2Voice Network/Telephony

Supplier shall provide Local Exchange Carrier (LEC) circuits to support outbound calling, including transferred calls.  The quantity and configuration of the circuits required varies and AT&T and Supplier, through mutual agreement will determine any configuration changes and/or augmentations.  All Supplier-provided LEC circuits shall be installed in accordance with AT&T standard architecture requirements.

Supplier is required to provide a United States point of presence for circuit termination.   Supplier shall provide no higher than a [*] round trip time with voice over ip transport technology to maintain acceptable call quality to meet the AT&T customer satisfaction measures.

The maximum number of CSRs per Intelligent Call Management Peripheral Gateway (ICM PG) pair is based upon maximum concurrent CSRs.  AT&T’s standard architecture requirements allows a maximum of one thousand five hundred (1,500) concurrent CSRs per ICM PG pair.  AT&T, at its sole discretion, may specify changes to this allowable limit.  Supplier shall provide additional facilities (space, power, network, telephony hardware and software) as required to support this limit in accordance with the AT&T standard architecture requirements.

Supplier will provide disaster recovery for and geographic redundancy of its Automatic Call Distributor (ACD) in accordance with AT&T standard architecture requirements.

1.3Data Network

Supplier shall provide a continental United States point of presence for network connectivity to AT&T. The network design for connectivity between the two entities shall comply with AT&T Standard Architecture Requirements. Supplier utilizes Business-to-Business (B2B) VPN to interconnect to AT&T, Supplier shall be responsible for Supplier’s internet service

Supplier-to-Supplier (non-ATT) traffic is not permitted.  AT&T shall not be used as a transit network.

Supplier shall provide geographic network redundancy to mutually agreed upon AT&T Perimeter infrastructures designed to provide business to business connectivity if redundant connectivity is necessary.

AT&T will support a maximum of [*] business-to-business connections (excludes CLEC connections).  Supplier agrees to consolidate multiple connections into [*]connections, [*].  AT&T recommends Supplier’s use of Border Gateway Protocol (BGP) to control routing over primary and backup connections.  Both connections shall route identical address space. Only the primary connection passes traffic.  In the event the primary connection fails, traffic shall be dynamically routed to the backup connection.  Each of the two connections shall have enough capacity to handle all traffic.

Registered address space is required for all connections.  It is the Supplier’s responsibility to NAT (“Network Address Translation”) private address space to registered address space.  A user-to-NAT ratio of 35:1 is recommended to avoid latency issues. (Example: 35 users per NAT’d IP; 200 users would require 6 NAT’d IP addresses).

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Supplier is required to manage and support latency within Supplier’s network and shall provide no higher than a [*] to the point of presence; values higher than this that impact performance due to latency in the Supplier’s network shall be the responsibility of Supplier to correct.

Supplier shall notify AT&T in advance of implementing Supplier network changes impacting Supplier connectivity with AT&T networks including but not limited to topology or technology changes and office relocations within the Supplier network.

Supplier shall be responsible for monitoring Supplier’s network performance and capacity to ensure such performance and capacity support Supplier’s performance obligations under this Order.

1.4Application Monitoring and Tools

Suppliers shall provide one (1) personal computer at each Site that will be used as a “Tools and Monitoring Machine”.  Supplier shall promptly respond to tools and monitoring alerts delivered to Supplier by AT&T.   In the event such Tools and Monitoring Machine stops reporting, Supplier shall immediately reactivate that machine and resume reporting within [*] hours of alert notification.

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, A. Laurence Jones, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of StarTek, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  October 29, 2010	/s/A. LAURENCE JONES
	A. Laurence Jones
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, David G. Durham, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of StarTek, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  October 29, 2010	/s/ DAVID G. DURHAM
	David G. Durham
	Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

EXHIBIT 32.1

CERTIFICATIONS

In connection with the Quarterly Report of StarTek, Inc. (the “Registrant”) on Form 10-Q for the quarter ended September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned individuals, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:  October 29, 2010	/s/A. LAURENCE JONES
	A. Laurence Jones
	President and Chief Executive Officer

Date:  October 29, 2010	/s/ DAVID G. DURHAM
	David G. Durham
	Executive Vice President, Chief Financial Officer and Treasurer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Corporation and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request.