UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
x | Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the fiscal year ended December 31, 2005 |
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 000-50849
KANBAY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
| 36-4387594 |
(State or Other Jurisdiction of |
| (I.R.S. Employer Identification No.) |
Incorporation of Organization) |
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6400 Shafer Court, Suite 100
Rosemont, Illinois 60018
Phone: (847) 384-6100
(Address, including zip code, and telephone number (including area code) of registrant’s principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class |
| Name of each exchange on which registered |
Common Stock, par value $0.001 per share |
| Nasdaq National Market |
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes: o No: x
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act
Yes: o No: x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer x Non-accelerated filer o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes: o No: x
The aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant on June 30, 2005, based on the closing sale price of $23.11 per share on such date on the Nasdaq National Market, was $574,738,096.81. Shares of common stock beneficially owned by each director and executive officer and by each person who beneficially owned 5% or more of the outstanding common stock have been excluded because such persons may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 10, 2006, the Registrant had 39,132,340 shares of common stock, $0.001 par value per share, outstanding.
Documents Incorporated By Reference
Certain sections of the Registrant’s Notice of Annual Meeting of Stockholders and Proxy Statement for its Annual Meeting of Stockholders for the year ended December 31, 2005 are to be filed with the Securities and Exchange Commission within 120 days after the Registrant’s fiscal year ended December 31, 2005 and are incorporated by reference into Part III of this Report.
EXPLANATORY NOTE
This Amendment No. 2 on Form 10-K/A (this “Amended Filing”) to our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, initially filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2006 and as amended by Amendment No. 1 thereto filed with the SEC on September 22, 2006 (each, a “Prior Filing”), is being filed to amend and restate in its entirety Item 13 of each Prior Filing. In addition, this Amended Filing includes certifications from our Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and the rules of the SEC.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is incorporated by reference from the definitive proxy statement for our 2006 Annual Meeting of Stockholders (the “2006 Proxy Statement”). The information incorporated by reference appears in the 2006 Proxy Statement under “Certain Transactions.” The information set forth below amends and restates Item 13 in its entirety and is incorporated by reference herein from the 2006 Proxy Statement:
Kenneth M. Harvey, one of our directors, is Group Chief Information Officer for HSBC Holdings plc. As of February 14, 2005, Household Investment Funding, Inc., a subsidiary of HSBC Holdings plc, owned approximately 12.9% of our outstanding common stock. On April 27, 2005, we entered into a consulting agreement and a rate schedule with HSBC Holdings plc. The consulting agreement and the rate schedule provide the general terms and conditions under which our various operating subsidiaries and affiliates deliver information technology services to HSBC Holdings plc and its affiliates (HSBC) around the world.
The consulting agreement provides that each project we perform for HSBC will be governed by a “statement of work,” which specifies the term, services, rates and personnel requirements for the project. Under the consulting agreement, we provide customary limited warranties regarding the services that we provide to HSBC, and we are obligated to indemnify HSBC for any breach of these warranties. Subject to certain customary exceptions, our liability to HSBC for any specific claim (or series of related claims) is limited to the greater of $15.0 million or the amounts paid or payable under the applicable statement of work, and in any event may not exceed $100.0 million in the aggregate for all claims that arise in any calendar year. The consulting agreement remains in effect until terminated by either party. HSBC may terminate the consulting agreement or any particular statement of work if we become insolvent, upon a change of control of us or if we fail to cure a material or persistent breach of the agreement within 30 days of a written request. HSBC also may terminate any particular statement of work for any reason upon three (3) months prior written notice to us.
Our rates for the time-and-materials services delivered to HSBC under any statement of work entered into on or after April 1, 2005 are calculated based on the rate schedule, which establishes the billable rates and pricing formulas to be applied under the consulting agreement. Under the rate schedule, HSBC has agreed to pay us an annual management fee in the amount of $400,000 to cover the general management expenses we incur in connection with the consulting agreement. The rate schedule also provides HSBC with a two percent (2%) early payment discount option on fees for onsite time-and-materials services provided by us if invoices for these fees are paid by HSBC within 30 days of the date of invoice. The rate schedule expires on December 31, 2007, but may be terminated earlier by HSBC if we become insolvent, upon a change of control of us, if we fail to cure a material or persistent breach of the agreement within 30 days of a written request or for any other reason upon 180 days prior written notice to us.
As a general matter, our agreements with unrelated parties limit our liability to them, but do not contain an early payment discount option. As of December 31, 2005, none of our agreements with unrelated parties provided for an annual management fee payable to us. The remaining provisions of the consulting agreement and the rate schedule with HSBC are comparable to those prevailing with unrelated parties.
2
In 2005, our revenues were approximately $230.5 million. Of these revenues, approximately $122.3 million, or 53.1%, were from HSBC, and $108.2 million, or 46.9%, were from clients other than HSBC. As of December 31, 2005, our accounts receivable were approximately $51.8 million. Of these accounts receivable, approximately $24.8 million, or 48.0%, were from HSBC, and approximately $27.0 million, or 52.0%, were from clients other than HSBC.
We typically charge our clients different rates based on whether our services are performed at a client’s location, which we refer to as onsite services, or at one of our delivery centers in India, which we refer to as offshore services. In 2005, we charged HSBC an average hourly rate for offshore services performed that was approximately 3.3% less than the average hourly rate we charged clients other than HSBC, and we charged HSBC an average hourly rate for onsite services performed that was approximately 4.4% more than the average hourly rate we charged clients other than HSBC. A number of factors affect the billable rates that we charge a client (including HSBC) for a particular project. These factors impacted the average hourly rates for the onsite and offshore services we performed for our clients during 2005. For example, a software design project that requires senior personnel who have experience with a particular software system will result in a higher billable rate than a software maintenance project that is largely staffed with more junior personnel in India. Additional factors that affect our billable rates include the duration and size of the project and whether the project is billed on a time-and-materials basis or a fixed price basis. A combination of these factors contributed to the differences in the average hourly rates we charged our clients for services performed in 2005.
In 2005, our revenues from HSBC for offshore services performed were approximately $73.4 million, or approximately $26.7 million more than the approximately $46.8 million of revenues we generated from offshore services performed for clients other than HSBC, and our revenues from HSBC for onsite services performed were approximately $49.0 million, or approximately $8.2 million less than the approximately $57.1 million of revenues we generated from onsite services performed for clients other than HSBC. (These amounts exclude the revenues from our former Australian security and connectivity business, which we sold on May 31, 2005.) Assuming we charged HSBC the average hourly offshore and onsite billable rates that we charged clients other than HSBC during 2005, which rates are different than those that we charged HSBC during 2005 as a result of the factors described above, HSBC paid us approximately $434,000 less for the services we provided to it than a client other than HSBC would have paid us for these services.
In June 2005, our Indian subsidiary, Kanbay Software (India) Private Limited, entered into a foreign exchange master agreement with the Hongkong and Shanghai Banking Corporation Limited in India to provide a foreign exchange facility of approximately $11.1 million (500 million rupees) to hedge our trade related foreign exchange exposure. In September 2005, the Hongkong and Shanghai Banking Corporation Limited in India agreed to provide certain letters of credit and guarantees to Kanbay Software (India) Private Limited of up to approximately $885,000 (40 million rupees) to assist in the facilitation of imports. The Hongkong and Shanghai Banking Corporation Limited is an affiliate of HSBC Holdings plc, which together with its other affiliates, made payments to us and our subsidiaries for services representing approximately 53.1% of our gross revenues for 2005. We believe that the rates, terms and provisions contained in these agreements are comparable to those that we could have obtained through negotiations with an unrelated party.
In April 2006, we entered into an amendment to our credit agreement with certain financial institutions, as lenders, and LaSalle Bank National Association, as administrative agent for such lenders. In connection with the amendment, HSBC Bank USA, National Association became a lender and the syndication agent under the terms of the credit agreement. HSBC Bank USA, National Association is an affiliate of HSBC Holdings plc, which together with its other affiliates, made payments to us and our subsidiaries for services representing approximately 53.1% of our gross revenue for 2005. We believe the rates, terms and provisions contained in the credit agreement, as amended, are comparable to those that we could have obtained through negotiations with an unrelated party.
3
Daryl Spencer, the brother of Raymond J. Spencer, our Chairman and Chief Executive Officer, was hired by one of our subsidiaries on January 3, 2005. Daryl Spencer has an annual salary of approximately $73,000 and was granted options to purchase 3,500 shares of common stock with an exercise price of $30.23 per share in connection with his employment.
Harry C. Gambill, one of our directors, is the President and Chief Executive Officer of TransUnion LLC. On December 28, 2004, we entered into a services agreement with TransUnion, pursuant to which TransUnion made payments to us totaling approximately $1,546,401 for certain consulting services provided in 2005. We believe the rates, terms and provisions contained in the services agreement are comparable to those that we could have obtained through negotiations with other third parties.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 2 to annual report to be signed on its behalf by the undersigned thereunto duly authorized.
KANBAY INTERNATIONAL, INC. | ||
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Date: November 28, 2006 |
| By: /s/ Raymond J. Spencer |
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| Raymond J. Spencer |
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| Chairman of the Board and Chief Executive Officer |
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EXHIBIT INDEX
Number |
| Description |
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31.1 |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
| Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
| Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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