10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2005
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 1-7516

KEANE, INC.

(Exact name of registrant as specified in its charter)

MASSACHUSETTS	04-2437166
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
100 City Square, Boston, Massachusetts	02129
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (617) 241-9200

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 ý    No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

As of June 30, 2005, there were 60,947,363 shares of the registrant’s Common Stock, $.10 par value per share, and no shares of the registrant’s Class B Common Stock, $.10 par value per share, issued and outstanding.

Keane, Inc.

Table of Contents

Part I.	Financial Information
Item 1.	Unaudited Condensed Consolidated Statements of Income for the three and six months ended June 30, 2005 and 2004
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004
	Notes to Unaudited 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 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 4.	Submission of Matters to a Vote of Security Holders
Item 6.	Exhibits
Signatures
Exhibit Index

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Part I. Financial Information

Item 1. Financial Statements

Keane, Inc.

Unaudited Condensed Consolidated Statements of Income

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
	(In thousands except per share amounts)
Revenues	$	237,818		$	231,712		$	470,022		$	447,536
Operating expenses
Salaries, wages, and other direct costs	166,461			161,710			328,654			311,700
Selling, general, and administrative expenses	56,304			52,665			110,476			105,882
Amortization of intangible assets	3,860			4,035			7,930			7,948
Operating income	11,193			13,302			22,962			22,006
Other income (expense)
Interest and dividend income	1,128			875			2,233			1,930
Interest expense	(1,406		)	(1,400		)	(2,822		)	(2,838		)
Other (expense) income, net	(174		)	166			(190		)	291
Minority interest	190			509			873			1,270
Income before income taxes	10,931			13,452			23,056			22,659
Provision for income taxes	3,888			5,381			8,738			9,064
Net income	$	7,043		$	8,071		$	14,318		$	13,595
Basic earnings per share	$	0.11		$	0.13		$	0.23		$	0.22
Diluted earnings per share	$	0.11		$	0.12		$	0.22		$	0.20
Basic weighted average common shares outstanding	61,675			62,746			61,932			63,221
Diluted weighted average common shares and common share equivalents outstanding	70,492			71,896			70,776			72,473

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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Keane, Inc.

Unaudited Condensed Consolidated Balance Sheets

	June 30, 2005			December 31, 2004
	(In thousands)
Assets
Current:
Cash and cash equivalents	$	59,673		$	67,488
Restricted cash	1,829			986
Marketable securities	120,292			130,678
Accounts receivable, net	142,128			126,467
Prepaid expenses and deferred taxes	22,575			16,515
Total current assets	346,497			342,134
Property and equipment, net	75,909			76,761
Goodwill	311,431			305,965
Customer lists, net	47,052			53,040
Other intangible assets, net	7,915			9,904
Other assets, net	15,193			16,390
Total assets	$	803,997		$	804,194
Liabilities
Current:
Short-term debt	$	423		$	892
Accounts payable	6,258			9,511
Accrued restructuring	3,499			3,513
Unearned income	9,462			9,376
Accrued compensation	36,537			39,763
Accrued expenses and other liabilities	44,737			39,269
Total current liabilities	100,916			102,324
Long-term debt	150,091			150,017
Accrued long-term building costs	39,280			39,545
Accrued long-term restructuring	3,551			5,164
Other long-term liabilities	14,596			13,491
Deferred income taxes	30,313			25,924
Total liabilities	338,747			336,465
Minority Interest	6,658			6,026
Stockholders’ Equity
Common stock	6,095			6,218
Additional paid-in capital	17,250			33,752
Accumulated other comprehensive loss	(7,679		)	(6,657		)
Retained earnings	445,364			431,046
Unearned compensation	(2,438		)	(2,656		)
Stockholders’ equity	458,592			461,703
Total liabilities and stockholders’ equity	$	803,997		$	804,194

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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Keane, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

	Six Months Ended June 30,
	2005			2004
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	14,318		$	13,595
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,200			13,947
Deferred income taxes	5,630			3,593
Provision for doubtful accounts	3,119			3,466
Minority interest	(873		)	(1,270		)
Loss (gain) on sale of property and equipment	(159		)	91
Loss (gain) on sale of investments	134			(186		)
Other charges, net	(355		)	(2,278		)
Changes in operating assets and liabilities, net of acquisitions:
(Increase) in accounts receivable	(15,338		)	(25,948		)
(Increase) in prepaid expenses and other assets	(4,455		)	(2,048		)
(Decrease) increase in accounts payable, accrued expenses, unearned income, and other liabilities	(5,989		)	3,219
(Decrease) increase in income taxes payable	(933		)	231
Net cash provided by operating activities	9,299			6,412
Cash flows from investing activities:
Purchase of investments	(23,407		)	(32,521		)
Sale and maturities of investments	33,185			61,118
Purchase of property and equipment	(7,931		)	(6,380		)
Restricted cash	35			(151		)
Proceeds from the sale of property and equipment	773			153
Payments for current year acquisitions, net of cash acquired	(1,270		)	(18,039		)
Payments for prior years acquisitions, net of cash acquired	(3,122		)	(64		)
Net cash (used for) provided by investing activities	(1,737		)	4,116
Cash flows from financing activities:
Debt issuance costs	—			(42		)
Principal payments under capital lease obligations	(161		)	(269		)
Proceeds from issuance of common stock	2,353			2,932
Repurchase of common stock	(17,563		)	(30,096		)
Net cash used for financing activities	(15,371		)	(27,475		)
Effect of exchange rate changes on cash	(6		)	24
Net decrease in cash and cash equivalents	(7,815		)	(16,923		)
Cash and cash equivalents at beginning of period	67,488			56,736
Cash and cash equivalents at end of period	$	59,673		$	39,813
Supplemental information:
Income taxes paid	$	9,725		$	5,367
Interest paid	$	1,505		$	1,546

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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Keane, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1.Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and, accordingly, do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements include the accounts of Keane, Inc. and our wholly and majority owned subsidiaries. In the opinion of management, all adjustments, consisting primarily of normal recurring accruals, considered necessary for a fair presentation of the results of operations for the interim periods reported and of our financial condition as of the date of the interim balance sheet have been included. Operating results for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005 or for any other period.

The balance sheet at December 31, 2004 has been derived from our audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

Certain reclassifications have been made to the 2004 financial statements to conform to the 2005 presentation.  These reclassifications have no effect on previously reported net income or stockholder’s equity.

For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission on March 15, 2005.

Note 2.Earnings Per Share Data

The computation of earnings per share for the three and six months ended June 30, 2005 and 2004 is as follows (in thousands, except per share data):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income used for basic earnings per share	$	7,043		$	8,071		$	14,318		$	13,595
Interest expense associated with convertible debentures, including amortization of debt issuance costs	970			970			1,940			1,940
Related tax effect	(345		)	(388		)	(735		)	(776		)
Net income used for diluted earnings per share	$	7,668		$	8,653		$	15,523		$	14,759
Weighted average number of common shares outstanding used in calculation of basic earnings per share	61,675			62,746			61,932			63,221
Incremental shares from restricted stock, employee stock purchase plan, and the assumed exercise of dilutive stock options	642			975			669			1,077
Incremental shares from assumed conversion of convertible Debentures	8,175			8,175			8,175			8,175
Weighted average number of common shares and common share equivalents outstanding used in calculation of diluted earnings per share	70,492			71,896			70,776			72,473
Earnings per share
Basic	$	0.11		$	0.13		$	0.23		$	0.22
Diluted	$	0.11		$	0.12		$	0.22		$	0.20

Potential common shares consist of employee stock options and restricted common stock. Employee stock options to purchase 1,704,403 and 1,378,836 shares for the three months ended June 30, 2005 and 2004, and

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1,702,702 and 1,352,097 shares for the six months ended June 30, 2005 and 2004, respectively, were outstanding, but were not included in the computation of diluted earnings per share because the exercise price of the stock options was greater than the average share price of the common shares during the period and, therefore, their effect would have been anti-dilutive.

Our 2.0% Convertible Subordinated Debentures due 2013 (the “Debentures”) are convertible at the option of the holder into shares of our common stock at an initial conversion rate of 54.4989 shares of common stock per $1,000 principal amount of Debentures, which is equivalent to an initial conversion price of approximately $18.349 per share. The Debentures become convertible under the following circumstances: (a) during any fiscal quarter commencing after September 30, 2003 when, among other circumstances, the closing price per share of our common stock is more than 120% of the conversion price (approximately $22.019 per share) for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (b) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of Debentures for each day of that period was less that 98% of the product of the closing sale price per share of our common stock and the number of shares issuable upon conversion of $1,000 principal amount of the Debentures; (c) if the Debentures have been called for redemption; or (d) upon the occurrence of specified corporate transactions. Approximately 8.2 million shares of our common stock would be issuable upon the conversion of all of the outstanding Debentures.

We adopted the provisions of Emerging Issues Task Force (“EITF”) Issue No. 04-8 (“EITF 04-8”), “The Effect of Contingently Convertible Debt on Diluted Earnings per Share,” in the Fourth Quarter of 2004.  EITF 04-8 requires that we include contingently convertible debt in the calculation of diluted earnings per share using the if-converted method regardless of whether the market price trigger has been met. Under the if-converted method, the debt is considered converted to shares, with the resulting number of shares included in the denominator of the earnings per share calculation and the related interest expense (net of tax) added back to the numerator of the earnings per share calculation. EITF 04-8 also requires the restatement of previously reported diluted earnings per share upon adoption. Therefore, the weighted average impact of the 8.2 million shares issuable upon conversion of the Debentures has been included in the calculation of diluted earnings per share for the three and six months ended June 30, 2005 and 2004.

Note 3.Stock-Based Compensation

We have stock-based compensation plans for which we have adopted the disclosure-only provisions of SFAS No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation—Transition and Disclosure,” an amendment of SFAS No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation.” Accordingly, no compensation expense has been recognized for our stock-based compensation plans other than for restricted stock and certain stock options. As permitted by SFAS 148 and SFAS 123, we account for our stock-based compensation in accordance with Accounting Principles Board (“APB”) Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.”

In accordance with APB 25 we use the intrinsic value-based method to account for stock option grants and restricted stock awards. We grant stock options for a fixed number of shares to employees with an exercise price equal to the closing price of the shares at the date of grant and therefore, do not recognize compensation expense. We also grant restricted stock for a fixed number of shares to employees for nominal consideration. In 2003, in connection with our acquisition of a majority interest in Keane Worldzen, certain employees were granted Keane Worldzen stock options. In accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 44 (“FIN 44”), “Accounting for Certain Transactions Involving Stock Compensation,” and SFAS No. 141 (“SFAS 141”), “Business Combinations,” these stock options were recorded as unearned compensation at the date of acquisition and vest over the life of the stock option. Compensation expense related to restricted stock awards and the Keane Worldzen stock options is recorded ratably over the restriction and vesting period, respectively, and is included in the selling, general, and administrative expenses in the accompanying consolidated statements of income. Our Employee Stock Purchase Plan (“ESPP”) is non-compensatory as defined in APB 25, and accordingly, we do not recognize compensation expense in our consolidated financial statements.

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Had compensation expense for our stock-based compensation plans been determined based on the fair value at the grant dates as calculated in accordance with SFAS 123 and using the Black-Scholes option-pricing model, we would have recorded additional compensation expense and our net income and earnings per share for the six months ended June 30, 2005 and 2004 would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income—as reported (1)	$	7,043		$	8,071		$	14,318		$	13,595
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects	90			110			175			226
Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards, net of tax effects	(1,127		)	(1,126		)	(2,184		)	(2,183		)
Net income—pro forma	$	6,006		$	7,055		$	12,309		$	11,638
Earnings per share
Basic—as reported	$	0.11		$	0.13		$	0.23		$	0.22
Basic—pro forma	$	0.10		$	0.11		$	0.20		$	0.18
Diluted—as reported	$	0.11		$	0.12		$	0.22		$	0.20
Diluted—pro forma	$	0.09		$	0.11		$	0.19		$	0.18

 (1) See Note 2 “Earnings Per Share Data” for reconciliation of net income as reported to net income used in calculation of diluted earnings per share.

Note 4.Comprehensive Income and Accumulated Other Comprehensive Loss

SFAS No. 130 (“SFAS 130”), “Reporting Comprehensive Income,” establishes rules for the reporting and display of comprehensive income and its components. Components of comprehensive income include net income and certain transactions that have generally been reported in the consolidated statement of stockholders’ equity. Other comprehensive income is comprised of currency translation adjustments, available-for-sale securities valuation adjustments, and adjustments related to a foreign defined benefit plan.

Total comprehensive income (i.e., net income plus available-for-sale securities valuation adjustments, currency translation adjustments and adjustments related to a foreign defined benefit plan, net of tax) was $6.5 million and $13.3 million for the three and six months ended June 30, 2005, respectively, and was $5.7 million and $7.2 million for the three and six months ended June 30, 2004, respectively. See Note 5 “Pension Plan” for a discussion of the minimum pension liability adjustments.

The following table summarizes the components of accumulated other comprehensive loss, net of taxes (dollars

in thousands):

As of	June 30, 2005			December 31, 2004
Foreign currency translation adjustments	$	4,870		$	4,004
Securities valuation adjustment	(660		)	(514		)
Minimum pension liability adjustment	(11,889		)	(10,147		)
Accumulated other comprehensive loss	$	(7,679	)	$	(6,657	)

Note 5.Pension Plan

Our United Kingdom (“UK”) defined benefit plan (“DBP”) provides pension benefits to employees of our UK subsidiary who were active on August 4, 1999, and not to employees who joined after that date, and are based on the employees’ compensation and service.  Our policy is to fund amounts required by applicable government regulations.  The measurement date for the UK DBP is December 31.

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During the First Quarter of 2004, we decided to close our UK DBP to future salary accruals effective April 1, 2004. Accordingly, we accounted for the closing of the UK DBP as a curtailment under SFAS No. 88 (“SFAS 88”),  “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.”  In 2004, we recorded a curtailment loss of approximately $0.2 million to expense the unrecognized prior service cost, and we recorded an additional required minimum liability of approximately $6.6 million through Accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets.  As a result of the availability of more recent measurements of both the plan assets and obligations under the UK DBP, during the Second Quarter of 2005, we recorded an additional required minimum liability of approximately $1.7 million through Accumulated other comprehensive loss.  As of June 30, 2005, the UK pension liability was approximately $14.6 million and is included in Other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets.

Net periodic pension cost of the UK DBP for the three and six months ended June 30, 2005 and 2004 is presented as follows (dollars in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Service cost	$	15		$	—		$	30		$	233
Interest cost	477			452			973			906
Expected return on plan assets	(439		)	(393		)	(896		)	(788		)
Amortization of prior service cost	—			—			—			—
Amortization of transitional obligation	—			—			—			—
Recognized actuarial loss	111			123			227			246
Net periodic pension cost	$	164		$	182		$	334		$	597
Curtailment loss/(gain)	—			—			—			183
Net periodic pension expense after allowance for curtailment	$	164		$	182		$	334		$	780

Note 6.Business Acquisitions

Cresta

On June 1, 2005, we acquired Cresta Testing, Inc. (“Cresta”), a software testing company that specializes in managed services, test strategy and training, and functional and performance testing. In exchange for all of the outstanding capital stock of Cresta, we paid $0.6 million in cash, of which $60,000 was held back to secure indemnification obligations of the Cresta stockholders.  We also agreed to pay up to an additional $0.5 million in earn-out consideration over the next two years, contingent upon the achievement of certain future financial targets. The earn-out consideration is also dependent on the employment of a certain Cresta employee, therefore, in accordance with SFAS No. 141 (“SFAS 141”), “Business Combinations,” we will record any additional earn-out consideration as compensation expense.  The $60,000 held back was deposited as restricted cash and accrued and included in Accrued expenses and other liabilities in the accompanying unaudited condensed consolidated balance sheet. The acquisition has been accounted for under the purchase method in accordance with SFAS 141 and SFAS No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” The total cost of the acquisition through June 30, 2005 was $0.6 million, which included net assets acquired of approximately $0.4 million. Total assets acquired of $0.7 million consisted primarily of cash of $0.1 million and accounts receivable of $0.6 million. The purchase price allocation is preliminary as of June 30, 2005. The operating results of Cresta have been included in our condensed consolidated statement of operations beginning June 2, 2005.

ArcStream

On April 4, 2005, we acquired certain assets and assumed specified liabilities of ArcStream Solutions, Inc. (“ArcStream”) for a base purchase price of zero ($0.00) dollars, subject to a working capital adjustment, and an additional earn-out consideration based on the performance of the ArcStream business during the remainder of 2005. ArcStream is a business and technology consulting firm based in Watertown, Massachusetts, that specializes in helping organizations compete through the use of advanced technologies and process improvement.  As a stockholder of ArcStream, John Keane, Jr. will be entitled to a portion of any additional consideration. John Keane, Jr. is the founder, President and Chief Executive Officer of ArcStream.  He is also the brother of Brian Keane, the CEO of the Company, the son of John Keane, Sr., the Chairman of the Board, and a member of Keane’s Board of

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Directors.  In addition, in connection with the transaction, John Keane, Jr., agreed to guarantee certain indemnification obligations of ArcStream and the Company paid John Keane, Jr. $21,875 pursuant to a consulting arrangement to assist in the transition of the acquired business. The transaction was approved by both the Audit Committee and the Board of Directors of the Company.  The operating results of the acquired ArcStream assets have been included in our condensed consolidated statement of operations beginning April 5, 2005.

netNumina Solutions, Inc.

On February 28, 2005, we acquired netNumina Solutions, Inc. (“netNumina”), a software development company based in Cambridge, Massachusetts that specializes in technology strategy, architecture, and custom development, to enhance our capabilities in Development and Integration services.  In exchange for all of the outstanding capital stock of netNumina, we agreed to pay $5.7 million, of which $0.6 million was held back to secure indemnification obligations of the netNumina stockholders. As of June 30, 2005, we had paid $4.7 million of the $5.1 million not held back based on the stock certificates surrendered for cancellation. The $0.6 million held back was deposited as restricted cash, and accrued and included with the remaining $0.4 million for netNumina stock certificates to be surrendered in Accrued expenses and other liabilities in the accompanying unaudited condensed consolidated balance sheet.  As of July 19, 2005, we had paid $0.1 million of the remaining $0.4 million not held back. The acquisition has been accounted for under the purchase method in accordance with SFAS 141 and SFAS 142.  The total cost of the transaction through June 30, 2005 was $4.8 million, which included net assets of approximately $5.2 million.  Total assets acquired of $7.8 million consisted primarily of cash of $4.6 million and accounts receivable of $2.3 million.  In connection with the purchase price allocation we recorded a $0.4 million fair value adjustment to reduce property and equipment that resulted from an excess book value of the assets acquired over the purchase price and recorded deferred tax assets of $2.0 million.  As a result, we have not recorded any goodwill or intangible assets in connection with this acquisition. The valuation and purchase price allocation are preliminary as of June 30, 2005.  The operating results of netNumina have been included in our unaudited condensed consolidated statements of income beginning March 1, 2005.

At the date of acquisition, we entered into a plan to implement a workforce reduction of eight non-billable employees.  As a result, we recorded a restructuring liability of $1.0 million related to severance.  In accordance with EITF Issue No. 95-3 (“EITF 95-3”), “Recognition of Liabilities in Connection with a Purchase Business Combination,” these costs, which are not associated with the generation of future revenues and have no future economic benefit, are reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.

Fast Track Holdings Limited

On July 13, 2004, we acquired Fast Track Holdings Limited (“Fast Track”), a privately held consulting firm based in the United Kingdom that manages the design, integration, and deployment of large-scale SAP implementations. In exchange for all of Fast Track’s outstanding capital stock, we paid approximately $3.4 million in cash, including transaction costs.  We also agreed to pay up to an additional approximately $5.0 million in earn-out consideration over the next two years, contingent upon the achievement of certain future financial targets. Based on Fast Track’s financial results through June 30, 2005, we do not expect the first earn-out, totaling approximately $2.0 million, will be achieved. The additional payments for earn-out consideration, if any, will be accounted for as additional purchase price. The acquisition has been accounted for under the purchase method in accordance with SFAS 141 and SFAS 142.  The portion of the purchase price related to the intangible assets has been finalized and was identified utilizing standard valuation procedures and techniques. The total cost of the acquisition through June 30, 2005 was $4.1 million, which included net assets acquired of approximately ($0.2) million, goodwill of approximately $3.1 million and intangible assets of approximately $1.1 million, the majority of which is being amortized on a straight-line basis over two years, and approximates the expected period of benefit. Total assets acquired of  $2.1 million consisted primarily of accounts receivable of $1.9 million. The operating results of Fast Track have been included in our unaudited condensed consolidated statement of operations beginning July 14, 2004.

At the date of acquisition, we entered into a plan to exit certain activities, to consolidate facilities and to implement a workforce reduction.  As a result, we recorded a restructuring liability of $0.4 million related to the lease obligations and certain other costs for those facilities and $0.1 million related to severance and retention. In accordance with EITF 95-3, these costs, which are not associated with the generation of future revenues and have no future economic benefit, are reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.

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Nims Associates, Inc.

On February 27, 2004, we acquired Nims Associates, Inc. (“Nims”), an information technology and consulting services company with offices in the Midwest and Advanced Development Centers (“ADCs”) in Indianapolis and Dallas, to expand our customer base, primarily in the financial and insurance industries. In exchange for all of Nims’ outstanding capital stock, we paid $18.2 million in cash to the shareholders of Nims, with the potential to pay up to an additional $15.0 million in earn-out consideration over the next three years, contingent upon the achievement of certain future financial targets. The additional payments for earn-out consideration will be accounted for as additional purchase price. The first earn-out was achieved as of March 1, 2005 and, as a result, we paid $3.3 million in earn-out consideration in April 2005 and recorded a corresponding increase in Goodwill.  As of June 30, 2005, there is a remaining $11.7 million in earn-out consideration that could be achieved over the next two years.  The acquisition was accounted for under the purchase method in accordance with SFAS 141 and SFAS 142. The total cost of the acquisition through June 30, 2005 was $26.1 million, which includes net assets acquired of approximately $5.4 million, goodwill of approximately $13.7 million and intangible assets of $7.0 million. The intangible assets are primarily amortized on a straight-line basis over 10 years, which approximates the expected period of benefit. Total assets acquired of $8.8 million consisted primarily of accounts receivable of $5.6 million. The portion of the purchase price related to the intangible assets has been finalized and was identified by utilizing standard valuation procedures and techniques. The operating results of Nims have been included in our unaudited condensed consolidated statements of income beginning March 1, 2004.

At the date of acquisition, we entered into a plan to exit certain activities, to consolidate facilities and to implement a workforce reduction of 22 non-billable employees. As a result, we recorded a restructuring liability of $1.3 million related to the lease obligations and certain other costs for those facilities and $0.3 million related to severance and retention. In accordance with EITF 95-3, these costs, which are not associated with the generation of future revenues and have no future economic benefit, are reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.

The unaudited pro forma combined condensed statements of income below present our historical statements and our acquisition of Nims on February 27, 2004 as if the purchase had occurred at January 1, 2004. The following unaudited pro forma combined condensed financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that would have actually been reported had the purchase occurred at the beginning of the periods presented, nor is it necessarily indicative of future financial position or results of operations (dollars in thousands, except per share data):

For the six months ended June 30,	2004
	Unaudited
Revenues	$	456,041
Net income (1)	13,794
Basic earnings per share	0.22
Diluted earnings per share	0.21

 (1) See Note 2 “Earnings Per Share Data” for reconciliation of net income as reported to net income used in calculation of diluted earnings per share.

Keane Worldzen

On October 17, 2003, we acquired a controlling interest in Keane Worldzen, a privately held Business Process Outsourcing (“BPO”) firm. In connection with the acquisition, we paid $9.0 million to acquire the Series A preferred shares of Worldzen Holdings Limited held by an unrelated third party. We contributed to Keane Worldzen our Worldzen Holdings Limited shares, $4.3 million in cash and certain assets of our Keane Consulting Group (“KCG”), our business consulting arm. This transaction was accounted for under the purchase method in accordance with SFAS 141 and SFAS 142. As a result of the initial transaction, we owned approximately 62% of Keane Worldzen’s outstanding capital stock. The former majority shareholders of Worldzen Holdings Limited contributed their Worldzen Holdings Limited shares to Keane Worldzen in exchange for approximately 38% of Keane Worldzen’s outstanding capital stock and are currently members of Keane Worldzen’s management. The assets and liabilities contributed to Keane Worldzen were recorded in relation to each shareholder’s ownership

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percentage in Keane Worldzen as follows: (i) carryover basis related to assets and liabilities contributed to Keane Worldzen for which the individual shareholder had a prior interest; and (ii) fair value for assets and liabilities for which an individual shareholder had no prior interest. As a result, we initially recorded goodwill of approximately $13.8 million in the accompanying unaudited condensed consolidated balance sheets.

On April 1, 2005, we increased our equity position in Keane Worldzen to approximately 81% with an additional capital contribution of approximately $5.0 million in cash and $3.0 million from the conversion of an outstanding loan to equity. As a result of the additional capital contribution, we continue to consolidate the results of Keane Worldzen, but are also able to consolidate its results for tax purposes beginning April 1, 2005. Upon our additional capital contribution, the minority interest shareholders own approximately 19% of the issued and outstanding capital stock of Keane Worldzen.

In connection with our acquisition of a controlling interest in Keane Worldzen in October 2003, we obtained the right to purchase certain of the remaining shares held by the minority shareholders of Keane Worldzen at different times (“call options”). Our first call option is exercisable during the period beginning on January 1, 2006 and ending on December 31, 2006 and is based on a stated value for the underlying shares of $6.5 million. The fair value of the first call option, using a Black Scholes valuation model, is approximately $3.8 million and is included in other assets in the accompanying unaudited condensed consolidated balance sheets. The other call options are exercisable at the fair market value of the underlying shares during the call periods, which are exercisable at certain times during the period January 1, 2007 through December 31, 2009. Since these other call options can only be exercised at the fair value of the underlying shares, no amounts have been recorded for these call options in our unaudited condensed consolidated financial statements.

Also in connection with the acquisition, the minority shareholders were given the right to require us to purchase certain of their remaining shares at various times (“put options”) subject to the achievement of certain operating and financial milestones related to Keane Worldzen’s business performance. The first put option, the term of which is October 17, 2003 through December 31, 2005, is exercisable based on a stated value for the underlying shares of $2.8 million. The fair value of this put option, using a Black Scholes valuation model, was approximately $279,000 at the acquisition date and is currently being recognized as compensation expense in the accompanying unaudited condensed consolidated financial statements through the expiration date of the option. The other put options are exercisable at fair market value for the underlying shares during the put periods, which are exercisable at certain times during the period January 1, 2008 through March 1, 2010. Because these other put options can only be exercised at the fair value of the underlying shares, no amounts have been recorded for these put options in our unaudited condensed consolidated financial statements.

The results of operations of these acquired companies have been included in our unaudited condensed consolidated statements of income from the date of acquisition. The excess of the purchase price over the fair value of the net assets has been allocated to identifiable intangible assets and goodwill. Identifiable intangible assets associated with these acquisitions are being amortized on a straight-line basis over periods ranging from two to 10 years and approximate the expected periods of benefit. Pro forma results of operations for Cresta, ArcStream, netNumina, and Fast Track have not been provided since these acquisitions were not material either individually or in the aggregate in the year of acquisition.

Note 7.Restructurings

Workforce reductions

In connection with the netNumina acquisition noted above, we entered into a plan to reduce the workforce by eight employees, most of whom had an expected termination date in the Second Quarter of 2005.  The employees affected in the reduction are non-billable personnel whose responsibilities we plan to integrate into our existing operations to realize the synergies of the two operations.  We recorded a liability of $1.0 million associated with severance and other termination benefits and expect the plan to be substantially completed by September 30, 2005.  In accordance with EITF 95-3, these costs have been reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.  Cash expenditures for the six months ended June 30, 2005 related to the netNumina severance and retention accruals was $0.6 million. As of June 30, 2005, the remaining balance was $0.4 million.

In connection with the Fast Track acquisition noted above, we entered into a plan to reduce the workforce by seven employees, most of whom had a termination date of October 31, 2004. The employees affected in the reduction

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were non-billable personnel whose responsibilities were integrated into our existing operations to realize the synergies of the two operations. We recorded a liability of approximately $0.1 million associated with severance, retention and other termination benefits, completed the plan by the end of the First Quarter of 2005, and paid the entire $0.1 million in severance and retention. In accordance with EITF 95-3, these costs have been reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.

In connection with the Nims acquisition noted above, we entered into a plan to reduce the workforce by 22 employees, most of whom had a termination date of April 30, 2004. The employees affected in the reduction were non-billable personnel whose responsibilities were integrated into our existing operations to realize the synergies of the two operations. We recorded a liability of $0.3 million associated with severance, retention and other termination benefits, completed the plan by the end of the First Quarter of 2005, and paid the entire $0.3 million in severance and retention.  In accordance with EITF 95-3, these costs have been reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.

Branch office closures

During December 2004, in accordance with SFAS 146, we accrued $2.3 million for a restructuring of one of our real estate locations that we vacated. Additionally, during the Fourth Quarter of 2004, we performed an evaluation of our restructuring balances for properties restructured in prior periods and determined that we were over-accrued by $2.4 million, as a result of negotiating early lease terminations or obtaining a subtenant.  The net impact of these actions resulted in a net expense reduction to the restructuring charge of $0.1 million in the Fourth Quarter of 2004 in our consolidated statement of income. Cash expenditures for the six months ended June 30, 2005 related to the 2004 property restructurings totaled $0.3 million.  As of June 30, 2005, the remaining reserve balance was $2.0 million.

In connection with the Fast Track acquisition noted above, we entered into a plan to exit certain activities and to consolidate certain facilities. As a result, we recorded a restructuring liability of $0.4 million related to the lease obligation and certain other costs for one facility. In accordance with EITF 95-3, these costs, which are not associated with the generation of future revenues and have no future economic benefit, are reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.  The total restructuring liability was paid in the First Quarter ended March 31, 2005.

In connection with the Nims acquisition noted above, we entered into a plan to exit certain activities and to consolidate certain facilities. As a result, we recorded an initial restructuring liability of $1.4 million related to the lease obligation and certain other costs for eight facilities. During the Fourth Quarter of 2004, we determined that our original estimate for Nims-related lease obligations was too high and reduced the accrual by $0.1 million.  In accordance with EITF 95-3, these costs, which are not associated with the generation of future revenues and have no future economic benefit, are reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.  Cash expenditures for the six months ended June 30, 2005 related to all Nims-related branch office closings totaled $0.1 million, which is net of approximately $74,000 of sublease payments received.  As of June 30, 2005, the remaining reserve balance was $0.7 million.

During December 2003, in accordance with SFAS 146, we accrued $0.9 million for a restructuring of two of our real estate locations from which we no longer were receiving economic benefit.  Additionally, during the Fourth Quarter of 2003, we performed an evaluation of our restructuring balances for properties restructured in prior periods and determined that we were over-accrued by $1.0 million, as a result of negotiating early lease terminations or obtaining a subtenant.  In prior years, in accordance with EITF Issue No. 94-3, we performed reviews of our business strategy and concluded that consolidating some of our branch offices was key to our success.  Cash expenditures for the period ended June 30, 2005 for all branch office closings relating to restructuring charges in 2003 and prior years were $1.2 million, which is net of approximately $0.7 million of sublease payments received.  As of June 30, 2005, the total remaining reserve balance for branch office closings relating to restructuring in 2003 and prior years was $3.9 million.

As part of our acquisitions of Metro Information Services, Inc. (“Metro”) on November 30, 2001 and SignalTree Solutions (“SignalTree”) on March 15, 2002, we entered into a plan to exit certain activities and to consolidate facilities and recorded restructuring liabilities.  Included in the total of $1.2 million branch office cash expenditures for restructuring charges in 2003 and prior years were cash payments of $0.1 million, net of sublease income, for the lease obligations and other expenses associated with the restructured locations assumed for both the Metro and SignalTree acquisitions.  As of June 30, 2005, included in the total remaining reserve balance of $3.9 million was a remaining lease obligation liability of approximately $0.5 million and $0.9 million for Metro and SignalTree, respectively.

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The activity for the six months ended June 30, 2005 associated with restructuring charges is as follows (in thousands, except per share data):

	January 1, 2005 Balance		Cash Expenditures, Net			Acquisition Related Charges in Fiscal 2005		June 30, 2005 Balance
Branch office closures and other expenditures
1999	$	18	$	—		$	—	$	18
2000	4		—			—		4
2001	560		(113		)	—		447
2002	4,280		(895		)	—		3,385
2003	232		(140		)	—		92
2004	3,492		(821		)	—		2,671
2005	—		—			—		—
	8,586		(1,969		)	—		6,617
2004 Workforce reduction	91		(84		)	—		7
2005 Workforce reduction	—		(559		)	985		426
Total Restructuring Balance	$	8,677	$	(2,612	)	$	985	$	7,050

The restructuring balance is included in current accrued restructuring and accrued long-term restructuring costs in the accompanying condensed unaudited consolidated balance sheets.

Note 8.Convertible Subordinated Debentures

In June 2003, we issued in a private placement $150.0 million principal amount of 2.0% Convertible Subordinated Debentures due 2013.  The Debentures are unsecured and subordinated in right of payment to all of our senior indebtedness. The Debentures accrue regular interest at a rate of 2.0% per year. Interest is payable semi-annually in arrears on June 15 and December 15 of each year, beginning December 15, 2003. Beginning with the six-month interest period commencing June 15, 2008, we will pay additional contingent interest during any six-month interest period if the trading price of the Debentures for each of the five trading days immediately preceding the first day of the interest period equals or exceeds 120% of the principal amount of the Debentures. During any interest period when contingent interest is payable, the contingent interest payable per $1,000 principal amount of Debentures will equal 0.35% calculated on the average trading price of $1,000 principal amount of Debentures during the five trading days immediately preceding the first day of the applicable six-month interest period and will be payable in arrears.

On or after June 15, 2008, we may, by providing at least 30-day notice to the holders, redeem any of the Debentures at a redemption price equal to 100% of the principal amount of the Debentures, plus accrued interest and unpaid interest, if any, and liquidated damages, if any, to, but excluding, the redemption date.

The Debentures are convertible at the option of the holder into shares of our common stock at an initial conversion rate of 54.4989 shares per $1,000 principal amount of Debentures, which is equivalent to an initial conversion price of approximately $18.349 per share, subject to adjustments, prior to the close of business on the final maturity date only under the following circumstances: (a) during any fiscal quarter commencing after September 30, 2003, and only during such fiscal quarter, if the closing sale price per share of our common stock exceeds 120% of the conversion price (approximately $22.019) for at least 20 trading days in the 30 consecutive trading day period ending on the last trading day of the preceding fiscal quarter; (b) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of Debentures for each day of that period was less that 98% of the product of the closing sale price per share of our common stock and the number of shares issuable upon conversion of $1,000 principal amount of the Debentures; (c) if the Debentures have been called for redemption; or (d) upon the occurrence of specified corporate transactions. See Note 2 “Earnings Per Share Data” for further discussion of the Debentures.

Debt issuance costs were approximately $4.4 million and are included in other assets, net, in the accompanying unaudited condensed consolidated balance sheets. These costs are being amortized to interest expense over five years on a straight-line basis. As of June 30, 2005 and December 31, 2004, the unamortized debt issuance costs

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were approximately $2.6 million and $3.1 million, respectively.

Note 9.Capital Stock

On June 14, 2005, we announced that our Board of Directors had authorized us to repurchase an additional 3 million shares of our common stock over the next 12 months effective June 13, 2005. This authorization replaced our June 14, 2004 authorization to purchase 3 million shares of our common stock, of which only 1,236,000 shares were repurchased prior to its expiration.

During the six months ended June 30, 2005, a total of 213,508 shares of our common stock were exercised or purchased by participants under our stock option plans, ESPP and UK ESPP. In addition, 10,296 shares of our common stock were issued to five of our directors in lieu of cash as payment for the annual directors fee or meeting attendance fees.

Note 10.Related Parties, Commitments, and Contingencies

Related Party Transactions

Our principal executive office is located at 100 City Square in Boston, Massachusetts (the “New Facility”). In October 2001, we entered into a lease with Gateway Developers LLC (“Gateway LLC”) for a term of 12 years, pursuant to which we agreed to lease approximately 95,000 square feet of office and development space in the New Facility. We lease approximately 57% of the New Facility and the remaining 43% is, or will be, occupied by other tenants. John Keane Family LLC is a member of Gateway LLC. The members of John Keane Family LLC are trusts for the benefit of John F. Keane, Chairman of our Board of Directors, and his immediate family members.

On October 31, 2001, Gateway LLC entered into a $39.4 million construction loan with Citizens Bank of Massachusetts (the “Gateway Loan”) in connection with the New Facility and an adjacent building located at 20 City Square, Boston, Massachusetts. John Keane Family LLC and John F. Keane are each liable for certain obligations under the Gateway Loan if and to the extent Gateway LLC requires funds to comply with its obligations under the Gateway Loan. Stephen D. Steinour, a member of our Board of Directors, is Chief Executive Officer of Citizens Bank of Pennsylvania. Citizens Bank of Massachusetts and Citizens Bank of Pennsylvania are subsidiaries of Citizens Financial Group, Inc. Mr. Steinour was not involved in the approval process for the Gateway Loan.  In June 2005, the Gateway Loan was refinanced to a non-recourse permanent loan with CitiGroup.

We began occupying the New Facility and making lease payments in March 2003. Based upon our knowledge of lease payments for comparable facilities in the Boston area, we believe that the lease payments under the lease for the New Facility, which will be approximately $3.2 million per year ($33.00 per square foot for the first 75,000 square feet and $35.00 per square foot for the remainder of the premises) for the first six years of the lease term and approximately $3.5 million per year ($36.00 per square foot for the first 75,000 square feet and $40.00 per square foot for the remainder of the premises) for the remainder of the lease term, plus specified percentages of any annual increases in real estate taxes and operating expenses, were, at the time we entered into the lease, as favorable to us as those which could have been obtained from an independent third party. Lease payments to Gateway LLC in the six months ended June 30, 2005 were approximately $1.8 million.

In view of these related party transactions, we concluded that, during the construction phase of the New Facility, the estimated construction in progress costs for the New Facility would be capitalized in accordance with EITF Issue No. 97-10, “The Effect of Lessee Involvement in Asset Construction.” A liability in the same amount was included in the caption “Accrued long-term building costs” in the accompanying unaudited condensed consolidated balance sheets. For purposes of the unaudited condensed consolidated statements of cash flows, we characterized this treatment as a non-cash financing activity.

As a result of the completion of the construction phase and our current occupancy, the related capitalized costs are now classified as “Building” and are included in property and equipment, net, in the accompanying unaudited condensed consolidated balance sheets. A liability for the same amount appears as accrued expenses and other liabilities and accrued long-term building costs, representing our short and long-term components. The costs of the building are being amortized on a straight-line basis over a 39-year useful life. Additionally, the obligation will be reduced over the life of the lease at an interest rate of 8.67%. The net effect of the amortization that is included in the operating results approximates the rent expense resulting from the contractual payments we are required to make under the lease.

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In February 1985, we entered into a lease, which subsequently was extended to a term of 20 years, with City Square Limited Partnership (“City Square”), pursuant to which we leased approximately 34,000 square feet of office and development space in a building located at Ten City Square, in Boston, Massachusetts. We now lease approximately 88% of this building and the remaining 12% is leased by other tenants. John F. Keane, Chairman of our Board of Directors, and Philip J. Harkins, a member of our Board of Directors, are limited partners of City Square. Based upon our knowledge of lease payments for comparable facilities in the Boston area, we believe that the lease payments under this lease, which will be approximately $1.0 million per year ($30.00 per square foot) for the remainder of the lease term (until February 2006), plus specified percentages of any annual increases in real estate taxes and operating expenses, which will be approximately $0.2 million per year, were, at the time we entered into the lease, as favorable to us as those which could have been obtained from an independent third party. As a result of our occupancy of the New Facility (as described above), we vacated and we have obtained a subtenant for approximately 17% of Ten City Square.

As a result of the vacancy at Ten City Square in December 2002, we reserved the remaining lease payments due to City Square for the remainder of the lease term, resulting in a charge of approximately $3.9 million in the Fourth Quarter of 2002. In the six months ended June 30, 2005, we paid approximately $0.6 million in lease payments and as of June 30, 2005 we had a remaining reserve balance of $1.3 million.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” as amended by FASB Interpretation No. 46(R) (“FIN 46(R)”) in December 2003, which requires the consolidation of a variable interest entity, as defined, by its primary beneficiary. Primary beneficiaries are those companies that are subject to a majority of the risk of loss or entitled to receive a majority of the entity’s residual returns, or both. In determining whether it is the primary beneficiary of a variable interest entity, an entity with a variable interest shall treat variable interests in that same entity held by its related parties as its own interests.

We have evaluated the applicability of FIN 46(R) to our relationship with each of City Square and Gateway LLC and determined that we are not required to consolidate these entities within our unaudited condensed consolidated financial statements. We have determined that Gateway LLC is not a variable interest entity as the equity investment is sufficient to absorb the expected losses and the holders of the equity investment do not lack any of the characteristics of a controlling interest. We have concluded that as we no longer occupy the space at Ten City Square and no longer derive any benefit from leasing the space, we would not be determined to be the related party most closely associated with City Square. As a result, we will continue to account for our leases with City Square and Gateway LLC consistent with our historical practices in accordance with generally accepted accounting principles. We believe that we do not have an interest in any variable interest entities that would require consolidation.

In July 2003, our Audit Committee approved a related party transaction involving a member of our Board of Directors. We sub-contracted with ArcStream to develop and assist in the implementation of a wireless electronic application at two customer sites. In accordance with this transaction, we agreed to pay ArcStream a royalty fee for potential future installations during the seven-year license period. John F. Keane, Jr., a member of our Board of Directors, is Chief Executive Officer, a director, and founder of ArcStream. John F. Keane, Jr. is the son of John F. Keane, Sr., Chairman of our Board of Directors, and the brother of Brian T. Keane, our President, Chief Executive Officer and a director. Effective June 21, 2004, our Audit Committee approved the termination of our agreement with ArcStream and a payment of $150,000 by us to ArcStream in exchange for a release of all parties from any further performance or payment obligations under the original agreement. The termination was for convenience and was not related to ArcStream’s performance under the agreement. On April 4, 2005, we acquired certain assets and assumed specified liabilities of ArcStream for a base purchase price of ($0.00) dollars, subject to a working capital adjustment and additional consideration based on the performance of the ArcStream business during the remainder of 2005. In addition, in connection with the transaction, John Keane, Jr. agreed to guarantee certain indemnification obligations of ArcStream and the Company paid John Keane, Jr. $21,875 pursuant to a consulting arrangement to assist in the transition of the acquired business. See Note 6 “Business Acquisitions” for a further discussion of the acquisition.

Commitments and Contingencies

We lease the New Facility from Gateway LLC as described above. We lease additional office space and apartments in more than 70 locations in North America, the United Kingdom, and India under operating leases and capital leases, some of which may be renewed for periods up to five years, subject to increased rental fees.

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We are a guarantor with respect to a line of credit for Innovate EC, an entity in which we acquired a minority equity position as a result of a previous acquisition. The total line of credit is for $600,000. We guarantee $300,000 of this obligation. The line is subject to review by the lending institution. We would be required to meet our guarantor obligation in the event the lending institution refuses to extend the credit facility and Innovate EC is unable to satisfy its obligation.

In February 2003, we entered into a $50.0 million unsecured revolving credit facility (“credit facility”) with two banks. The credit facility replaced a previous $10.0 million demand line of credit, which expired in July 2002. The terms of the credit facility require us to maintain a maximum total funded debt and other financial ratios. The credit facility also includes covenants that, subject to certain specific exceptions and limitations, among other things, restrict our ability to incur additional debt, make certain acquisitions or disposition of assets, create liens, and pay dividends. On June 11, 2003, we and the two banks amended certain provisions of the credit facility relating to financial covenants. These covenants, which include total indebtedness and leverage ratios, are no more restrictive than those initially contained in the credit facility. On October 17, 2003 and February 5, 2004, we and the two banks further amended certain provisions of the credit facility to expand our ability to make certain acquisitions.  On March 31, 2005, we and the two banks further amended certain provisions of the credit facility as follows: (a) to allow additional unsecured indebtedness, (b) to allow Keane’s April 1, 2005 additional investment in Keane Worldzen, (c) to further expand our ability to make certain acquisitions and (d) to adjust financial covenants, which are no more restrictive than those initially contained in the credit facility.   The annual commitment fee for maintaining the credit facility is 30 basis points on the unused portion of the credit facility, up to a maximum of $150,000. As of June 30, 2005, we had no debt outstanding under the credit facility. We may draw upon the credit facility up to $50.0 million less any outstanding letters of credit that have been issued against the credit facility. Any amounts drawn upon the credit facility constitute senior indebtedness for purposes of the Debentures. Borrowings bear interest at one of the bank’s base rate or the Euro currency reserve rate.

During the Third Quarter of 2002, in connection with an acquisition of a business complementary to our own, we recorded $3.0 million as deferred revenue related to contingent service credits and issued a $3.0 million non-interest bearing note payable as partial consideration. During the six months ended June 30, 2005, we recognized revenue of approximately $0.6 million in relation to the contingent service credits and reduced each of the related deferred revenue and note by approximately $0.3 million. As of June 30, 2005, the remaining deferred revenue and note payable balances were each $0.3 million.  The note had a one-year term with a one-year extension expiring on September 25, 2004. Effective September 25, 2004, the term of the contingent service credits was extended one year through September 25, 2005.

We are involved in litigation and various legal matters, which have arisen in the ordinary course of business. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our financial condition, results of operations, or cash flows.

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Note 11.Segment Information

Based on qualitative and quantitative criteria established by SFAS No. 131 (“SFAS 131”), “Disclosures about Segments of an Enterprise and Related Information,” we operate within one reportable segment: Professional Services. In this segment, we offer an integrated mix of end-to-end business solutions, such as Application and Business Process Outsourcing, Development & Integration and Other IT Services.

In accordance with the enterprise wide disclosure requirements of SFAS 131, our geographic information is as follows (in thousands):

	Three Months Ended June 30,				Six months ended June 30,
	2005		2004		2005		2004
Revenues:
Domestic	$	222,889	$	218,332	$	441,022	$	423,547
International	14,929		13,380		29,000		23,989
Total Revenues:	$	237,818	$	231,712	$	470,022	$	447,536

	At June 30, 2005		At December 31, 2004
Property & Equipment:
Domestic	$	63,424	$	64,173
International	12,485		12,588
Total Property & Equipment	$	75,909	$	76,761

No single customer provides revenues that equal or exceed 10 percent of our consolidated revenues.

Note 12.Income Taxes

Our policy is to establish reserves for taxes that may become payable in future years as a result of an examination by tax authorities. In accordance with SFAS No. 5 (“SFAS 5”), “Accounting for Contingencies,” we establish the reserves based upon our assessment of exposure associated with permanent tax differences and interest expense applicable to both permanent and temporary difference adjustments. The tax reserves are analyzed periodically and adjusted, as events occur to warrant adjustment to the reserves, such as when the statutory period for assessing tax on a given tax return or period expires, the reserve associated with that period is reduced. In addition, the adjustment to the reserve may reflect additional exposure based on current calculations. Similarly, if tax authorities provide administrative guidance or a decision is rendered in the courts, appropriate adjustments will be made to the tax reserve.

The provision for income taxes represents the amounts owed for federal, state, and foreign taxes. Our effective tax rate was 35.6% for the Second Quarter ended June 30, 2005 and was 37.9% for the first six months of 2005. Our effective tax rate was 40% for the Second Quarter ended June 30, 2004 and the first six months of 2004. The determination of the provision for income tax expense, deferred tax assets and liabilities and related valuation allowance involves judgment. As a global company, we are required to calculate and provide for income taxes in each of the tax jurisdictions where we operate. This involves making judgments regarding the recoverability of deferred tax assets, which can affect the overall effective tax rate. In addition, changes in the geographic mix or estimated level of pre-tax income can affect the overall effective tax rate. The decreases in our estimated effective tax rate for the Second Quarter and six months ended June 30, 2005 compared to the same periods in 2004 were due to our ability to consolidate Keane Worldzen for tax purposes beginning April 1, 2005.  As a result of owning greater than 80% of the outstanding voting stock of Keane Worldzen, beginning April 1, 2005, we are able to record a tax benefit on the losses associated with Keane Worldzen, thereby reducing our annual effective tax rate. See Note 6 “Acquisitions” for further discussion on our ownership in Keane Worldzen.

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Note 13.Subsequent Events

On July 11, 2005, we and two banks further amended certain provisions of the credit facility to increase the allowable limit for letters of credit within the total facility, including for the purposes of issuing a letter of credit to satisfy bank guarantees with respect to the Transport Ticketing Authority of the State of Victoria.  One of our banks has issued a $45 million AUD letter of credit dated July 14, 2005 against our credit facility in connection with our contract with the Transport Ticketing Authority.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended.  For purposes of these Acts, any statement that is not a statement of historical fact may be deemed a forward-looking statement.  For example, statements containing the words “believes,” “anticipates,” “plans,” “expects,” “estimates,” “intends,” “may,” “projects,” “will,” “would” and similar expressions may be forward-looking statements.  We caution investors not to place undue reliance on any forward-looking statements in this Quarterly Report on Form 10-Q.  We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.  There are a number of factors that could cause our actual results to differ materially from those indicated by these forward-looking statements, including without limitation the factors set forth below under the caption “Certain Factors That May Affect Future Results.”  These factors and the other cautionary statements made in this quarterly report should be read as being applicable to all related forward-looking statements wherever they appear in this quarterly report.  If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2004, 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, 2004.

OVERVIEW

Components of Revenues

We seek to help clients improve their business and information technology (“IT”) effectiveness. We classify our service offerings into the following three categories: Outsourcing, Development & Integration, and Other IT Services.

Outsourcing:    Our outsourcing services include Application and Business Process Outsourcing. Our Application Outsourcing services help clients manage existing business systems more efficiently and more reliably, improving the performance of these applications while frequently reducing costs. Under our Application Outsourcing service offering, we assume responsibility for managing a client’s business applications with the goal of instituting operational efficiencies that enhance flexibility, free up client personnel resources, and achieve higher user satisfaction. We enter into large, long-term contracts for the provision of Application Outsourcing services, which generally do not require any capital outlay by us. These contracts usually span three to five years with the ability to renew. We typically receive a fixed monthly fee in return for meeting or exceeding a contractually agreed upon service level. However, because our customers typically have the ability to reduce services under their contracts, our monthly fees may be reduced from the stated contract amounts.  Outsourcing services also includes ongoing maintenance related to the product sales for our Healthcare Solutions Division.

Through our global delivery model we can offer customers the flexibility and economic advantage of allocating work among a variety of delivery options. These include onsite at a client’s facility, nearshore in Halifax, Nova Scotia, and Toronto, Ontario, and offshore at one of our four development centers in India. In 2004, we extended our global network of Advanced Development Centers with the opening of new facilities in Toronto, Ontario and Hyderabad, India. This integrated, flexible mix of cost-effective onsite, nearshore, and offshore delivery is now a component of most of our new Application Outsourcing engagements. The distribution of work across multiple locations is typically based on a client’s cost, technology, and risk management requirements.

Our Business Process Outsourcing (“BPO”) services are provided by our majority owned subsidiary, Keane Worldzen, Inc. (“Keane Worldzen”), which we acquired on October 17, 2003. Keane Worldzen specializes in providing BPO services to clients with complex processes in the financial services, insurance, and healthcare industries, and to clients with back-office processes in several industries. Keane Worldzen’s BPO services are designed to reduce the cost and increase the efficiency of our clients’ business transactions, enabling companies to focus on their more profitable activities and avoid the distraction of non-core back-office processes. Keane Worldzen provides these low-cost, high-value outsourcing services from operations in both the United States (“U.S.”) and India.

Development & Integration:  As application software becomes more complex, it requires sophisticated integration between front-end and back-end systems to enhance access to critical corporate data, enable process improvements, and improve customer service. Many of our Development & Integration projects focus on solutions for the integration of enterprise

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applications, supply chain, and customer service problems. We also provide Development & Integration services to the public sector, which includes agencies within the U.S. Federal Government, various states, and other local government entities. Additionally, our Healthcare Solutions Division provides software solutions and integration support to both acute and long-term care providers.

Other IT Services:  Other IT Services are primarily comprised of IT consulting, project management, and supplemental staff engagements that are principally billed on a time and materials basis.

Global economic and political conditions may cause companies to be cautious about increasing their use of consulting and IT services, but we continue to see a demand for our services. We continue to experience pricing pressure from competitors as well as from clients facing pressure to control costs. In addition, the growing use of offshore resources to provide lower-cost service delivery capabilities within our industry continues to be a source of pressure on revenues. We also experience wage inflation, primarily in India, as the demand for those resources increases. In order for us to remain successful in the near term, we must continue to maintain and grow our client base, provide high-quality service and satisfaction to our existing clients, and take advantage of cross-selling opportunities. In the current economic environment, we must provide our clients with service offerings that are appropriately priced, satisfy their needs, and provide them with measurable business benefits. While we have recently experienced a more steady demand for our services, and gross margin as a percentage of revenue has stabilized over the past two years, we believe that it is too early to determine if developments will translate into sustainable improvements in our pricing or margins for 2005 and over the longer term.

There is a great deal of competition in the provision of Outsourcing services. We believe our evolving go-to-market strategy, where we seek to provide high value, repeatable business solutions to our clients, differentiates us from our competitors. We offer solutions that combine various Keane services and capabilities in response to a specific industry or client need.  These vertically-focused solution sets may include application services, business process outsourcing, an underlying technology platform or intellectual property, and global delivery. The solution sets that we offer to our clients may be comprised of five major elements.

•First, they are vertically driven in that they are value propositions designed to address specific needs, challenges, or opportunities within a vertical industry.

•Second, they may include Application services, either in the form of applications development & integration, or application outsourcing.

•Third, these solutions may also involve a business process component, including process reengineering and business process outsourcing.

•Fourth, we seek to leverage a technology platform, either provided by a third party or proprietary to Keane, as well as Keane intellectual capital, as a foundation for our solutions.

•And finally, these solution sets frequently incorporate our global delivery capabilities.

While, we are still in the early stages of implementing this new market strategy, we believe that our deep industry knowledge will differentiate us from our competitors, allow us to go beyond simply delivering cost and performance improvements to our clients, and allow us to deliver transformational business benefits and, ultimately, help grow our business and integrate our comprehensive capabilities.

Components of Operating Expenses

The primary categories of our operating expenses include: salaries, wages, and other direct costs; selling, general and administrative expenses; and amortization of intangible assets. Salaries, wages, and other direct costs are primarily driven by the cost of client-service personnel, which consists mainly of compensation, sub-contractor, and other personnel costs, and other non-payroll costs. Selling expenses are driven primarily by business development activities and client targeting, image-development and branding activities. General and administrative expenses primarily include costs for non-client facing personnel, information systems, and office space, which we seek to manage at levels consistent with changes in the activity levels in our business. We continue to anticipate changes in demand for our services and to identify cost management initiatives to balance our mix of resources to meet current and projected future demand in our markets. We will also continue

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to use our global sourcing as part of our cost effective delivery model.

We evaluate our improvement in profitability by comparing gross margins, and selling, general, and administrative (“SG&A”) expenses as a percentage of revenues. Other key metrics that we use to manage and evaluate the performance of our business include new contract bookings, the number of billable personnel, and utilization rates. We calculate utilization rates by dividing the total billable hours per consultant by the total hours available, including sick, holiday, and vacation, from the consultant.

EMPLOYEES

As of June 30, 2005, we had 8,720 total employees, including 7,364 business and technical professionals whose services are billable to clients. This includes a base of 1,918 employees in India, including our Keane Worldzen operations. We sometimes supplement our technical staff by utilizing subcontractors, which as of June 30, 2005, consisted of 561 full-time professionals.

NEW CONTRACT BOOKINGS

New contract bookings for the three months ended June 30, 2005 were $259.2 million, a decrease of $23.1 million, or 8.2%, over new contract bookings of $282.3 million for the three months ended June 30, 2004. For the three months ended June 30, 2005, Outsourcing bookings decreased 12.0% to $131.5 million, Development & Integration bookings decreased 7.6% to $39.3 million, and Other IT bookings decreased 2.2% to $88.4 million compared to the same period in 2004.

New contract bookings for the six months ended June 30, 2005 decreased $164.7 million, or 23.8%, over new contract bookings of $692.0 million for the six months ended June 30, 2004. For the six months ended June 30, 2005, Outsourcing bookings decreased 40.0% to $250.6 million, Development & Integration bookings increased 3.7% to $83.5 million, and Other IT bookings decreased 0.4% to 193.2 million, compared to the same period in 2004.

We provide information regarding our bookings because we believe it represents useful information regarding changes in the volume of our new business over time. However, information regarding our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues. Cancellations and/or reductions in existing contracted amounts are not reflected in new contract bookings.

CONSOLIDATED RESULTS OF OPERATIONS

2005 Compared to 2004

	Three Months Ended June 30,								Increase (Decrease)					Six months ended June 30,							Increase (Decrease)
	2005		%		2004		%		$			%		2005		%		2004		%	$			%
Outsourcing	$	125,858	53		$	116,515	50		$	9,343		8.0		$	248,442	53		$	221,768	50	$	26,674		12.0
Development & Integration	42,426		18		44,780		20		(2,354		)	(5.3	)	84,183		18		86,679		19	$	(2,496	)	(2.9	)
Other IT Services	69,534		29		70,417		30		(883		)	(1.3	)	137,397		29		139,089		31	$	(1,692	)	(1.2	)
Total	$	237,818	100	%	$	231,712	100	%	$	6,106		2.6		$	470,022	100	%	$	447,536	100	$	22,486		5.0

Revenues

Revenues for the Second Quarter ended June 30, 2005 were $237.8 million compared to revenues of $232.2 million for the First Quarter ended March 31, 2005 and compared to revenues of $231.7 million for the Second Quarter ended June 30, 2004. These increases in revenues were partly due to a full quarter of revenues from netNumina Solutions, Inc. (“netNumina”), and revenues from Cresta Testing, Inc. (“Cresta”) and certain assets of ArcStream, which we acquired on February 28, 2005, June 1, 2005, and April 1, 2005, respectively. Additionally, revenues associated with Nims Associated, Inc. (“Nims”), which we acquired on February 27, 2004, increased in the Second Quarter ended June 30, 2005 compared to both the First Quarter ended March 31, 2005 and the Second Quarter ended June 30, 2004. See Note 6 “Business Acquisitions” for a description of these acquired businesses.

Revenues for the six months ended June 30, 2005 were $470.0 million, an increase of $22.5 million, or 5.0% compared to

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revenues for the six months ended June 30, 2004. The increase was primarily due to the revenues associated with our acquisitions of netNumina, Fast Track Holdings Limited (“Fast Track”), a full quarter of revenues from Nims and increases in revenues from both new and existing customers.   We completed the acquisition of Fast Track on July 13, 2004, and included its results of operations beginning July 14, 2004. See Note 6 “Business Acquisitions” for a description of this acquired business. The increase in revenues was partially offset by the reductions in revenues discussed below from a large UK client, IBM and PacifiCare and the termination of a large customer in the Third Quarter ended September 30, 2004.

During the Fourth Quarter of 2004, both a large UK client and IBM notified us that they would be reducing their purchasing requirements. We expect the reduction of purchasing requirements from the UK client will reduce our total annual revenues by approximately $10.0 million to $13.0 million in 2005. During the First Quarter ended March 31, 2005, IBM also notified us that Keane and other current vendor resources would be included in a proposal process for both current and future business. In July 2005, we decided to withdraw from this staff augmentation relationship with IBM. We expect the withdrawal from this relationship will reduce our revenues for the remainder of 2005 by approximately $6.0 million to $10.0 million.

Outsourcing.  Outsourcing service revenues for the Second Quarter ended June 30, 2005 were $125.9 million, an increase of $3.3 million, or 2.7%, compared to the First Quarter ended March 31, 2005. The sequential increase was primarily related to the ramp up of BPO projects, several large outsourcing customers, as well as revenues from netNumina. These increases more than offset the decreases in revenues from the large UK client and PacifiCare.  Outsourcing service revenues for the Second Quarter ended June 30, 2005 increased $9.3 million, or 8.0%, over the same period in 2004. The increase in Outsourcing service revenues was partly due to revenues generated by Nims, which contributed approximately $12.7 million in Applications Outsourcing revenues in the Second Quarter ended June 30, 2005 compared to $8.5 million in the Second Quarter ended June 30, 2004.  The increase in Outsourcing revenues also reflects higher revenues associated with existing and new customers from both our BPO and Application Outsourcing offerings, which more than offsets the decreases from the large UK client, PacifiCare, and a customer who terminated its contract with Keane in the Third Quarter ended September 30, 2004. Outsourcing service revenues for the six months ended June 30, 2005 increased $26.7 million, or 12.0%, over the same period in 2004. The increase reflects $11.6 million of higher revenues generated by Nims due to a full six months of results in 2005, revenues generated by netNumina and higher revenues from new and existing customers from both our BPO and Application Outsourcing offerings, which more than offsets lower revenues associated with PacifiCare and a customer who terminated its contract with Keane in the Third Quarter ended September 30, 2004.

PacifiCare, one of our largest clients, has reduced the level of service from the stated baseline contract amounts in accordance with its right under the contract terms, thereby reducing the contract value. We have provided services at or above the baseline levels set forth in the contract.  In accordance with the contract terms, PacifiCare engaged an independent third party to conduct a benchmark study to compare our billing rates with those of comparable companies on comparable engagements. The independent third party issued a report stating that Keane’s rates are higher than the rate identified in the benchmark study. While we do not necessarily agree with the results of the benchmark study, we entered into discussions with PacifiCare and we have agreed to reduce the rates. As a result, revenues from PacifiCare in the Second Quarter ended June 30, 2005, were approximately $2.0 million lower than revenues from PacifiCare in the First Quarter ended March 31, 2005. We expect a reduction in revenues of approximately $4.0 million to $6.0 million in the last six months of 2005 compared to the same period in 2004.

Development & Integration.  Development & Integration service revenues for the Second Quarter ended June 30, 2005 were $42.4 million, an increase of $0.7 million, or 1.6%, compared to the First Quarter ended March 31, 2005. The sequential increase was primarily due to revenues from netNumina, partially offset by decreases in revenues from the large UK client and IBM.  Development & Integration service revenues for the Second Quarter ended June 30, 2005 decreased  $2.4 million, or 5.3%, over the same period in 2004. Development & Integration revenues for the six months ended June 30, 2005 were $84.2 million, a decrease of $2.5 million, or 2.9%, over the same period in 2004. These decreases were primarily due to the lower revenues from the large UK client, IBM, and existing customers, but were partially offset by revenues from netNumina and Fast Track.

Other IT Services.  Other IT Services revenues for the Second Quarter ended June 30, 2005 were $69.5 million, an increase of $1.7 million, or 2.5%, compared to the First Quarter ended March 31, 2005.  The sequential increase was primarily due to higher billable days in the Second Quarter ended June 30, 2005, which impacts time and material projects. In addition, higher revenues from a large customer offset decreases from IBM. Other IT Services revenues for the Second Quarter ended June 30, 2005 decreased $0.9 million, or 1.3%, and for the six months ended June 30, 2005, decreased $1.7 million, or 1.2%, over the same periods in 2004. These decreases were primarily due to the termination of a contract with a large customer in the Third Quarter ended September 30, 2004 and lower revenues from IBM, partially offset by higher revenues resulting from an increase of placements at an existing large customer.

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The following table summarizes certain line items from our condensed consolidated statements of income (dollars in thousands):

	Three Months Ended June 30,						Increase (Decrease)			Six months ended June 30,						Increase (Decrease)
	2005			2004			$		%	2005			2004			$		%
Revenues	$	237,818		$	231,712		$	6,106	2.6	$	470,022		$	447,536		$	22,486	5.0
Salaries, wages, and other direct costs	166,461			161,710			4,751		2.9	328,654			311,700			16,954		5.4
Gross margin	$	71,357		$	70,002		$	1,355	1.9	$	141,368		$	135,836		$	5,532	4.1
Gross margin%	30.0		%	30.2		%				30.1		%	30.4		%

Salaries, wages, and other direct costs

Salaries, wages, and other direct costs for the Second Quarter ended June 30, 2005 were $166.5 million, an increase of $4.3 million, or 2.6%, compared to $162.2 million in the First Quarter ended March 31, 2005.  Salaries, wages, and other direct costs for the Second Quarter ended June 30, 2005 increased $4.8 million, or 2.9%, and for the first six months of 2005 increased $17.0 million, or 5.4%, over the same periods in 2004. These increases were primarily attributable to costs of client service personnel to support the increased service revenues.  Salaries, wages, and other direct costs were 70.0% of total revenues for the Second Quarter ended June 30, 2005, and for the six months ended June 30, 2005 were 69.9% of total revenues, compared to 69.8% and 69.6% of total revenues for the same periods in 2004, respectively.

Total billable employees for all operations were 7,364 as of June 30, 2005, compared to 7,236 as of March 31, 2005 and 7,062 total billable employees as of June 30, 2004. This includes 1,630 billable employees in India, which includes Keane Worldzen, and represents an increase of 139 employees, or 9.3%, over the First Quarter ended March 31, 2005 and an increase of 203 employees, or 14.2%, over the Second Quarter ended June 30, 2004.  We added our India operation in March 2002 with our acquisition of SignalTree Solutions and we acquired our controlling interest in Keane Worldzen in October 2003. In addition to these employees, we occasionally use subcontract personnel to augment our billable staff, which represented 561 full-time professionals as of June 30, 2005. Overall utilization rates for all three periods remained stable as we increased the number of billable employees.

Gross margin

Our management believes gross margin (revenues less salaries, wages, and other direct costs) provides an important measure of our profitability. Gross margin for the Second Quarter ended June 30, 2005 increased $1.4 million, or 1.9%, and for the first six months of 2005 increased $5.5 million, or 4.1%, over the same periods in 2004.  Gross margin as a percentage of revenues for the Second Quarter ended June 30, 2005 was 30.0% compared to 30.2% for both the same period in 2004 and the First Quarter ended March 31, 2005. Gross margin as a percentage of revenues for the first six months of 2005 was 30.1% compared to 30.4% for the same period in 2004. We believe that the relatively constant gross margin percentage is indicative of a more stable environment for IT services, firmer utilization rates, as well as the benefit of our global sourcing capabilities. The lower labor cost associated with the increased use of offshore resources at our India facilities helped reduce the impact of lower pricing of our services on gross margin. We continue to closely monitor utilization rates and other direct costs in an effort to avoid adverse impacts on our gross margin.

Selling, general, and administrative expenses

	Three Months Ended June 30,						Increase (Decrease)			Six months ended June 30,						Increase (Decrease)
	2005			2004			$		%	2005			2004			$		%
Selling, general, and administrative expenses (SG&A)	$	56,304		$	52,665		$	3,639	6.9	$	110,476		$	105,882		$	4,594	4.3
SG&A as a% of revenue	23.7		%	22.7		%				23.5		%	23.7		%

SG&A expenses include salaries for our corporate and branch administrative employees, sales and marketing expenses, as well as the cost of our administrative facilities, including related depreciation expense. SG&A expenses for the Second Quarter ended June 30, 2005 increased $3.6 million, or 6.9%, and for the first six months of 2005 increased $4.6 million, or 4.3%, over the same periods in 2004. These increases in SG&A expenses were due in part to additional expenses associated

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with Nims, netNumina and Fast Track, higher recruiting expenses, as well as costs associated with our growth in India. In addition, the Second Quarter of 2005 includes approximately $0.8 million of pursuit expenses associated with Keane’s successful bid on the Victoria Transport Ticketing Authority engagement.   SG&A expenses for the Second Quarter and six months ended June 30, 2005 were 23.7% and 23.5% of total revenues, respectively, as compared to 22.7% and 23.7% of total revenues, respectively, for the same periods in 2004. The increase in SG&A expenses as a percentage of revenue in the quarter was partially due to the $0.8 million of pursuit expenses and SG&A expenses associated with recent acquisitions.  SG&A expenses as a percentage of revenue decreased in the six months ended June 30, 2005 as a result of the cost synergies of fully integrating acquisitions we made in 2004 as well as the associated acquired revenues.

Amortization of intangible assets

Amortization of intangible assets for the Second Quarter ended June 30, 2005 was $3.9 million, a decrease of $0.2 million, or 4.3%, over the same period in 2004. The decrease in amortization of intangible assets was primarily due to certain intangibles becoming fully amortized offset by the amortization of intangible assets resulting from the Fast Track acquisition completed in the Third Quarter ended September 30, 2004. Amortization of intangible assets for the six months ended June 30, 2005 was flat compared to the same period in 2004.

The following table summarizes the non-operating items from our condensed consolidated statements of income (dollars in thousands)

	Three Months Ended June 30,						Increase (Decrease)			Six Months Ended June 30,						Increase (Decrease)
	2005			2004			$			2005			2004			$
Other income (expense)
Interest and dividend income	$	1,128		$	875		$	253		$	2,233		$	1,930		$	303
Interest expense	(1,406		)	(1,400		)	(6		)	(2,822		)	(2,838		)	16
Other income (expense), net	(174		)	166			(340		)	(190		)	291			(481		)
Minority interest	190			509			(319		)	873			1,270			(397		)
Other income (expense), net	$	(262	)	$	150		$	(412	)	$	94		$	653		$	(559	)

Interest and dividend income

Interest and dividend income for the Second Quarter ended June 30, 2005 was $1.1 million and for the first six months of 2005 was $2.2 million compared to $0.9 million and $1.9 million for the same periods in 2004, respectively. These increases in interest and dividend income were primarily attributable to the increase in average cash and cash equivalents balances and higher interest rates for the Second Quarter and six months ended June 30, 2005 compared to the same periods in 2004. To the extent we use our cash and marketable securities to fund acquisitions, our operations, and capital investments, our interest income will decline in future periods.

Interest expense

Interest expense for the Second Quarter ended June 30, 2005 was $1.4 million and was $2.8 million for the first six months of 2005 and unchanged compared to the same periods in 2004. Interest expense was unchanged because our Debentures were outstanding for the entire Second Quarter and six months ended June 30, 2005 and 2004. We also record interest expense on the accrued building costs associated with our corporate facility as explained in Note 10 “Related Parties, Commitments, and Contingencies” in the notes to the accompanying unaudited condensed consolidated financial statements.

Other (expense) income, net

Other expense, net was $0.2 million for both the Second Quarter ended June 30, 2005 and for the first six months of 2005, compared to income of $0.2 million and $0.3 million, respectively, for the same periods in 2004.  These decreases were primarily due to foreign exchange losses.

Minority Interest

Minority interest income for the Second Quarter ended June 30, 2005 was $0.2 million and for the first six months of 2005 was $0.9 million, a decrease of $0.3 million and $0.4 million compared to the same periods in 2004, respectively. The decreases in minority interest income are due to Keane’s higher ownership percentage in Keane Worldzen effective April 1, 2005. The amount in minority interest income represents the loss attributable to minority shareholders of Keane Worldzen for the period presented.  We completed our acquisition of a controlling interest in Keane Worldzen in the Fourth Quarter for 2003, which resulted in an initial equity position of approximately 62% of the issued and outstanding capital stock of Keane Worldzen and our consolidation of the results of Keane Worldzen. Consistent with the right to increase our ownership position over time, we increased our equity position to approximately 81% in April 2005 with an additional capital contribution of approximately $5.0 million in cash and $3.0 million from the conversion of an outstanding loan to equity. Effective April 1, 2005, as a result of the additional capital contribution, we continue to consolidate the results of Keane Worldzen but recognize 81% of the results of operations.  As a result of our additional capital contribution, the minority interest shareholders own

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approximately 19% of the issued and outstanding capital stock of Keane Worldzen.

Income taxes

The following table summarizes the changes in provision for income taxes included in our condensed consolidated statements of income (dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Income before income taxes	$	10,931		$	13,452		$	23,056		$	22,659
Provision for income taxes	3,888			5,381			8,738			9,064
Net income	$	7,043		$	8,071		$	14,318		$	13,595
Effective Tax Rate	35.6		%	40.0		%	37.9		%	40.0		%

The provision for income taxes represents the amounts owed for federal, state, and foreign taxes.  Our effective tax rate was 35.6% for the Second Quarter ended June 30, 2005 and was 37.9% for the first six months of 2005, compared to 40.0% for the same periods in 2004.  The decreases in our estimated effective tax rate for the Second Quarter and six months ended June 30, 2005 compared to the same periods in 2004 were primarily due to our ability to consolidate Keane Worldzen for tax purposes beginning April 1, 2005. As a result of owning greater than 80% of the outstanding voting stock of Keane Worldzen, beginning April 1, 2005, we are able to record a tax benefit on the losses associated with Keane Worldzen in our consolidated tax provision, thereby reducing our annual effective tax rate. The determination of the provision for income tax expense, deferred tax assets and liabilities and related valuation allowance involves judgment. As a global company, we are required to calculate and provide for income taxes in each of the tax jurisdictions where we operate. This involves making judgments regarding the recoverability of deferred tax assets, which can affect the overall effective tax rate. In addition, changes in the geographic mix or estimated level of pre-tax income can affect the overall effective tax rate.

Net income

Net income for the Second Quarter ended June 30, 2005 decreased $1.0 million compared to the same period in 2004.  Net income decreased to $7.0 million for the Second Quarter ended June 30, 2005 compared to $8.1 million for the Second Quarter ended June 30, 2004 primarily due to decreased operating income as a result of proportionally higher SG&A expenses, offset in part by a lower effective tax rate.  The increase of net income by $0.7 million for the first six months of 2005 compared to the same period in 2004 was due to a higher gross margin, an increase in interest and dividend income, and a lower effective tax rate.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 123 (revised 2004) (“SFAS 123(R)”), “Share-Based Payment,” which is a revision of SFAS 123 and supersedes APB 25 and its related implementation guidance. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative. In April 2005, the Securities and Exchange Commission (“SEC”) announced that it would provide for a phased-in implementation process for SFAS 123(R). Specifically, the SEC will require public companies that are not small business issuers as defined in SEC Regulation S-B to adopt SFAS 123(R) no later than the beginning of the first fiscal year beginning after June 15, 2005.  Therefore, we are required to adopt SFAS 123(R) on January 1, 2006.

SFAS 123(R) permits public companies to adopt its requirements using one of two methods: a “modified prospective” method, in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date, and a “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. We have yet to determine which method we will use in adopting SFAS 123(R). As permitted by SFAS 123, we currently account for share-based payments to employees using APB 25’s intrinsic value method. Accordingly, the adoption of SFAS 123(R)’s fair value method will have a significant impact on our results of operations. We are evaluating SFAS 123(R) and have not yet determined the

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impact in future periods.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated Financial Condition (in thousands)

Six Months Ended June 30,	2005			2004
Cash Flows Provided By (Used For)
Operating activities	$	9,299		$	6,412
Investing activities	(1,737		)	4,116
Financing activities	(15,371		)	(27,475		)
Effect of exchange rate on cash	(6		)	24
Decrease in Cash and cash equivalents	$	(7,815	)	$	(16,923	)

We have historically financed our operations with cash generated from operations. In addition, in 2003, we raised $150.0 million in proceeds from the issuance of our debentures. We use the net cash generated from these sources to fund capital expenditures, mergers and acquisitions, and stock repurchases. If we were to experience a decrease in revenue as a result of a decrease in demand for our services or a decrease in our ability to collect receivables, we would be required to reduce discretionary spending related to SG&A expenses and adjust our workforce in an effort to maintain profitability. At June 30, 2005, we had $180.0 million in cash and cash equivalents and marketable securities. We intend to continue to use our cash and cash equivalents and marketable securities for general corporate purposes, which may include additional repurchases of our common stock under existing or future share repurchase programs and the funding of future acquisitions and other corporate transactions.

Cash flows provided by operating activities

Net cash provided by operating activities totaled $9.3 million for the six months ended June 30, 2005 compared to net cash provided by operating activities of $6.4 million for the six months ended June 30, 2004.  The increase in net cash provided by operating activities was driven by the higher accounts receivable collection and the timing of cash payments. Days Sales Outstanding (“DSO”), an indicator of the effectiveness of our accounts receivable collections, was 54 days as of June 30, 2005, compared to 52 days as of December 31, 2004 and 53 days as of June 30, 2004. We calculate DSO using the trailing three months total revenue divided by the number of days in the quarter to determine daily revenue.  The average accounts receivable balance for the three-month period is then divided by daily revenue. Partially offsetting the increase in accounts receivable was an increase in accrued liabilities.

Cash flows (used for) provided by investing activities

Net cash used for investing activities for the six months ended June 30, 2005 was $1.7 million compared to net cash provided by investing activities of $4.1 million for the six months ended June 30, 2004.

Marketable Securities: During the six months ended June 30, 2005, we purchased $23.4 million and sold $33.2 million in marketable securities, generating a net source of cash of $9.8 million, compared to purchases of $32.5 million and sales of $61.1 million in the first six months of 2004.  The net proceeds from these transactions were used to fund our share repurchases and acquisitions.

Property and Equipment: We invested $7.9 million and $6.4 million in property and equipment, and capitalized software costs in connection with the implementation of our PeopleSoft Enterprise Resource Planning applications as of June 30, 2005 and 2004, respectively.

Business Acquisitions: On June 1, 2005, we acquired Cresta.  In exchange for all of the outstanding capital stock of Cresta, we paid $0.6 million in cash, of which $60,000 was held back to secure indemnification obligations of the Cresta stockholders, with the potential to pay up to an additional $0.5 million in earn-out consideration over the next two years, contingent upon the achievement of certain future financial targets. The $60,000 held back was deposited as restricted cash and also accrued and included in Accrued expenses and other liabilities in the accompanying unaudited condensed consolidated balance sheet.

On February 28, 2005, we acquired netNumina. In exchange for all of the outstanding capital stock of netNumina, we agreed to pay $5.7 million, of which $0.6 million was held back to secure indemnification obligations of the netNumina stockholders and acquired $4.6 million in cash.  As of June 30, 2005, we had paid $4.7 million of the $5.1 million not held

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back for the netNumina stock certificates surrendered for cancellation. The  $0.6 million held back was deposited as restricted cash, and accrued with the remaining $0.4 million for stock certificates to be surrendered in Accrued expenses and other liabilities in the accompanying unaudited condensed consolidated balance sheet.

On February 27, 2004, we acquired Nims. In exchange for all of the outstanding capital stock of Nims, we paid $18.2 million in cash, including transaction costs and net of cash acquired. The purchase price for Nims may increase with the potential to pay up to an additional $15.0 million in earn-out consideration over the next three years, contingent upon the achievement of certain future financial targets.  The first earn-out was achieved as of March 1, 2005 and as a result, we paid $3.3 million in earn-out consideration in April 2005. As of June 30, 2005, there is a remaining $11.7 million in earn-out consideration that could be achieved over the next two years. During the Second Quarter ended June 30, 2005, we also received a tax refund related to the Nims acquisition of approximately $0.2 million.

Cash flows used for financing activities

Net cash flows used for financing activities was $15.4 million for the six months ended June 30, 2005, compared to net cash used for financing activities of $27.5 million for the six months ended June 30, 2004.   Net cash flows used for financing activities for both 2005 and 2004 were primarily for the repurchase of our common stock, and were partially offset by proceeds received from the issuance of stock associated with our employee stock purchase and stock option plans.  The following is a summary of our repurchase activity for the six months ended June 30, 2005 and 2004 (dollars in thousands):

	2005				2004
	Shares		Amount		Shares		Amount
Prior year authorizations at January 1,	2,871,600				3,181,200
Authorizations	3,000,000				3,000,000
Repurchases paid	(1,352,500	)	$	17,563	(2,127,300	)	$	30,096
Repurchases accrued	(107,500	)	$	1,477	—
Expirations	(1,763,900	)			(1,182,300	)
Shares remaining as of June 30,	2,647,700				2,871,600

These share repurchases more than offset the shares issued under our various stock incentive programs. Under these stock  incentive programs, we issued 223,804 shares and 285,769 shares and received proceeds of $2.4 million and $2.9 million for the six months ended June 30, 2005 and 2004, respectively. Between May 1999 and June 30, 2005, we have invested approximately $278.8 million to repurchase approximately 22.0 million shares of our common stock under eleven separate authorizations.

In February 2003, we entered into a $50.0 million unsecured revolving credit facility (“credit facility”) with two banks. The credit facility replaced a previous $10.0 million demand line of credit, which expired in July 2002. The terms of the credit facility require us to maintain a maximum total funded debt and other financial ratios. The credit facility also includes covenants that, subject to certain specific exceptions and limitations, among other things, restrict our ability to incur additional debt, make certain acquisitions or disposition of assets, create liens, and pay dividends. On June 11, 2003, we and the two banks amended certain provisions of the credit facility relating to financial covenants. These covenants, which include total indebtedness and leverage ratios, are no more restrictive than those initially contained in the credit facility. On October 17, 2003 and February 5, 2004, we and the two banks further amended certain provisions of the credit facility to expand our ability to make certain acquisitions. On March 31, 2005, we and the two banks further amended certain provisions of the credit facility as follows: (a) to allow additional unsecured indebtedness, (b) to allow Keane’s April 1, 2005 additional investment in Keane Worldzen, (c) to further expand our ability to make certain acquisitions and (d) to adjust financial covenants, which are no more restrictive than those initially contained in the credit facility. On July 11, 2005, we and the two banks further amended certain provisions of the credit facility to increase the allowable limit for letters of credit within the total facility, including for the purposes of issuing a letter of credit to satisfy bank guarantees with respect to the Transport Ticketing Authority of the State of Victoria. One of the banks has issued a $45 million AUD letter of credit dated July 14, 2005 against our credit facility in connection with our contract with the Transport Ticketing Authority. The annual commitment fee for maintaining the credit facility is 30 basis points on the unused portion of the credit facility, up to a maximum of $150,000. As of June 30, 2005, we had no debt outstanding under the credit facility. We may draw upon the credit facility up to $50.0 million less any outstanding letters of credit that have been issued against the credit facility. Any amounts drawn upon the credit facility constitute senior indebtedness for purposes of our Debentures. Borrowings bear interest at one of the bank’s base rate or the Euro currency reserve rate. Based on our current operating plan, we believe that our cash and cash equivalents on hand, marketable securities, cash flows from operations, and our line of credit will be sufficient to meet our current capital requirements for at least the next 12 months.

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Increase (Decrease) in Cash and Cash Equivalents

Our cash and cash equivalents totaled $59.7 million and $39.8 million at June 30, 2005, and 2004, respectively.

IMPACT OF INFLATION AND CHANGING PRICES

Inflationary increases in costs have not been material in recent years and, to the extent permitted by competitive pressures, are passed on to clients through increased billing rates. Rates charged by us are based on the cost of labor and market conditions within the industry.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in this Quarterly Report on Form 10-Q and presented elsewhere by management from time-to-time.

Our quarterly operating results have varied, and are likely to continue to vary significantly. This may result in volatility in the market price of our common stock.    We have experienced and expect to continue to experience fluctuations in our quarterly results. Our gross margins vary based on a variety of factors including employee utilization rates and the number and type of services performed during a particular period. A variety of factors influence our revenue in a particular quarter, including:

•general economic conditions, which may influence investment decisions or cause downsizing;

•the number and requirements of client engagements;

•employee utilization rates;

•changes in the rates we can charge clients for services;

•acquisitions; and

•other factors, many of which are beyond our control.

A significant portion of our expenses does not vary relative to revenue. As a result, if revenue in a particular quarter does not meet expectations, our operating results could be materially adversely affected, which in turn may have a material adverse impact on the market price of our common stock. In addition, many of our engagements are terminable without client penalty. An unanticipated termination of a major project could result in an increase in underutilized employees and a decrease in revenue and profits.

We continue to position ourselves to achieve increasing percentages of revenues and growth through outsourcing. If we are successful in obtaining new outsourcing contracts, we may experience increased pressure on our overall margins during the early stages of these contracts.    This could result in higher concentrations of revenues and contributions to income from a smaller number of larger clients on customized outsourcing solutions. If we were to receive a higher concentration of our revenues from a smaller number of clients, our revenues could decrease significantly if one or more of these clients decreased their spending. Outsourcing contracts are generally long-term contracts that require additional staffing in the initial phases of the contract period, which often results in lower gross margins at the beginning of these contracts.

If our clients are not satisfied with our services, we may have exposure to liabilities, which could adversely affect our profitability and financial condition as well as our ability to compete for future work.    If we fail to meet our contractual obligations, we could be subject to legal liability, which could adversely affect our business, operating results and financial condition. The provisions we typically include in our contracts that are designed to limit our exposure to legal claims relating to our services and the applications we develop may not protect us or may not be enforceable under some circumstances or under the laws of some jurisdictions. It is possible, because of the nature of our business, that we will be sued in the future. In addition, although we maintain professional liability insurance, the policy limits may not be adequate to

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provide protection against all potential liabilities. Moreover, as a consulting firm, we depend to a large extent on our relationships with our clients and our reputation for high-quality services to retain and attract clients and employees. As a result, claims made against our work may damage our reputation, which in turn, could impact our ability to compete for new work and negatively impact our revenue and profitability.

The termination of a contract by a significant client could reduce our revenue and profitability or adversely affect our financial condition.    Our five largest clients, excluding the federal government, accounted for approximately 19.1% of our revenue in the Second Quarter ended June 30, 2005, and 19.0% for the six months ended June 30, 2005, although no individual client accounted for more than 6.0% of our total revenue for either period. The various agencies of the federal government represent our largest client, accounting for approximately 9.5% of total revenue for both the Second Quarter and six months ended June 30, 2005. We strive to develop long-term relationships with our clients. Most individual client assignments are from three to twelve months; however, many of our client relationships have continued for many years. Our clients typically retain us on a non-exclusive, engagement-by-engagement basis. Although they may be subject to penalty provisions, clients may generally cancel a contract at any time. Under many contracts, clients may reduce their use of our services under such contract without penalty. In addition, contracts with the federal government contain provisions and are subject to laws and regulations that provide the federal government with rights and remedies not typically found in commercial contracts. Among other things, the federal government, as well as other public sector clients, may terminate contracts with short notice, for convenience and may cancel multi-year contracts if funds become unavailable. When contracts are terminated, our revenue may decline and if we are unable to eliminate associated costs in a timely manner, our profitability may decline. In both the Second Quarter and six months ended June 30, 2005, approximately 18.4% of our revenue was from public sector clients, including U.S. Federal, state, and local governments and agencies. Often government spending programs are dependent upon the budgetary capability to support such programs. Many government budgets have been adversely impacted by the economic slowdown. Most states must operate under a balanced budget. As a result of such budget and deficit considerations, our existing and future revenues and profitability could be adversely affected by reduced government IT spending.

Our recently announced engagement with Melbourne, Victoria Transport Ticketing Authority, or TTA, exposes us to a number of different risks inherent in such long-term, large-scale, fixed-fee projects.  We have been awarded a contract to perform services in relation to the development, operation and maintenance of a public transport ticketing system for the state of Victoria, Australia.  This engagement will require significant management attention and financial resources, and could adversely affect our results of operations in a number of ways. These include:

•start-up costs could potentially result in initial lower operating margins for the project;

•difficulties and costs of staffing and managing complex projects and operations in a new geographic market place;

•dependence on subcontractors and potential subcontractor non-performance;

•complexities in interpreting and delivering the broad range of functional and technical requirements required under the project contract;

•difficulties in working with multiple parties in defining these functional and technical requirements and achieving acceptance of deliverables;

•project delays caused by reasons beyond our control;

•fluctuations in foreign currency exchange rates;

•the additional liability we have undertaken both to guarantee performance of our subsidiary under the contract and the entrance into performance and security bonds under our credit facility.

Unfavorable government audits could require us to refund payments we have received, to forego anticipated revenue, and could subject us to penalties and sanctions.    The government agencies we contract with generally have the authority to audit and review our contracts with them. As part of that process, the government agency reviews our performance on the contract, our pricing practices, our cost structure and our compliance with applicable laws, regulations and standards. If the audit agency determines that we have improperly received reimbursement, we would be required to refund any such amount. If a government audit uncovers improper or illegal activities by us or we otherwise determine that these activities have occurred, we may be subject to civil and criminal penalties and administrative sanctions, including termination of

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contracts, forfeitures of profits, suspension of payments, fines and suspension or disqualification from doing business with the government. Any such unfavorable determination could adversely impact our ability to bid for new work.

We have pursued, and intend to continue to pursue, strategic acquisitions. Failure to successfully integrate acquired businesses or assets may adversely affect our financial performance.    In recent years, we have grown significantly through acquisitions. From January 1, 1999 through June 30, 2005, we completed 17 acquisitions. The aggregate merger and consideration costs of these acquisitions totaled approximately $423.1 million. Our future growth may be based in part on selected acquisitions. At any given time, we may be in various stages of considering acquisition opportunities. We may not be able to find and identify desirable acquisition targets or be successful in entering into a definitive agreement with any one target. In addition, even if we reach a definitive agreement with a target, we may not be able to complete any future acquisition.

We typically anticipate that each acquisition will bring benefits, such as an increase in revenue. Prior to completing an acquisition, however, it is difficult to determine if these benefits will be realized. Accordingly, there is a risk that an acquired company may not achieve an increase in revenue or other benefits for us. In addition, an acquisition may result in unexpected costs, expenses, and liabilities. Any of these events could have a material adverse effect on our business, financial condition, and results of operations.

We have recorded a significant amount of goodwill and other intangible assets resulting from our acquisitions. We review our goodwill and identifiable assets for impairment in accordance with SFAS 142 and SFAS No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” respectively.  If the estimated future cash flows of the reporting units related to the underlying assets are not sufficient to support the carrying value of the associated underlying assets, we may be required to record impairment charges related to goodwill and other intangible assets. Any material loss resulting from an impairment charge could have a material adverse effect on our results of operations. As of June 30, 2005, our goodwill totaled $311.4 million, customer lists totaled $47.1 million and other intangibles assets totaled $7.9 million.

The process of integrating acquired companies into our existing business might also result in unforeseen difficulties. Unforeseen operating difficulties may absorb significant management attention, which we may otherwise devote to our existing business. In addition, the process may require significant financial resources that we might otherwise allocate to other activities, including the ongoing development or expansion of our existing operations.

Finally, future acquisitions could result in our having to incur additional debt and/or contingent liabilities. We may also issue equity securities in connection with acquisitions, which could have a dilutive effect on our earnings per share. Any of these possibilities could have a material adverse effect on our business, financial condition, and result of operations.

We face significant competition for our services, and our failure to remain competitive could limit our ability to maintain existing clients or attract new clients.    The market for our services is highly competitive. The technology for custom software services can change rapidly. The market is fragmented, and no company holds a dominant position. Consequently, our competition for client assignments and experienced personnel varies significantly from city to city and by the type of service provided. Some of our competitors are larger and have greater technical, financial, and marketing resources and greater name recognition in the markets they serve than we do. In addition, clients may elect to increase their internal information systems resources to satisfy their custom software development and integration needs.

In the healthcare software systems market, we compete with some companies that are larger in the healthcare market and have greater financial resources than we do. We believe that significant competitive factors in the healthcare software systems market include size and demonstrated ability to provide service to targeted healthcare markets.

We may not be able to compete successfully against current or future competitors. In addition, competitive pressures may materially adversely affect our business, financial condition, and results of operations.

We conduct business in the UK, Canada, and India, which exposes us to a number of difficulties inherent in international activities.    As a result of our acquisition of a controlling interest in Keane Worldzen in October 2003 and the acquisition of SignalTree Solutions in March 2002, we now have four software development facilities in India. As of June 30, 2005, we had approximately 1,643 technical professionals in the region, including Keane Worldzen. India is currently experiencing conflicts with Pakistan over the disputed territory of Kashmir as well as clashes between different religious groups within the country. These conflicts, in addition to other unpredictable developments in the political, economic, and social conditions in India, could eliminate or reduce the availability of these development and professional services. If access to these services were to be unexpectedly eliminated or significantly reduced, our ability to meet development objectives important to our strategy to add offshore delivery capabilities to the services we provide would be hindered, and our business could be harmed.

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If we fail to manage our geographically dispersed organization, we may fail to meet or exceed our financial objectives and our revenues may decline. We perform development activities in the U.S., Canada, and India, and have offices throughout the U.S., UK, Canada, and India. This geographic dispersion requires us to devote substantial management resources that locally based competitors do not need to devote to their operations.

Our operations in the UK, Canada, and India are subject to currency exchange rate fluctuations, foreign exchange restrictions, changes in taxation, and other difficulties in managing operations overseas. We may not be successful in managing our international operations.

In addition, there has been political discussion and debate related to worldwide competitive sourcing, particularly from the United States to offshore locations. There is proposed federal and state legislation currently pending related to this issue. It is too early to determine whether or in what form this legislation will be adopted; however, future legislation, if enacted, could have an adverse effect on our business, results of operations and financial condition.

We may be unable to re-deploy our professionals effectively if engagements are terminated unexpectedly, which would adversely affect our results of operations.    Our clients can cancel or reduce the scope of their engagements with us on short notice. If they do so, we may be unable to reassign our professionals to new engagements without delay. The cancellation or reduction in scope of an engagement could, therefore, reduce the utilization rate of our professionals, which would have a negative impact on our business, financial condition, and results of operations.

As a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. We believe that period-to-period comparisons of our financial results are not necessarily meaningful and we expect that our results of operations may fluctuate from period-to-period in the future.

Our growth could be limited if we are unable to attract and retain personnel in the information technology and business consulting industries.    We believe that our future success will depend in large part on our ability to continue to attract and retain highly skilled technical and management personnel. The competition for such personnel is intense. We may not succeed in attracting and retaining the personnel necessary to develop our business. If we do not, our business, financial condition, and results of operations could be materially adversely affected.

We may be prohibited from repurchasing, and may not have the financial resources to repurchase, our Debentures on the date for repurchase at the option of the holder or upon a designated event, as required by the indenture governing our Debentures, which could cause defaults under our senior revolving credit facility and any other indebtedness we may incur in the future.    The Debenture holders have the right to require us to repurchase all or a portion of their Debentures on June 15, 2008. The Debenture holders may also require us to repurchase all or a portion of their Debentures upon a designated event, as defined in the indenture governing the Debentures. If the Debenture holders elect to require us to repurchase their Debentures on any of the above dates or if a designated event were to occur, we may not have enough funds to pay the repurchase price for all tendered Debentures. We are currently prohibited under our senior revolving credit facility from repurchasing any Debentures if a designated event were to occur. We may also be prohibited under any indebtedness we may incur in the future from purchasing any Debentures prior to their stated maturity. In these circumstances, we will be required to repay all of the outstanding principal of, and pay any accrued and unpaid interest on, such indebtedness or to obtain the requisite consents from the holders of any such indebtedness to permit the repurchase of the Debentures. If we are unable to repay all of such indebtedness or are unable to obtain the necessary consents, we will be unable to offer to repurchase the Debentures, which would constitute an event of default under the indenture for the Debentures, which itself could constitute a default under our senior revolving credit facility or under the terms of any future indebtedness that we may incur. In addition, the events that constitute a designated event under the indenture for the Debentures are events of default under our senior revolving credit facility and may also be events of default under other indebtedness that we may incur in the future.

We incurred indebtedness when we sold our Debentures. We may incur additional indebtedness in the future. The indebtedness created by the sale of our Debentures, and any future indebtedness, could adversely affect our business and our ability to make full payment on the Debentures.    Our aggregate level of indebtedness increased in connection with the sale of our Debentures. As of June 30, 2005, we had approximately $190.3 million of outstanding indebtedness and had the ability to incur additional debt under our revolving credit facility. We may also obtain additional long-term debt and working capital lines of credit to meet future financing needs, which would have the effect of increasing our total leverage. Any increase in our leverage could have significant negative consequences, including:

•increasing our vulnerability to adverse economic and industry conditions;

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•limiting our ability to obtain additional financing;

•limiting our ability to make acquisitions;

•requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes, including capital expenditures;

•limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we compete; and

•placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources.

Our ability to satisfy our future obligations, including debt service on our Debentures, depends on our future operating performance and on economic, financial, competitive, and other factors beyond our control. Our business may not generate sufficient cash flow to meet these obligations or to successfully execute our business strategy. If we are unable to service our debt and fund our business, we may be forced to reduce or delay capital expenditures, seek additional financing or equity capital, restructure or refinance our debt or sell assets. We may not be able to obtain additional financing or refinance existing debt or sell assets on terms acceptable to us or at all.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

We do not engage in trading market risk, sensitive instruments or purchasing hedging instruments or “other than trading” instruments that are likely to expose us to market risk, whether interest rate, foreign currency exchange, and commodity price or equity price risk. We have not purchased options or entered into swaps or forward or futures contracts.

Interest Rate Risk

We invest primarily in U.S. government obligations as well as tax-exempt municipal bonds and corporate bonds. As a result, our primary market risk exposure is that of interest rate risk to our investments, which would affect the carrying value of those investments. During 2004, the United States Federal Reserve Board began increasing benchmark interest rates and at the June 2005 meeting of the Federal Open Market Committee increased rates for the ninth time, a total of 225 basis points, since June 30, 2004. A significant increase in interest rates would increase the rate of return on our cash and cash equivalents, but would have a negative impact on the carrying value of our marketable securities. Our interest income would change by approximately $0.7 million for both the six months ended June 30, 2005 and June 30, 2004 for each 100 basis point increase or decrease in interest rates. The fair value of our investment portfolio at June 30, 2005 would decrease by approximately $1.4 million for a 100 basis point increase in rates and increase $1.4 million for a 100 basis point decrease in rates. The fair value of our investment portfolio at December 31, 2004 would change by approximately $1.8 million for each 100 basis point increase or decrease in rates.

Changes in market rates and the related impact on the fair value of our investments would not generally affect net income as our investments are fixed rate securities and are classified as available-for-sale. Investments classified as available-for-sale are carried at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive loss in the accompanying consolidated balance sheets. However, when the investments are sold, the unrealized losses are recorded as realized losses and included in net income in the accompanying consolidated statements of income. As of June 30, 2005, we had a net unrealized loss of approximately $1.1 million, which represents a decrease of $0.5 million and an increase of $0.3 million from March 31, 2005 and December 31, 2004, respectively.

Foreign Currency Risk

We transact business in the UK, Canada, and India and as such have exposure associated with movement in foreign currency exchange rates. For the Second Quarter and six months ended June 30, 2005 compared to the same periods in 2004, the fluctuation in foreign currency exchange rates negatively impacted operating income by approximately $0.7 million and $1.5 million, respectively. Relative to the foreign currency exposures existing at June 30, 2005, a 10% unfavorable movement would have resulted in an additional $1.6 million reduction of operating income for the Second Quarter ended June 30, 2005 and additional $3.1 million reduction of operating income for the six months ended June 30, 2005. Net revenues derived from our foreign operations totaled approximately 6% of our total revenues for both the Second Quarter and six months ended June 30, 2005, respectively, and totaled approximately 6% and 5% of our total revenues for the Second Quarter and six months ended June 30, 2004, respectively.

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Item 4.Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Keane maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed and summarized and reported within the specified time periods. Our management, with the participation of our President and Chief Executive Officer and our Senior Vice President of Finance and Administration and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2005. Based on this evaluation, our President and Chief Executive Officer and our Senior Vice President of Finance and Administration and Chief Financial Officer concluded that, as of June 30, 2005, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our President and Chief Executive Officer and our Senior Vice President of Finance and Administration and Chief Financial Officer by others within these entities, particularly during the period in which this report was being prepared, and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Control Over Financial Reporting

During the three months ended June 30, 2005, except as indicated below, there have not been any significant changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  As has been previously reported, we are in the process of implementing a PeopleSoft Enterprise Resource Planning (“ERP”) system for the majority of our processes and operations.  During the Second Quarter of 2005, we began to phase in the modules for Time Reporting, Contracts Management, Project Accounting, Billing and Revenue Recognition in our North American operations.  We believe that internal controls over financial reporting related to these system and process changes were effective as of June 30, 2005.  We plan to continue the roll out of these modules in a deliberate phased approach to ensure internal controls over financial reporting remain effective.

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Keane, Inc.

Part II.Other Information

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

(c)The following table provides information about purchases by Keane during the three months ended June 30, 2005 of equity securities that are registered by Keane pursuant to Section 12 of the Exchange Act:

ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) (2)	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2)
04/01/05-04/30/05	—	$	—	—	2,871,600
05/01/05-05/31/05	835,500	$	12.74	835,500	2,036,100
06/01/05-06/30/05	624,500	$	13.44	624,500	2,647,700
Total:	1,460,000	$	13.04	1,460,000	2,647,700

(1)On June 14, 2004, we announced the approval by our Board of Directors of the repurchase by us of 3.0 million shares of our common stock pursuant to a stock repurchase program (“the June 2004 Program”). The repurchases were made on the open market or in negotiated transactions, and the timing and amount of shares to be purchased was determined by our management based on its evaluation of market and economic conditions and other factors.  The June 2004 Program expired on June 13, 2005.

(2)On June 14, 2005, we announced the approval by our Board of Directors of the repurchase by us of 3.0 million shares of our common stock pursuant to a stock repurchase program (“the June 2005 Program”). The repurchases may be made on the open market or in negotiated transactions, and the timing and amount of shares to be purchased will be determined by our management based on its evaluation of market and economic conditions and other factors. Unless terminated earlier by resolution of our Board of Directors, the June 2005 Program will expire upon the earlier of the date we repurchase all shares authorized for repurchase thereunder or June 13, 2006.

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Item 4.Submission of Matters to a Vote of Security Holders

The following matters were submitted to a vote of the stockholders at our 2005 Annual Meeting of Stockholders held on May 12, 2005 (the “Annual Meeting”):  (1) to elect four Class I directors for the ensuing three years and (2) to ratify and approve the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for the current year. The number of shares of common stock outstanding and eligible to vote as of the record date of March 21, 2005 was 62,371,473.  Each of these matters was approved by the requisite vote of our stockholders. Set forth below is the number of votes cast for, against, or withheld, as well as the number of abstentions and broker non-votes as to the respective matter, including a separate tabulation with respect to each nominee for director.

Proposal 1: electing four Class I directors for the ensuing three years

Nominees	For	Withheld
Maria A. Cirino	51,516,137	1,087,349
John F. Keane, Jr.	48,754,238	3,849,249
Stephen D. Steinour	49,827,405	2,776,081
James D. White	51,486,525	1,116,961

The other members of the Keane Board of Directors whose terms of office continued after the Annual Meeting were Lawrence P. Begley, Philip J. Harkins, Winston R. Hindle, Jr., Brian T. Keane, John H. Fain, John F. Keane, and John F. Rockart.

Proposal II: ratifying and approving the selection of Ernst & Young LLP as Keane’s independent registered public accounting firm for the current year

For	Against	Abstain
51,123,809	1,443,759	35,918

Item 6.Exhibits

Exhibit 3.1 -Restated Articles of Organization dated May 10, 2005

Exhibit 10.1 – Fourth Amendment dated March 31, 2005 to the Revolving Credit Agreement dated February 28, 2003, by and between the Registrant and the Lenders thereto

Exhibit 10.2 – Fifth Amendment dated July 11, 2005 to the Revolving Credit Agreement dated February 28, 2003, by and between the Registrant and the Lenders thereto

Exhibit 31.1—Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.

Exhibit 31.2—Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.

Exhibit 32.1—Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer.

Exhibit 32.2—Certification pursuant to 18 U.S.C. Section 1350 of the Chief Financial Officer.

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Signatures

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

	KEANE, INC.
	(Registrant)
Date        August 4, 2005	/s/ Brian T. Keane
	Brian T. Keane  President and Chief Executive Officer
Date        August 4, 2005	/s/ John J. Leahy
	John J. Leahy  Senior Vice President of Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer)

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Exhibit Index

Exhibit No.	Description
3.1	Restated Articles of Organization dated May 10, 2005
10.1	Fourth Amendment dated March 31, 2005 to the Revolving Credit Agreement dated February 28, 2003, by and between the Registrant and the Lenders thereto
10.2	Fifth Amendment dated July 11, 2005 to the Revolving Credit Agreement dated February 28, 2003, by and between the Registrant and the Lenders thereto
31.1	Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer.
31.2	Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer.
32.1	Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer.
32.2	Certification pursuant to 18 U.S.C. Section 1350 of the Chief Financial Officer.

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EX-3.1

Exhibit 3.1

Restated Articles of Organization

(General Laws Chapter 156D, Section 10.07; 950 CMR 113.35)

Keane, Inc. (the “Corporation”), having a registered office at 100 City Square, Boston, MA 02129, certifies as follows:

FIRST, the Restated Articles were duly adopted and approved on February 10, 2005 by the board of directors without shareholder approval in the manner required by General Laws, Chapter 156D and the Articles of Organization of the Corporation, as amended to date, and shareholder approval was not required.

SECOND, the following is all the information required to be in the original Articles of Organization, except that the supplemental information provided for in Article VIII of the Articles of Organization is not included:

ARTICLE I.  The exact name of the corporation is Keane, Inc.

ARTICLE II. The purposes for which the corporation is formed are as follows:

To engage in the business of providing consulting and advisory services relating to the use of data processing and data communication equipment and equipment associated therewith; and to engage in the business of providing systems design and computer programming services.

ARTICLE III.  The total number of shares of each class of stock that the corporation is authorized to issue is as follows:

TYPE	NUMBER OF SHARES AUTHORIZED	PAR VALUE
Common	200,000,000	$	.10
Class B Common	503,797	$	.10
Preferred	2,000,000	$	.01

ARTICLE IV.  If more than one class or series of shares is authorized, the preferences, limitations and relative rights of each class or series are as follows:

PART I.COMMON STOCK.

A.Dividends, Combinations and Subdivisions.

1.Holders of Common Stock and Class B Common Stock shall be entitled to receive such dividends, payable in cash or other as may be declared thereon by the Board of Directors from time to time out of the assets or funds of the corporation legally available

therefor, provided that no regular cash quarterly dividend may be declared and paid to holders of Class B Common Stock unless at the same time the Board of Directors shall also declare and pay to the holders of Common Stock a per share dividend which is $.05 per share greater than the per share dividend declared and paid to holders of Class B Common Stock.  Otherwise, no dividends may be declared or paid to holders of Class B Common Stock unless equal dividend is declared and paid to holders of Common Stock.  In addition, the Board of Directors may declare and pay dividends to the holders of Common Stock without declaring and paying dividends to the holders of Class B Common Stock.

2.If the outstanding shares of either the Common Stock or the Class B Common Stock are changed into, exchanged for or reclassified into a different number, class or kind of shares of the Corporation or any other corporation or entity which does not result in the receipt by the Corporation of any new consideration (other than a transfer of surplus of the Corporation) without such action being taken on a proportionate basis with respect to the other class of common stock, whether such change, exchange or reclassification occurs through a reorganization, recapitalization, stock split or otherwise, then the requirement that a greater per share dividend be declared and paid with respect to the Common Stock shall be appropriately and equitably adjusted to reflect such action.

3.The requirement that a greater per share dividend be declared and paid with respect to the Common Stock shall not apply (a) to a dividend paid in partial or complete liquidation of the Corporation, (b) to a special dividend payable in cash or capital stock or (c) in the event of a dividend payable in any shares of an existing, or a newly created, class of the Corporation’s capital stock.  If a dividend payable in any class of the capital stock of the Corporation is declared on the Common Stock, the Board of Directors shall also declare a dividend on the Class B Common Stock payable in shares of the same capital stock of the Corporation equal, on a per share basis, to the number of shares of capital stock of the Corporation which are paid to holders of Common Stock.  If a dividend payable in any class of the capital stock of the Corporation is declared on the Class B Common Stock, the board shall also declare a dividend on the Common Stock payable in shares of the same capital stock of the Corporation, equal, on a per share basis, to the number of shares of capital stock of the Corporation which are paid to holders of Class B Common Stock.

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B.Voting.

1.Except as expressly provided herein, at every meeting of stockholders of the Corporation, every holder of Common Stock shall be entitled to one vote in person or by proxy for each share of Common Stock standing in his name on the transfer books of the Corporation and every holder of Class B Common Stock shall be entitled to ten votes in person or by proxy for each share of Class B Common Stock standing in his name on the transfer books of the Corporation.

2.Except as may otherwise be required by law or by this Article 4, the holders of Common Stock and Class B Common Stock shall vote together as a single class.

C.Conversion.

1.Each share of Class B Common Stock may at any time be converted into one fully paid and nonassessable share of Common Stock.  Such right of conversion shall be exercised by the surrender of the certificate representing such share of Class B Common Stock to be converted to the Corporation at any time during normal business hours at the principal executive offices of the Corporation, or if an agent for the registration of transfer of shares of Class B Common Stock is then duly appointed and acting (said agent being hereinafter called the “Transfer Agent”) then at the office of the Transfer Agent, accompanied by a written notice of the election by the holder thereof to convert and (if so required by the Corporation or the Transfer Agent) by instruments of transfer, in form satisfactory to the Corporation and to the Transfer Agent, duly executed by such holder or his duly authorized attorney, and transfer tax stamps or funds therefor, if required pursuant to subparagraph (5) below.

2.As promptly as practicable after the surrender for conversion of a certificate representing shares of Class B Common Stock in the manner provided in subparagraph (1) above and the payment in cash of any amount required by the provisions of subparagraphs (1) and (5), the Corporation will deliver or cause to be delivered at the office of the Transfer Agent to, or upon the written order of, the holder of such certificate a certificate or certificates representing the number of full shares of Common Stock issuable upon such conversion, issued in such name or names as such holder may direct.  Such conversion shall be deemed to have been made immediately prior to the close of business on the date of the

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surrender of the certificate representing shares of Class B Common Stock, and all rights of the holder of such shares as such holder shall cease at such time and the person or persons in whose name or names the certificate or certificates representing the shares of Common Stock are to be issued shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock at such time; provided, however, that any such surrender and payment on any date when the stock transfer books of the Corporation shall be closed shall constitute the person or persons in whose name or names the certificate or certificates representing shares of Common Stock are to be issued as the record holder or holders thereof for all purposes immediately prior to the close of business on the next succeeding day on which such stock transfer books are open.

3.No adjustments in respect of dividends shall be made upon the conversion of any share of Class B Common Stock, provided, however, that if a share shall be converted after the record date for the payment of a dividend or other distribution on shares of Class B Common Stock but before such payment, the registered holder of such share at the close of business on such record date shall be entitled to receive the dividend or other distribution payable on such share on the date set for payment of such dividend or other distribution notwithstanding the conversion of such share or the Corporation’s default in payment of the dividend due on such date.

4.The Corporation covenants that it will at all times reserve and keep available, solely for the purpose of issuance upon conversion of the outstanding shares of Class B Common Stock, such number or shares of Common Stock as shall be issuable upon the conversion of all such outstanding shares, provided that nothing contained in these Articles shall be construed to preclude the Corporation from satisfying its obligations in respect of the conversion of the outstanding shares of Class B Common Stock by delivery of purchased shares of Common Stock which are held in the treasury of the Corporation.  The Corporation covenants that if any shares of Common Stock required to be reserved for purposes of conversion hereunder require registration with or approval of any government authority under any federal or state law before such shares of Common Stock may be issued upon conversion, the Corporation will cause such shares to be duly registered or approved, as the case may be.  The Corporation covenants that all shares of Common Stock which shall be issued upon conversion of the shares of Class B Common Stock will, upon issue, be fully paid and nonassessable and not subject to any preemptive rights.

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5.The issuance of certificates for shares of Common Stock upon conversion of shares of Class B Common Stock shall be made without charge for any stamp or other similar tax in respect of such issuance.  However, if any such certificate is to be issued in a name other than that of the holder of the share or shares of Class B Common Stock converted, the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid.

6.At any time while there are shares of Class B Common Stock issued and outstanding, the Board of Directors of the Corporation may, in its sole discretion, by a majority vote of the Directors then in office convert all outstanding shares of Class B Common Stock into Common Stock on a share for share basis.  Notice of automatic conversion of Class B Common Stock specifying the date fixed for said conversion shall be mailed, postage prepaid, at least 20 days but not more than 30 days prior to said conversion date to the holders of record of the Class B Common Stock at their respective addresses as the same shall appear on the books of the Corporation.  Following the expiration of such notice period, each outstanding share of Class B Common Stock shall be deemed to be a share of Common Stock for all purposes.

D.Distribution of Assets.

1.If the Corporation shall be liquidated, dissolved or wound up, whether voluntarily or involuntarily, the holders of the Class B Common Stock shall be entitled to share ratably with the holders of the Common Stock of the Corporation as a single class in the net assets of the Corporation; that is, an equal amount of net assets for each share of Common Stock and Class B Common Stock.  A merger or consolidation of the Corporation with or into any other corporation or sale or conveyance of all or any part of the assets of the Corporation (which shall not in fact result in the liquidation of the Corporation and the distribution of assets to stockholders) shall not be deemed to be a voluntary or involuntary liquidation or dissolution or winding up of the Corporation within the meaning of this subparagraph (D).

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E.Authorized Shares; Fractional Shares.

1.The number of authorized shares of Class B Common Stock may not be increased unless approved by the holders of a majority of the then outstanding shares of Common Stock.

2.No fractional shares of Common Stock shall be issued upon conversion of shares of Class B Common Stock.  In lieu of fractional shares, the Transfer Agent shall pay an amount in cash equal to the closing market price of the shares of Common Stock on the conversion date multiplied by the fraction of a share of Common Stock that would otherwise be issuable.

PART II.PREFERRED STOCK.

Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided.  Any shares of any series of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued as shares of the same series or as shares of one or more other series of Preferred Stock except as otherwise provided by law.  Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided.

Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the Massachusetts Business Corporation Law.  Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law.

ARTICLE V.  The restrictions imposed by the Articles of Organization upon the transfer of shares of any class or series of stock are as follows:

A.No person holding shares of Class B Common Stock (a “Class B Holder”) may transfer, except by gift, devise or bequest, a transfer to the estate of a stockholder upon the death of such stockholder or a transfer of shares held in a trust to the grantor of such trust or to any person to whom or for whose benefit the principal of such trust may be distributed, and the Corporation and the Transfer Agent shall not register the transfer of such shares of Class B Common Stock, whether by sale, assignment, appointment or otherwise.  Any purported transfer of shares of

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Class B Common Stock, other than a transfer of the type described above, shall be null and void and of no effect and the purported transfer by a Class B Holder will result in the immediate and automatic conversion of the shares of Class B Common Stock held by such Class B Holder into shares of Common Stock.  The purported transferee shall have no rights as a stockholder of the Corporation and no other rights against, or with respect to, the Corporation except the right to receive shares of Common Stock upon the immediate and automatic conversion of his shares of Class B Common Stock into shares of Common Stock.  The estate of any deceased stockholder, a transferee upon the distribution of the assets of such an estate, any transferee of the Class B Common Stock by gift, devise or bequest or a transferee from a trust of which such transferee was the grantor or a principal beneficiary shall hold the transferred shares of Class B Common Stock subject to the same restrictions on transferability as apply to all Class B Holders under this Article V.

B.Shares of Class B Common Stock shall be registered in the name(s) of the beneficial owner(s) thereof (as hereafter defined) and not in “street” or “nominee” names; provided, however, certificates representing shares of Class B Common Stock issued as a stock dividend on the Corporation’s then outstanding Common Stock may be registered in the same name and manner as the certificates representing the shares of Common Stock with respect to which the shares of Class B Common Stock are issued.  For the purposes of this paragraph (B) the term “beneficial owner(s)” of any shares of Class B Common Stock shall mean the person or persons who possess the power to dispose, or to direct the deposition, of such shares.  Any shares of Class B Common Stock registered in “street” or “nominee” name may be transferred to the beneficial owner of such shares on the record date for such stock dividend, upon proof satisfactory to the Corporation and the Transfer Agent that such person was in fact the beneficial owner of such shares on the record date for such stock dividend.

C.Notwithstanding anything to the contrary in this Article V, any Class B Holder may pledge such holder’s shares of Class B Common Stock to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledge, provided that such shares shall not be transferred to, or registered in the name of, the pledgee and shall remain subject to the provisions of this subparagraph (C) of Article V.  In the event of foreclosure or other similar action by the pledgee, such pledged shares of Class B Common Stock may not be transferred to the pledgee and may only be converted into shares of Common Stock.

D.The Corporation shall note on the certificates representing the shares of Class B Common Stock the restrictions on transfer and registration of transfer imposed by this Article V.

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E.For purposes of this Article V:

(i)Each joint owner of shares of Class B Common Stock shall be considered a Class B Holder of such shares.

(ii)A minor for whom shares of Class B Common Stock are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a Class B Holder of such shares.

(iii)Unless otherwise specified, the term “person” includes a natural person, corporation, partnership, unincorporated association, firm, joint venture, trust or other entity.

(iv)Persons participating in a Thrift or Employee Stock Ownership Plan of the Corporation (or any similar or successor plans) shall be deemed to be the Class B Holders of the shares of Class B Common Stock allocated to their accounts pursuant to such plans.

ARTICLE VI.  Other lawful provisions:

A.Limitation of Liability of Directors for Monetary Damages. To the fullest extent permitted by Chapter 156D of the General Laws of Massachusetts (“Chapter 156D”), as it exists or may be amended, a director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. No amendment to, or repeal of, this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

B.Indemnification.

1.Actions, Suits and Proceedings.  The Corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director or officer of, or in a similar capacity with, another organization or in any capacity with respect to any employee benefit plan of the Corporation (all such persons being referred to hereafter as an “Indemnitee”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees), judgments and fines incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, unless the Indemnitee shall be finally adjudicated in such action, suit or proceeding not to have acted in good faith in the reasonable belief that his action was in the best interests of the Corporation or, to the extent such matter relates to service with respect to an employee benefit plan, in the best interests of

8

the participants or beneficiaries of such employee benefit plan.  Notwithstanding anything to the contrary in this Article, except as set forth in Section 5 below, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation.

2.Settlements.  The right to indemnification conferred in this Article shall include the right to be paid by the Corporation for amounts paid in settlement of any such action, suit or proceeding and any appeal therefrom, and all expenses (including attorneys’ fees) incurred in connection with such settlement, pursuant to a consent decree or otherwise, unless and to the extent it is determined pursuant to Section 5 below that the Indemnitee did not act in good faith in the reasonable belief that his action was in the best interests of the Corporation or, to the extent such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan.

3.Notification and Defense of Claim.  As a condition precedent to his right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought.  With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee.  After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 3.  The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article.  The Corporation shall not be entitled to assume the defense of any claim brought by or in the right of the Corporation, or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above.

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4.Advance of Expenses.  Subject to the provisions of Section 5 below, in the event that the Corporation does not assume the defense pursuant to Section 3 of this Article of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article, any expenses (including attorneys’ fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter, provided, however, that the payment of such expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article.  Such undertaking may be accepted without reference to the financial ability of the Indemnitee to make such repayment.

5.Procedure for Indemnification.  In order to obtain indemnification or advancement of expenses pursuant to Section 1, 2 or 4 of this Article, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses.  Any such indemnification or advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless the Corporation determines, by clear and convincing evidence, within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1 or 2, as the case may be.  Such determination shall be made in each instance by (a) a majority vote of a quorum of the directors of the Corporation, (b) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit or proceeding in question, (c) independent legal counsel (who may be regular legal counsel to the Corporation), or (d) a court of competent jurisdiction.

6.Remedies.  The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 5.  Unless otherwise provided by law, the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article shall be on the Corporation.  Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to

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Section 5 that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct.  The Indemnitee’s expenses (including attorneys’ fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation.

7.Subsequent Amendment.  No amendment, termination or repeal of this Article or of the relevant provisions of Chapter 156D or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.

8.Other Rights.  The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a Director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee.  Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article.  In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article.

9.Partial Indemnification.  If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the expenses (including attorneys’ fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys’ fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled.

10.Insurance.  The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another organization or employee benefit plan against any expense, liability or loss incurred by him in any such capacity, or

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arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Chapter 156D.

11.Merger or Consolidation.  If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation.

12.Savings Clause.  If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law.

13.Subsequent Legislation.  If the Massachusetts General Laws are amended after adoption of this Article to expand further the indemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the Massachusetts General Laws, as so amended.

14.Amendments to Articles.  Notwithstanding any other provisions of law, these Articles of Organization or the By-Laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%) of the votes which all the stockholders would be entitled to cast at any annual election of directors or class or directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article 6B.

C.Authorization of Directors to Make, Amend or Repeal Bylaws. The directors may make, amend or repeal the bylaws in whole or in part, except with respect to any provision thereof which by law or the bylaws of the corporation requires action by the stockholders.

ARTICLE VII.  The effective date of this restatement of the Articles of Organization is the date and time these Restated Articles were received for filing.

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THIRD, No Articles of the Articles of Organization of the corporation are being amended by these Restated Articles.

Signed by	/s/ C. Whitney Pedersen
(signature of authorized individual)

(Please check appropriate box)
o	Chairman of the Board of Directors
o	President
ý	Other Officer
o	Court-appointed fiduciary,

Signed on this 10^th day of May 2005.

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COMMONWEALTH OF MASSACHUSETTS

William Francis Galvin

Secretary of the Commonwealth

One Ashburton Place, Boston, Massachusetts 02108-1512

Restated Articles of Organization

(General Laws, Chapter 156D, Section 10.07)

I hereby certify that upon examination of these Restated Articles of Organization, duly submitted to me, it appears that the provisions of the General Laws relative to the organization of corporations have been complied with, and I hereby approve said articles; and the filing fee in the amount of $ 200 having been paid, said articles are deemed to have been filed with me this 16^th  day of May, 2005 at 3:44 p.m.
                   time

Effective date:
	(must be within 90 days of date submitted)

WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
	/s/ William Francis Galvin

Contact information to be filled in by corporation:

C. Whitney Pedersen

100 City Square, Boston, MA 02129

Telephone:  (617) 241-9200

Email:  charles_w_pedersen@keane.com

EX-10.1

Exhibit 10.1

FOURTH AMENDMENT

TO

REVOLVING CREDIT AGREEMENT

Fourth Amendment dated as of March 31, 2005 to Revolving Credit Agreement (the “Fourth Amendment”), by and among KEANE, INC., a Massachusetts corporation (the “Borrower”) and FLEET NATIONAL BANK and the other lending institutions listed on Schedule 1 to the Credit Agreement (as hereinafter defined) (the “Lenders”), amending certain provisions of the Revolving Credit Agreement dated as of February 28, 2003 (as amended and in effect from time to time, the “Credit Agreement”) by and among the Borrower, the Lenders, and FLEET NATIONAL BANK in its capacity as administrative agent for the Lenders (the “Administrative Agent”).  Terms not otherwise defined herein which are defined in the Credit Agreement shall have the same respective meanings herein as therein.

WHEREAS, the Borrower and the Lenders have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this Fourth Amendment;

NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

§1.Amendment to §9 of the Credit Agreement.  Section 9 of the Credit Agreement is hereby amended as follows:

(a)Section 9.1 of the Credit Agreement is hereby amended by (i) deleting the word “and” at the end of the text of §9.1(j); (ii) deleting the period from the end of §9.1(k) and substituting in place thereof a semicolon and the word “and”; and (iii) inserting immediately after the end of §9.1(k) the following:

(l)other unsecured Indebtedness not otherwise permitted by this §9.1 in an aggregate principal amount not to exceed $3,000,000 outstanding at any time.

(b)Section 9.3(f)(iii) of the Credit Agreement is hereby amended by inserting immediately after the words “the Investment by the Borrower in Newco after October 17, 2003 and prior to March 31, 2004 in an aggregate amount not to exceed $3,000,000” which appear in §9.3(f)(iii) the words “and the Investment by the Borrower in Newco after March 31, 2005 in an aggregate amount not to exceed $9,000,000”.

(c)Section 9.5.1(c) of the Credit Agreement is hereby amended as follows:

(i)Section 9.5.1(c)(i) of the Credit Agreement is hereby amended by deleting §9.5.1(c)(i) in its entirety and restating it as follows:

(i)to the extent the aggregate amount of the purchase price for any single acquisition or series of related acquisitions which is payable in anything other than the Capital Stock of the Parent (and such Capital Stock shall have no redemption or repurchase rights prior to a date which is one (1) year after the Revolving Credit Loan Maturity Date and shall not have the ability to convert into any form of Indebtedness) exceeds $10,000,000, the Borrower has provided the Administrative Agent with prior written notice of such acquisition, which notice shall include a reasonably detailed description of such Permitted Acquisition;

(ii)Section 9.5.1(c)(iv) of the Credit Agreement is hereby amended by deleting §9.5.1(c)(iv) in its entirety and restating it as follows:

(iv)(1) to the extent the aggregate amount of the purchase price for any single acquisition or series of related acquisitions which is payable in anything other than the Capital Stock of the Parent (and such Capital Stock shall have no redemption or repurchase rights prior to a date which is one (1) year after the Revolving Credit Loan Maturity Date and shall not have the ability to convert into any form of Indebtedness) exceeds $10,000,000, not less than five (5) days prior to the consummation of the proposed acquisition, the Borrower shall have delivered to the Administrative Agent (A) evidence satisfactory to the Administrative Agent that the Person (or assets, as the case may be) to be acquired has a positive EBITDA for the most recent twelve calendar months and had a positive EBITDA for the most recent fiscal year end, as demonstrated by audited financial statements (or, to the extent such Person so acquired has no audited historical financial results, the management prepared financial results of such Person so acquired) but with the Borrower being permitted to adjust such historical calculations to include in such calculations of EBITDA reasonable cost savings, expenses and other income statement or operating statement adjustments which are attributable to the change in ownership and/or management resulting from such Permitted Acquisition and are effected on the closing of such Permitted Acquisition, as may be reasonably acceptable to the Administrative Agent, which adjustments shall be deemed to have been realized on the consummation of such Permitted Acquisition), with such results to be in form and substance reasonably acceptable to the Administrative Agent, provided, however, in each case, in the event that either no historical financial results are available with respect to the Person to be acquired, the Person to be acquired is not a separate legal entity, the Borrower or Subsidiary effecting the acquisition is acquiring only assets of another Person or, in the Administrative Agent’s reasonable discretion it determines the historical financial results do not adequately reflect the financial results of the Person or assets to be acquired, such calculations shall be made with reference to reasonable estimates of such past performance made by the Borrower based on existing data and other available

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information, such estimates to be reasonably acceptable in all respects to the Administrative Agent; (B) a Compliance Certificate prepared on a pro forma basis demonstrating compliance with the financial covenants set forth in §10 hereof both before and after giving effect to such Permitted Acquisition (with the Borrower being permitted to include in such pro forma statements reasonable cost savings, expenses and other income statement or operating statement adjustments which are attributable to the change in ownership and/or management resulting from such Permitted Acquisition and are effected on the closing of such Permitted Acquisition, as may be reasonably acceptable to the Administrative Agent, which adjustments shall be deemed to have been realized on the consummation of such Permitted Acquisition); and (C) a certificate from the chief financial officer of the Borrower to the effect that (I) the Borrower on a consolidating basis, and the Borrower and its Subsidiaries, on a consolidated basis, will be solvent both before and after consummating the Permitted Acquisition and (II) no Default or Event of Default then exists or would result after giving effect to the Permitted Acquisition; or (2) to the extent the aggregate amount of the purchase price for any single acquisition or series of related acquisitions which is payable in anything other than the Capital Stock of the Parent (and such Capital Stock shall have no redemption or repurchase rights prior to a date which is one (1) year after the Revolving Credit Loan Maturity Date and shall not have the ability to convert into any form of Indebtedness) is equal to or is less than $10,000,000, (x) no Default or Event of Default then exists or would result after giving effect to the Permitted Acquisition; (y) the Borrower is in compliance with the financial covenants set forth in §10 hereof both before and after giving effect to such Permitted Acquisition; and (z) the Person (or assets, as the case may be) to be acquired either (I) has a positive EBITDA for the most recent twelve calendar months and had a positive EBITDA for the most recent fiscal year end, as demonstrated by audited financial statements (or, to the extent such Person so acquired has no audited historical financial results, the management prepared financial results of such Person so acquired) but with the Borrower being permitted to adjust such historical calculations to include in such calculations of EBITDA reasonable cost savings, expenses and other income statement or operating statement adjustments which are attributable to the change in ownership and/or management resulting from such Permitted Acquisition and are effected on the closing of such Permitted Acquisition, which adjustments shall be deemed to have been realized on the consummation of such Permitted Acquisition), provided, however, in each case, in the event that either no historical financial results are available with respect to the Person to be acquired, the Person to be acquired is not a separate legal entity, the Borrower or Subsidiary effecting the acquisition is acquiring only assets of another Person, such calculations shall be made with reference to reasonable estimates of such past performance made by the Borrower based on existing data and other available information; or (II) to the extent the Person (or assets, as the case may be) has a negative EBITDA for the most recent twelve calendar months or a negative EBITDA for the most recent fiscal year end (as demonstrated in the manner set forth in 2(I) above), the negative EBITDA of the Person (or the assets, as the case may be) does not exceed $5,000,000;

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§2.Conditions to Effectiveness.  This Fourth Amendment shall not become effective until the Administrative Agent receives a counterpart of this Fourth Amendment, executed by the Borrower, the Required Lenders and the Guarantors.

§3.Representations and Warranties.  The Borrower hereby repeats, on and as of the date hereof, each of the representations and warranties made by it in §7 of the Credit Agreement (except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement (as amended by this Fourth Amendment) and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date), provided, that all references therein to the Credit Agreement shall refer to such Credit Agreement as amended hereby.  In addition, the Borrower hereby represents and warrants that the execution and delivery by the Borrower of this Fourth Amendment and the performance by the Borrower of all of its agreements and obligations under the Credit Agreement  as amended hereby are within the authority of the Borrower and have been duly authorized by all necessary action on the part of the Borrower.

§4.Ratification, Etc.  Except as expressly amended hereby, the Credit Agreement , the other Loan Documents (which, for the avoidance of doubt, shall included the Guarantees)  and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect.  The Credit Agreement and this Fourth Amendment shall be read and construed as a single agreement.  All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby.

§5.No Waiver.  Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Administrative Agent or the Lenders consequent thereon.

§6.Counterparts.  This Fourth Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.

§7.Governing Law.  THIS FOURTH AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS).

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IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment as a document under seal as of the date first above written.

KEANE, INC.
By:	/s/ John J. Leahy
		John J. Leahy
		Senior Vice President and Chief Financial Officer
FLEET NATIONAL BANK
By:	/s/ William S. Rowe
		Name: William S. Rowe
		Title: Principal
KEY CORPORATE CAPITAL INC.
By:	/s/ Jeff Kalinowski
		Name: Jeff Kalinowski
		Title: Sr. Vice President

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RATIFICATION OF GUARANTY

Each of the undersigned guarantors (the “Guarantors”) hereby acknowledges and consents to the foregoing Fourth Amendment as of March 31, 2005, and agrees that the Guaranty dated as of February 28, 2003 from each Guarantor to the Administrative Agent and each Lender remains in full force and effect, and each such Guarantor confirms and ratifies all of its obligations thereunder.

DATASKILLS, INC.
By:	/s/ John J. Leahy
	John J. Leahy, Treasurer
KEANE FEDERAL SYSTEMS, INC.
By:	/s/ John J. Leahy
	John J. Leahy, Treasurer
KEANE SECURITIES CORPORATION
By:	/s/ John J. Leahy
	John J. Leahy, Treasurer
KEANE BUSINESS TRUST
By:	/s/ Brian T. Keane
	Brian T. Keane, Trustee
KEANE CARE, INC.
By:	/s/ John J. Leahy
	John J. Leahy, Treasurer

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KEANE INDIA HOLDINGS, INC.
By:	/s/ John J. Leahy
	John J. Leahy, Treasurer

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EX-10.2

Exhibit 10.2

FIFTH AMENDMENT

TO

REVOLVING CREDIT AGREEMENT

Fifth Amendment dated as of July 11, 2005 to Revolving Credit Agreement (the “Fifth Amendment”), by and among KEANE, INC., a Massachusetts corporation (the “Borrower”) and BANK OF AMERICA, N.A. (as successor by merger to FLEET NATIONAL BANK) and the other lending institutions listed on Schedule 1 to the Credit Agreement (as hereinafter defined) (the “Lenders”), amending certain provisions of the Revolving Credit Agreement dated as of February 28, 2003 (as amended and in effect from time to time, the “Credit Agreement”) by and among the Borrower, the Lenders, and BANK OF AMERICA, N.A. (as successor by merger to FLEET NATIONAL BANK) in its capacity as administrative agent for the Lenders (the “Administrative Agent”).  Terms not otherwise defined herein which are defined in the Credit Agreement shall have the same respective meanings herein as therein.

WHEREAS, the Borrower and the Lenders have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this Fifth Amendment;

NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

§1.Amendment to §4 of the Credit Agreement.  Section 4 of the Credit Agreement is hereby amended as follows:

(a)Section 4.1.1 of the Credit Agreement is hereby amended by deleting §4.1.1 in its entirety and restating it as follows:

4.1.1.  Commitment to Issue Letters of Credit and Similar Instruments.  Subject to the terms and conditions hereof and the execution and delivery by the Borrower or, subject to the approval of the Lenders, a Subsidiary of the Borrower and countersigned by the Borrower, of a letter of credit application on the Administrative Agent’s customary form (an “LC Application”) or a similar application for the issuance of a bank guarantee on the Administrative Agent’s customary form (a “Bank Guarantee Application” and, collectively with the LC Application, a “Letter of Credit Application”), the Administrative Agent (including, for purposes of this §4, any affiliate or branch of the Administrative Agent) on behalf of the Lenders and in reliance upon the agreement of the Lenders set forth in §4.1.4 and upon the representations and warranties of the Borrower contained herein, agrees, in its individual capacity, to issue, extend and

renew for the account of the Borrower one or more standby or documentary letters of credit or bank guarantees (individually, a “Letter of Credit”), in such form as may be requested from time to time by the Borrower or a Subsidiary of the Borrower and agreed to by the Administrative Agent and in such currency other than Dollars as the Borrower or such Subsidiary may request and which is approved in writing by all of the Lenders; provided, however, that, after giving effect to such request, (a) the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not exceed the Dollar equivalent of $40,000,000 at any one time and (b) the sum of (i) the Maximum Drawing Amount on all Letters of Credit, (ii) all Unpaid Reimbursement Obligations, and (iii) the amount of all Revolving Credit Loans outstanding shall not exceed the Total Commitment at such time.   Notwithstanding anything to the contrary contained herein or in any Letter of Credit Application, to the extent the Borrower requests that the Administrative Agent issue a Letter of Credit on behalf of a Subsidiary of the Borrower, including, without limitation, those bank guarantees in favor of the Transport Ticketing Authority of the State of Victoria in an aggregate face amount of 45,000,000 Australian Dollars issued to support a certain contract obtained by one of the Borrower’s Subsidiary (the “Australian Bank Guarantees”), the Borrower agrees that the Reimbursement Obligation for such Letter of Credit shall be the obligation of the Borrower.

(b)Section 4.1.3 of the Credit Agreement is hereby amended as follows:

(i)by inserting immediately after the first sentence of §4.1.3 the following sentence:  “Each Lender hereby agrees that notwithstanding anything to the contrary contained in subparagraph (b) of this §4.1.3, the Borrower shall be permitted to request Letters of Credit be issued with an expiry date which is a date later than the date which is fourteen (14) days (or if the Letter is confirmed by a confirmer or otherwise provides for one or more nominated persons, forty-five (45) days) prior to the Revolving Credit Loan Maturity Date, provided, to the extent the Borrower requests a Letter of Credit be issued with an expiry date which is later than such fourteen (14) days (or forty-five (45) days, as the case may be) prior to the Revolving Credit Loan Maturity Date, the Borrower agrees to provide to the Administrative Agent cash collateral in an amount of not less than the Maximum Drawing Amount of each such Letter of Credit by a date which is not later than fourteen (14) days prior to the Revolving Credit Loan Maturity Date.  To the extent the Borrower fails to so provide such cash collateral by such date, it shall be deemed to have made a Loan Request for a Revolving Credit Loan in such amount, with the proceeds of such Revolving Credit Loan being disbursed directly to the Administrative Agent to hold as cash collateral for such Letters of Credit.  Each Lender hereby severally agrees that it shall be absolutely liable, without regard to the occurrence of any Default or Event of Default or any other condition precedent whatsoever, to the extent of such Lender’s Commitment Percentage, to fund such Revolving Credit Loan”; and

(ii)by deleting the words “Each Letter of Credit so issued, extended or renewed shall be subject to the Uniform Customs and Practices for Documentary Credits” which appear in §4.1.3. and substituting in place thereof the words “Each Letter of Credit other than a bank guarantee so issued, extended or renewed shall be subject to the Uniform Customs and Practices for Documentary Credits”.

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(b)Section 4.6 of the Credit Agreement is hereby amended by deleting the first sentence of §4.6 in its entirety and restating it as follows:  “The Borrower shall pay a fee (in each case, a “Letter of Credit Fee”) to the Administrative Agent in respect of each Letter of Credit in an amount equal to (a) in the case of all Letters of Credit other than the Australian Bank Guarantees, the Applicable Margin per annum with respect to Letter of Credit Fees of the face amount of such Letter of Credit; and (b) in the case of the Australian Bank Guarantees, one hundred twenty five basis points per annum with respect to Letter of Credit Fees of the face amount of such Australian Bank Guarantees, plus, in each case, an amount equal to one eighth of one percent (1/8%) per annum of the face amount of such Letter Credit which shall be for the account of the Administrative Agent, as a fronting fee, and the balance of which Letter of Credit Fee shall be for the accounts of the Lenders in accordance with their respective Commitment Percentages.”

§2.Conditions to Effectiveness.  This Fifth Amendment shall not become effective until the Administrative Agent receives a counterpart of this Fifth Amendment, executed by the Borrower, the Required Lenders and the Guarantors.

§3.Representations and Warranties.  The Borrower hereby repeats, on and as of the date hereof, each of the representations and warranties made by it in §7 of the Credit Agreement (except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement (as amended by this Fifth Amendment) and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date), provided, that all references therein to the Credit Agreement shall refer to such Credit Agreement as amended hereby.  In addition, the Borrower hereby represents and warrants that the execution and delivery by the Borrower of this Fifth Amendment and the performance by the Borrower of all of its agreements and obligations under the Credit Agreement  as amended hereby are within the authority of the Borrower and have been duly authorized by all necessary action on the part of the Borrower.

§4.Ratification, Etc.  Except as expressly amended hereby, the Credit Agreement , the other Loan Documents (which, for the avoidance of doubt, shall included the Guarantees)  and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect.  The Credit Agreement and this Fifth Amendment shall be read and construed as a single agreement.  All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby.

§5.No Waiver.  Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Administrative Agent or the Lenders consequent thereon.

§6.Counterparts.  This Fifth Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.

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§7.Governing Law.  THIS FIFTH AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS).

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IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment as a document under seal as of the date first above written.

KEANE, INC.
By:	/s/ John J. Leahy
	John J. Leahy
	Senior Vice President and Chief Financial Officer
BANK OF AMERICA, N.A. (as successor by merger to FLEET NATIONAL BANK)
By:	/s/ William S. Rowe
	Name: William S. Rowe
	Title: Principal
KEY CORPORATE CAPITAL INC.
By:	/s/ Jeff Kalinowski
	Name: Jeff Kalinowski
	Title: Senior Vice President

5

RATIFICATION OF GUARANTY

Each of the undersigned guarantors (the “Guarantors”) hereby acknowledges and consents to the foregoing Fifth Amendment as of July 11, 2005, and agrees that the Guaranty dated as of February 28, 2003 from each Guarantor to the Administrative Agent and each Lender remains in full force and effect, and each such Guarantor confirms and ratifies all of its obligations thereunder.

DATASKILLS, INC.
By:	/s/ John J. Leahy
	John J. Leahy, Treasurer
KEANE FEDERAL SYSTEMS, INC.
By:	/s/ John J. Leahy
	John J. Leahy, Treasurer
KEANE SECURITIES CORPORATION
By:	/s/ John J. Leahy
	John J. Leahy, Treasurer
KEANE BUSINESS TRUST
By:	/s/ Brian T. Keane
	Brian T. Keane, Trustee
KEANE CARE, INC.
By:	/s/ John J. Leahy
	John J. Leahy, Treasurer

KEANE INDIA HOLDINGS, INC.
By:	/s/ John J. Leahy
	John J. Leahy, Treasurer

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Brian T. Keane, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Keane, 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 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 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 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.

August 4, 2005	/s/ Brian T. Keane
	Brian T. Keane  President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, John J. Leahy, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Keane, 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 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 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 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.

August 4, 2005	/s/ John J. Leahy
	John J. Leahy  Senior Vice President of Finance and  Administration and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Keane, Inc. for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian T. Keane, the President and Chief Executive Officer of Keane, Inc., certify, 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, our financial condition and results of operation.

August 4, 2005	/s/ Brian T. Keane
	Brian T. Keane  President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Keane, Inc. for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John J. Leahy Senior Vice President of Finance and Chief Financial Officer, certify, 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, our financial condition and results of operation.

August 4, 2005	/s/ John J. Leahy
	John J. Leahy  Senior Vice President of Finance and  Administration and Chief Financial Officer