-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q/Y0/SpvUu/T8szZOKuaVSco+IH4QHqrduHoDcbrB9X3fkH4trsUfmCd5bV8sQ1S eCPC4mOkEwCysvZEwQlvxw== 0000927016-01-502202.txt : 20010808 0000927016-01-502202.hdr.sgml : 20010808 ACCESSION NUMBER: 0000927016-01-502202 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEANE INC CENTRAL INDEX KEY: 0000054883 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 042437166 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07516 FILM NUMBER: 1700041 BUSINESS ADDRESS: STREET 1: TEN CITY SQ CITY: BOSTON STATE: MA ZIP: 02129 BUSINESS PHONE: 6172419200 MAIL ADDRESS: STREET 1: TEN CITY SQ CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: KEANE ASSOCIATES INC DATE OF NAME CHANGE: 19800826 10-Q 1 d10q.txt FORM 10-Q FOR 06/30/2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 2001 --------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ COMMISSION FILE NUMBER 1-7516 KEANE, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2437166 (State or other jurisdictions of (I.R.S. Employer Identification incorporation or organization) Number) Ten City Square, Boston, Massachusetts 02129 (Address of principal executive offices) (Zip Code) Registrant's telephone number, (617) 241-9200 including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- As of June 30, 2001, the number of issued and outstanding shares of Common Stock (excluding 4,926,408 shares held in treasury) and Class B Common Stock are 67,519,693 and 284,891 shares, respectively. KEANE, INC. AND SUBSIDIARIES TABLE OF CONTENTS Part I - Financial Information Unaudited Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2001 and 2000................................. 3 Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000........................................................... 4 Unaudited Condensed Consolidated Statements of Cash Flows for six months ended June 30, 2001 and 2000................................................ 5 Notes to Unaudited Condensed Consolidated Financial Statements.............. 6 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................. 9 Part II - Other Information................................................. 15 Signature Page.............................................................. 17 2 KEANE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands except per share amounts) Three months ended SIX MONTHS ENDED JUNE 30, JUNE 30, 2001 2000 2001 2000 Total revenues $196,995 $221,799 $405,341 $438,007 Salaries, wages and other direct costs 137,787 155,232 282,936 309,806 Selling, general and administrative expenses 46,222 52,194 95,549 103,448 Amortization of goodwill and other intangible assets 3,476 2,720 6,938 5,609 -------- -------- -------- -------- Operating income 9,510 11,653 19,918 19,144 Interest and dividend income 1,718 2,163 3,343 4,306 Interest expense 81 146 194 332 Other (income) expenses, net (109) 270 (2,400) 453 -------- -------- -------- -------- Income before income taxes 11,256 13,400 25,467 22,665 Provision for income taxes 4,558 5,425 10,315 9,179 -------- -------- -------- -------- Net income $ 6,698 $ 7,975 15,152 $ 13,486 ======== ======== ======== ======== Net income per share (basic) $.10 $.11 $.22 $.19 ======== ======== ======== ======== Net income per share (diluted) $.10 $.11 $.22 $.19 ======== ======== ======== ======== Weighted average common shares outstanding (basic) 67,817 70,103 67,947 70,595 Weighted average common shares and common share 68,815 70,671 68,825 71,216 equivalents outstanding (diluted)
The accompanying notes are an integral part of the consolidated financial statements. 3 KEANE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS) JUNE 30, 2001 DECEMBER 31, 2000 Assets (UNAUDITED) Current: Cash and cash equivalents $ 81,827 $ 53,783 Marketable securities 77,913 59,179 Accounts receivable, net Trade 144,130 164,706 Other 1,371 1,428 Prepaid expenses and deferred taxes 18,001 15,533 -------- -------- Total current assets 323,242 294,629 Long term investments 250 2,250 Property and equipment, net 21,124 24,132 Goodwill, net 72,464 75,497 Other intangible assets, net 38,687 43,164 Deferred taxes and other assets, net 22,334 23,922 -------- -------- $478,101 $463,594 ======== ======== Liabilities Current: Accounts payable $ 11,971 $ 16,820 Accrued expenses and other liabilities 37,995 26,953 Accrued compensation 19,218 17,709 Notes payable - 5,006 Accrued income taxes 9,110 9,003 Unearned income 3,555 4,611 Current capital lease obligations 1,221 1,230 -------- -------- Total current liabilities 83,070 81,332 Deferred income taxes 5,863 9,205 Long-term portion of capital lease obligations 1,814 2,380 Stockholders' Equity Common Stock 7,245 7,245 Class B Common Stock 28 28 Additional paid-in capital 115,520 121,444 Accumulated other comprehensive income (2,596) (4,637) Retained earnings 359,126 343,974 Less treasury stock (91,969) (97,377) -------- -------- Total stockholders' equity 387,354 370,677 -------- -------- $478,101 $463,594 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 KEANE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) SIX MONTHS ENDED JUNE 30, Cash flows from operating activities: 2001 2000 Net income $ 15,152 $ 13,486 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,243 14,419 Deferred income taxes (1,051) (3,092) Provision for doubtful accounts 3,706 (3,732) Loss on sale of property and equipment 97 1,095 Loss on write down of equity investments 2,000 --- Gain on sale of business unit (4,302) --- Changes in operating assets and liabilities: Decrease in accounts receivable 16,927 29,292 (Increase) decrease in prepaid expenses and other assets (3,018) 4,081 Decrease in accounts payable, accrued expenses, and other liabilities, and unearned revenue (734) (16,698) Increase in income taxes payable 624 4,827 -------- -------- Net cash provided by operating activities 42,644 43,678 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (50,997) (14,376) Sale of investments 32,263 12,659 Purchase of property and equipment (5,645) (10,706) Proceeds from sale of business unit 16,087 48 Proceeds from the sale of property and equipment 172 --- Payment for prior year acquisitions (1,032) --- -------- -------- Net cash used for investing activities (9,152) (12,375) CASH FLOWS FROM FINANCING ACTIVITIES: Payments under long term-debt (5,006) (786) Principal payments under capital lease obligations (1,242) (712) Proceeds from issuance of common stock 3,529 1,772 Repurchase of common stock (4,045) (43,934) -------- -------- Net cash used for financing activities (6,764) (43,660) Effect of exchange rate changes on cash 1,316 --- Net decrease in cash and cash equivalents 28,044 (12,357) Cash and cash equivalents, beginning of period 53,783 53,018 -------- -------- Cash and cash equivalents at end of period $ 81,827 $ 40,661 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 Keane, Inc. and Subsidiaries NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands except per share amounts) Note 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principals for interim financial information and accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations for the interim periods reported and of the Company's financial condition as of the date of the interim balance sheet have been included. Operating results for the six-month period ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The balance sheet at December 31, 2000 has been derived from the audited 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. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Note 2. Computation of earnings per share for the three months and six months ended June 30, 2001 and 2000.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2001 2000 2001 2000 Net income $ 6,698 $ 7,975 $15,152 $13,486 Weighted average number of common 67,817 70,103 67,947 70,595 shares outstanding used in calculation of basic earnings per share Incremental shares from the assumed 998 568 878 621 exercise of dilutive stock options Weighted average number of common shares 68,815 70,671 68,825 71,216 outstanding used in calculation of diluted earnings per share Earnings per share Basic $ .10 $ .11 $ .22 $ .19 ======= ======= ======= ======= Diluted $ .10 $ .11 $ .22 $ .19 ======= ======= ======= =======
6 Keane, Inc. and Subsidiaries NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 3. The Company offers an integrated mix of end-to-end business solutions, such as Business and IT consulting (Plan), software development and integration services including e-Solutions (Build), and Application Development and Management Outsourcing (Manage). During the first six months of 2001 approximately 94% of the Company's revenues was derived from these offerings, with the balance from the healthcare industry. Effectively, the Company operates in one reportable segment. Note 4. Total comprehensive income (i.e. net income plus available-for-sale securities valuation adjustments and currency translation adjustments to stockholders equity) for the second quarter of 2001 was $7.5 million and $17.2 million year to date, and for the second quarter of 2000 was $7.0 million and $12.4 million year to date. Note 5. In the fourth quarter of 2000, the Company recorded a restructuring charge of $8.6 million. Of this charge $1.7 million related to a workforce reduction of approximately 200 employees, primarily consultants. In addition, the Company performed a review of its business strategy and concluded that consolidating some of its branch offices was key to its success. As a result of this review, the Company wrote off $3.4 million of assets, which became impaired as a result of this restructuring action. The total restructuring charge included $3.5 million for branch office closings and certain other expenditures. A summary of first and second quarter activity with respect to the restructuring charge is as follows: Branch Office Closures and Workforce Certain Other Reduction Expenditures Total --------- ------------- ------- Balance 12/31/00 $1,405 $4,927 $6,332 Cash Expenditures 1,405 890 2,295 Balance 3/31/01 - 4,037 4,037 Cash Expenditures - 440 440 Balance 6/30/01 $ 0 $3,597 $3,597 7 Note 6. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities", which required adoption in periods beginning after June 15, 1999. FAS 133 was subsequently amended by Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities- Deferral of the Effective Date of FASB Statement No. 133", which made FAS 133 effective for fiscal years beginning after June 15, 2000. Accordingly, the Company adopted FAS 133 in the first quarter of 2001. The adoption of FAS 133 did not have a significant impact on the Company's financial position or results of operations. In July 2001, the FASB issued FAS NO. 141, "Business Combinations" and FAS No. 142,"Goodwill and Other Intangible Assets." FAS 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 2001. FAS 141 further clarifies the criteria to recognize intangible assets separately from goodwill. The requirements of Statement 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001.Under FAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indictors arise) for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of Statement 142 apply to goodwill and intangible assets acquired after July 1, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, companies are required to adopt Statement 142 in their fiscal year beginning after December 15, 2001. Because of the different transition dates for goodwill and intangible assets acquired on or before June 30, 2001 and those acquired after that date, pre-existing goodwill and intangibles will be amortized during this transition period until adoption whereas new goodwill and indefinite lived intangible assets acquired after June 30, 2001 will not . The Company is currently in the process of evaluating the impact of FAS 142 will have on its financial position and results of operations. Note 7. On February 5, 2001, the Company completed the divestiture of its Help Desk operations in return for $15.7 million in cash. As a result of this transaction, the Company incurred a one-time gain of approximately $4.0 million, which is reflected in the Company's consolidated statements of income under the caption "Other (income) expense, net". 8 KEANE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Quarterly Report on Form 10-Q contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth below under the caption "Certain Factors That May Affect Future Results." RESULTS OF OPERATIONS - ---------------------- The Company's total revenue for the second quarter of 2001 was $197 million compared to total revenue of $210 million in the second quarter of 2000, excluding revenue associated with the Company's Help Desk operations, which was divested during the first quarter of 2001, and business unit closures as a result of the Company's restructuring efforts last year, or $221.8 million in the second quarter of 2000 including these businesses. Keane's revenue in the second quarter was impacted by a difficult economic environment for IT services. However, this was partially offset by increased revenue from the Company's Application Development and Management (ADM) Outsourcing service, which represented 52% of total revenue during the second quarter of 2000 or $102 million, an increase of 8% from $94.9 million during the second quarter of 2000. For the second quarter of 2001, total revenue from the Company's Plan Services, was $19.2 million, down from Plan revenue of $27.4 million for the second quarter of last year. Plan revenue is primarily comprised of business innovation consulting delivered via Keane Consulting Group (KCG), the Company's business consulting arm, and IT consulting services, which are sold and implemented out of Keane's network of branch offices. Plan revenue for the quarter was impacted by project deferrals and cancellations in IT consulting projects delivered from Keane's network of branch offices resulting from a general decrease in spending on IT consulting projects. However, KCG experienced both improved sales and employee utilization for its business innovation consulting services during the quarter. Second quarter 2001 revenue from the Company's Build Services was $70.6 million, down from $81.7 million in the second quarter of 2000. Build revenue, which consists primarily of application development and integration business, has also been affected by the slowdown in demand for IT services in Keane's operations in both North America and the United Kingdom. However, Keane was able to limit the impact of this slowdown by continuing to generate substantial Build project revenue from its existing Global 2000 customer base, public sector Federal and State governments, and by focusing on high ROI Enterprise Application Integration projects. Revenue from the Company's Manage services, which consists primarily of its flagship ADM Outsourcing service, grew to $107.2 million during the second quarter of 2001, up 4% from $102.9 million during the second quarter of 2000, excluding the divested Help Desk operation. Revenue from the Company's Help Desk operations was approximately $9.8 million during the second quarter of 2000. 9 Revenue associated with business unit closures as a result of the Company's restructuring efforts announced last year represented approximately $2 million in revenue during second quarter of 2000. This $2 million has been included in reported Plan, Build, and Manage revenue for the second quarter of 2000. Total revenue for the six months ended June 30, 2001 was $400.1 million, compared with $412.3 million for the first half of 2000, excluding revenue associated with Keane's divested Help Desk operation and business unit closures as a result of the Company's restructuring efforts last year, or $405.3 million for the first half of 2001 versus $438 million in the first half of 2000 including these businesses. Keane's ADM Outsourcing service represented 50% of revenue during the first half of 2001, and grew to $202.1 million, up 12% from $180.1 million during the first six months of 2000. Plan, Build, and Manage revenue for the first half of 2001 was $39.9 million, $146.7 million, and $218.7 million, respectively, as compared to $58.9 million, $161.2 million, and $212.5 million, respectively, during the first half of 2000. Excluding Help Desk operations, Manage revenue, was $113.5 million for the first six months of 2001, up 8% from comparable Manage revenue during the first half of 2000. This increase in Keane's Manage revenue was driven by the Company's ADM Outsourcing business, which has not been impacted by the recent slowdown in the economy and reduction in IT spending patterns, and in fact, has continued to grow. Based on the increase in ADM Outsourcing bookings and growth of the sales pipeline during the second quarter, the Company anticipates that this business will continue to expand. Although the Company has experienced improved sales and employee utilization within Keane Consulting Group, which is part of its Plan business, as of the end of the second quarter, it has observed no indication of a healthier economic climate or normalized IT spending. As a result, Keane anticipates continued softness in its Application Development and Integration business, which represents a majority of its Build sector. However, the Company expects to maintain a substantial stream of revenue from such business due to its broad range of development and integration services, strong customer loyalty, and business from the less cyclical public sector. Salaries, wages and other direct costs for the second quarter of 2001 were $137.8 million, or 69.9% of total revenue, compared to $155.2 million, or 70.0% of total revenue, for the second quarter of 2000. The decline in actual expenditures is a result of the sale of the company's help desk operations and its restructuring efforts announced last year to bring cost in alignment with revenue. As a result, Keane's gross margins for the second quarter of 2001 grew slightly to 30.1%, up 100 basis points, from 30.0% during the second quarter of 2000. For the first six months ended June 30, 2001, salaries, wages and other direct costs were $282.9 million, or 69.8% of total revenue, compared to $309.8 million, or 70.7% of total revenue for the first half of 2000. As a result, Keane's gross margins for the first six months of 2001 grew to 30.2%, up 900 basis points, from 29.3% during the first six months of 2000. Selling, General & Administrative ("SG&A") expense for the second quarter of 2001 was $46.2 million, or 23.5% of total revenue, compared to $52.2 million, or 23.5% of total revenue, for the second quarter last year. For the first six months of 2001 SG&A expense was $95.5 million, or 23.6% of total revenue, versus $103.4 million, or 23.6% of total revenue for the first six months of 2001. The decline in actual expenditures for both the second quarter and the first six months of 2001 is a result of the sale of the Company's Help Desk operations and aggressive control of discretionary spending to bring cost in alignment with 10 revenue. The Company will seek to continue to aggressively control discretionary expenditures until economic conditions improve and IT spending patterns become more positive. Amortization of goodwill and other intangible assets for the second quarter of 2001 was $3.5 million, or 1.8% of revenue, compared to $2.7 million, or 1.2% of revenue, in the second quarter of 2000. For the first six months of 2001, amortization of goodwill and other intangible assets was $6.9 million, or 1.7% of total revenue, compared to $5.6 million, or 1.3% of total revenue, for the first six months of 2000. The increase in amortization for both the second quarter and the first six months of 2001 was attributable to additional intangible assets as a result of the Company's acquisitions of Denver Management Group and Care Computer Systems in July and September of last year. Interest and dividend income totaled $1.7 million for the second quarter of 2001, compared to $2.2 million for the same period last year. Interest and dividend income for the first six months of 2001 totaled $3.3 million, compared to $4.3 million for the same period last year. The decrease in interest and dividend income was attributable to lower yields from investments. Interest expense and other income for the second quarter of 2001 was $30 thousand, as compared to $ .4 million of expense for the second quarter of 2000. For the first six months of 2001, interest expense and other income was $2.2 million, as compared to $ .8 million of expense for the first six months of 2000. This increase was the result of a gain of $4 million from the sale of Keane's help desk operation, and the Company's decision to write-off certain equity investments totaling $2.1 million during the first quarter of 2001. The Company's effective tax rate was 40.5% for the second quarter and first six months of 2001 and 2000. Net income for the second quarter of 2001 was $6.7 million, down 16% from $8 million in net income for the second quarter of 2000, resulting primarily from decreased spending on IT services. However, net income for the first six months of 2001 was $15.2. million, up 12% from $13.5 million in net income for the first six months of 2000. Diluted earnings per share for the second quarter of 2001 was $.10, down slightly from $.11 during the same period a year ago. For the first six months, diluted earnings per share was $.22, up from $.19 during the first six months of 2000. Net cash provided from operations was $20.4 million during the second quarter of 2001, and $42.6 million during the first six months of 2001, before proceeds from the sale of the help desk business of $16.1 and the investment of $4 million for the repurchase of Keane shares. The Company is focused on continuing to optimize cash flow in order to fund potential mergers and acquisitions, stock repurchases, and to build long-term "per share" value. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company's cash and investments at the end of the second quarter increased to $160.0 million as compared to a balance of $145.6 million at the close of the first quarter. This increase was primarily attributable to the decrease in accounts receivable as a result of the Company's efforts to decrease its Days Sales Outstanding ("DSO"). The Company's DSO at the end of the second quarter was 72 days compared to the year- end DSO of 77 days. On February 21, 2001, the Company announced that it had increased the share repurchase authorization under the Company's July 26, 2000 share repurchase program by an additional one million shares. The remaining 869,000 shares available for repurchase under 11 existing authorization brings the total number of shares authorized for repurchase to 1,869,000 shares as of February 21, 2001. During the first quarter, the Company purchased 326,200 shares of Common Stock at a cost of approximately $4.0 million. There were no shares repurchased during the second quarter. During the quarter the Company paid $.4 million associated with the fourth quarter restructuring charge. The payments were primarily related to branch office closures. The Company maintains and has available a $10 million unsecured demand line of credit with a major Boston bank for operations and acquisitions opportunities. Based on the Company's current operating plan, the Company believes that its cash and cash equivalents on hand, cash flows from operations, and its current available line of credit will be sufficient to meet its current capital requirements for at least in the next twelve months. 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 the Company are based on the cost of labor and market conditions within the industry. The Company was able to increase its billing rates over its increases in direct labor costs in 1999. This is due primarily to the Company's increase in strategic services such as business innovation consulting and e-solutions, in which the high value of services commands higher rates. 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. Fluctuations in Operating Results. Keane has experienced and expects to - --------------------------------- continue to experience fluctuations in its quarterly results. Keane's gross margins vary based on a variety of factors including employee utilization rates and the number and type of services performed by Keane during a particular period. A variety of factors influence Keane's revenue in a particular quarter, including: . general economic conditions which may influence investment decisions or cause downzing; . the number and requirements of client engagements; . employee utilization rates; . changes in the rates Keane can charge clients for services; . acquisitions; and . other factors, many of which are beyond Keane's control. A significant portion of Keane's expenses does not vary relative to revenue. As a result, if revenue in a particular quarter does not meet expectations, Keane's operating results could be materially adversely affected, which in turn may have 12 a material adverse impact on the market price of Keane common stock. In addition, many of Keane's 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. Risks Relating to Acquisitions. In the past five years, Keane has grown - ------------------------------ significantly through acquisitions. Since January 1, 1999, Keane has completed the acquisitions of Emergent Corporation in San Mateo, California, Amherst Consulting Group, Inc, in Boston, Massachusetts, Advanced Solutions Inc. in New York, New York, Anstec, Inc. of McLean, Virginia, First Coast Systems, Inc. of Jacksonville, Florida, Parallax Solutions Limited, of Birmingham, England, Denver Management Group, of Denver, Colorado and Care Computer Systems, Inc. of Bellevue, Washington. Keane's future growth may be based in part on selected acquisitions. At any given time, Keane may be in various stages of considering such opportunities. Keane can provide no assurances that it will be able to find and identify desirable acquisition targets or that it will be successful in entering into a definitive agreement with any one target. Also, even if a definitive agreement is reached, there is no assurance that any future acquisition will be completed. Keane typically anticipates that each acquisition will bring certain benefits, such as an increase in revenue. Prior to completing an acquisition, however, it is difficult to determine if such benefits can actually be realized. Accordingly, there is a risk that an acquired company may not achieve an increase in revenue or other benefits for Keane. In addition, an acquisition may result in unexpected costs, expenses and liabilities and may be dilutive to Keane shareholders. Any of these events could have a material adverse effect on Keane's business, financial condition and results of operations. The process of integrating acquired companies into Keane's existing business may also result in unforeseen difficulties. Unforeseen operating difficulties may absorb significant management attention, which Keane might otherwise devote to its existing business. Also, the process may require significant financial resources that Keane might otherwise allocate to other activities, including the ongoing development or expansion of Keane's existing operations. Finally, future acquisition could result in Keane having to incur additional debt and/or contingent liabilities. All of these possibilities might have a material adverse effect on Keane's business, financial condition and result of operations. Dependence on Personnel. Keane believes that its future success will depend in - ----------------------- large part on its ability to continue to attract and retain highly skilled technical and management personnel. The competition for such personnel is intense. Keane may not succeed in attracting and retaining the personnel necessary to develop its business. If Keane does not, its business, financial condition and result of operations could be materially adversely affected. Highly Competitive Market. The market for Keane's services is highly - ------------------------- competitive. The technology for custom software services can change rapidly. The market is fragmented. Consequently, Keane's competition for client assignments and experienced personnel varies significantly from city to city and by the type of service provided. Some of Keane's competitors are larger and have greater technical, financial and marketing resources and greater name recognition in the markets they serve than does Keane. In addition, clients may elect to increase their internal information systems resources to satisfy their custom software development needs. 13 Keane believes that in order to compete successfully in the software services industry it must be able to: . compete cost-effectively; . develop strong client relationships; . generate recurring revenues; . utilize comprehensive delivery methodologies; and . achieve organizational learning by implementing standard operational processes. In the healthcare software systems market, Keane competes with some companies that are larger in the healthcare market and have greater financial resources than Keane. Keane believes that significant competitive factors in the healthcare software systems market include size and demonstrated ability to provide service to targeted healthcare markets. Keane may not be able to compete successfully against current or future competitors. In addition, competitive pressures faced by Keane may materially adversely affect its business, financial condition and results of operations. International Operations. Keane's international operations are subject to - ------------------------ political and economic uncertainties, currency exchange rate fluctuations, foreign exchange restrictions, changes in taxation and other difficulties in managing operations overseas. Keane may not be successful in its international operations. As a result of these and other factors, the Company's past financial performance should not be relied on as an indication of future performance. Keane believes that period to period comparisons of its financial results are not necessarily meaningful and it expects that results of operations may fluctuate from period to period in the future. Quantitative and Qualitative Disclosures about Market Risk. The Company does - ---------------------------------------------------------- not engage in trading market risk sensitive instruments or purchasing hedging instruments or other trading instruments that are likely to expose the Company to market risk, whether interest rate, foreign currency exchange, and commodity price or equity price risk. The Company has not purchased options or entered into swaps or forward or futures contracts. The Company's primary market risk exposure is that of interest rate risk on its investments, which would affect the carrying value of those investments. Additionally, the Company transacts business in the United Kingdom and as such has exposure associated with movement in foreign currency exchange rates. 14 KEANE, INC. AND SUBSIDIARIES Part II - Other Information - -------------------------------------------------------------------------------- Item 4. Submission of Matters to a Vote of Security Holders The following matters were submitted to a vote of the stockholders at the 2001 Annual Meeting of Stockholders of the Company held on May 30, 2001 (the "Annual Meeting"): (1) fixing the number of directors at seven and electing the nominees listed below to the Board of Directors for the ensuing year, (2) approving the adoption of the Company's 2001 Stock Incentive Plan, (3) approving an amendment to the Company's 1992 Employee Stock Purchase Plan to increase the number of shares authorized for issuance under such plan from 2,550,000 to 4,550,000, and (4) ratifying and approving the selection by the Board of Directors of Ernst & Young LLP as the Company's independent accountants for the current year. The number of shares of Common Stock and Class B Common Stock issued, outstanding and eligible to vote as of the record date of April 2, 2001 was 67,499,400 shares and 284,891 shares, respectively. Each of these matters were approved by the requisite vote of the 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 each such matter, including a separate tabulation with respect to each nominee for director: Proposal #1 - To fix the number of directors at seven and to elect a Board of Directors for the ensuing year. FOR WITHHELD ABSTAIN NON-VOTES John F. Keane 58,725,520 1,627,024 Brian T. Keane 59,115,434 1,237,110 John F. Keane, Jr. 58,870,265 1,482,279 John F. Rockart 59,688,292 664,252 Robert A. Shafto 59,688,297 664,247 Winston R. Hindle, Jr. 59,680,193 672,351 Philip J. Harkins 58,727,589 1,624,955 Proposal #2 - To approve the adoption of the Company's 2001 Stock Incentive Plan. BROKER FOR AGAINST ABSTAIN NON-VOTES 32,863,397 17,364,207 989,617 9,135,323 15 Proposal #3 - To approve an amendment to the Company's 1992 Employee Stock Purchase Plan to increase the number of shares authorized for issuance under such plan from 2,550,000 to 4,550,000. BROKER FOR AGAINST ABSTAIN NON-VOTES 48,922,484 1,336,994 957,743 9,135,323 Proposal #4 - To ratify and approve the selection by the Board of Directors of Ernst & Young LLP as the Company's independent accountants for the current year. BROKER FOR AGAINST ABSTAIN NON-VOTES 59,804,020 456,962 91,561 1 Item 5. Exhibits and Reports on Form 8-K (a) Exhibits - 10.1 Amended and Restated Guidance Promissory Note (b) Reports on Form 8-K. The Registrant filed no Current Reports on Form 8-K during the quarter ended June 30, 2001. 16 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) August 7, 2001 /s/ Brian T. Keane Date __________________________ ___________________________________ Brian T. Keane President and Chief Executive Officer August 7, 2001 /s/ John J. Leahy Date __________________________ ___________________________________ John J. Leahy Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 17 EX-10.1 3 dex101.txt AMENDED AND RESTATED GUIDANCE PROMISSORY NOTE Exhibit 10.1 AMENDED AND RESTATED GUIDANCE PROMISSORY NOTE $10,000,000.00 Date: _____________, _______ FOR VALUE RECEIVED, KEANE, INC. (the "Borrower"), a Massachusetts corporation with a principal place of business at 10 City Square, Boston, Massachusetts, hereby promises to pay to the order of FLEET NATIONAL BANK, a national banking association (the "Bank") at the office of the Bank at 100 Federal Street, Boston, Massachusetts 02110, or at such other address as the holder hereof may designate, the principal sum of TEN MILLION DOLLARS ($10,000,000.00), or the aggregate unpaid principal amount of all Advances made by the Bank to the Borrower hereunder (collectively, the "Advances" and each individually, an "Advance"), whichever is less, in lawful money of the United States in immediately available funds, and to pay interest on each Advance as set forth below and to pay all taxes levied or assessed upon said Advances against any holder of this Note and to pay all costs, including attorneys' fees, costs relating to the appraisal and/or valuation of assets and all costs incurred in the collection, defense, preservation, administration, enforcement or protection of this Note or in any guaranty or endorsement of this Note, or in any litigation arising out of the transactions of which this Note or any guaranty or endorsement of this Note is a part. All payments, including any prepayments, shall be applied first to the payment of all fees, expenses and other amounts due to the Bank (excluding principal and interest), then to accrued interest, and the balance on account of outstanding principal; provided, however, that after default, payments will be applied to the obligations of the Borrower to the Bank as the Bank determines in its sole discretion. This Note has been executed and delivered subject to the following terms and conditions: 1. ADVANCES. (a) Pursuant to the terms of this Note and upon satisfaction of the conditions precedent referred to herein, the Borrower may, in its sole discretion, borrow from the Bank, Advances not to exceed the aggregate principal amount of Ten Million Dollars ($10,000,000.00) at any one time outstanding. The Borrower may request such Advances on any Business Day from the date hereof up to and including July 30, 2002 (as such date may be extended, in writing from time to time, in the Bank's sole and absolute discretion, the "Termination Date"). This Note does not constitute a commitment to make Advances to the Borrower, and the making of an Advance at any time shall not be deemed a waiver of, or consent, agreement or commitment by the Bank to the making of any future Advance to the Borrower. Advances may be Prime Rate Advances (defined below) or Fixed Rate Advances (defined below), at the Borrower's option. (b) If any Advance is made, the Bank may, at its option, record on the books and records of the Bank or endorse on Schedule 1 hereto, an appropriate notation evidencing any Advance, the interest rate applicable to such Advance, the date such Advance is due, each repayment on account of the principal thereof, and the amount of interest paid; and the Borrower authorizes the Bank to maintain such records or make such notations and agrees that the amount shown on the books and records or on said Schedule 1, as applicable, as outstanding from time to time shall constitute the amount owing to the Bank pursuant to this Note, absent manifest error. In the event the amount shown on Schedule 1 conflicts with the amount noted as due pursuant to the books and records of the Bank, the books and records of the Bank shall control the disposition of the conflict. 2. REPAYMENT OF ADVANCES. (a) The Borrower shall repay the aggregate unpaid principal amount of all Prime Rate Advances made by the Bank at the earlier of (i) the date such Advance is due as set forth on Schedule 1 hereto and/or on the Bank's books and records, as the case may be, or (ii) ON DEMAND, but if not sooner demanded, demand shall be deemed to be made on the Termination Date; (b) The Borrower shall repay each Fixed Rate Advance at the earlier of (i) the date such Fixed Rate Advance is due as agreed to by the Bank and the Borrower at the time of such Fixed Rate Advance and as set forth on Schedule 1 hereto and/or on the Bank's books and records, as the case may be, or (ii) ON DEMAND, but if not sooner demanded, demand shall be deemed to be made on the Termination Date. The Bank is hereby authorized (but not required) to charge principal and interest due on this Note and all other amounts due hereunder to any account of the Borrower when and as it becomes due. All payments shall be made by the Borrower to the Bank at 100 Federal Street, Boston, Massachusetts 02110 or such other place as the Bank may from time to time specify in writing in lawful currency of the United States of America in immediately available funds, without counterclaim or setoff and free and clear of, and without any deduction or withholding for, any taxes or other payments. As used herein, "Business Day" shall mean any day other than a Saturday, Sunday or day which shall be in the Commonwealth of Massachusetts and a legal holiday or day on which banking institutions are required or authorized to close. If this Note or any payment hereunder becomes due on a day which is not a Business Day, the due date of this Note or payment shall be extended to the next succeeding Business Day, and such extension of time shall be included in computing interest and fees in connection with such payment. 3. INTEREST RATE; ADDITIONAL CHARGES; FEE. (a) The Bank shall notify the Borrower of the interest rate applicable to each Advance. If an Advance bears interest at a variable per annum rate equal to the Prime Rate ("Prime Rate Advance") such Advance will be payable monthly on the first day of each month, commencing on the first of such dates next succeeding such Prime Rate Advance and upon payment of such Prime Rate Advance. If an Advance bears interest at a per annum fixed rate agreed upon by the Borrower and the Bank ("Fixed Rate Advance") such Advance will be due and payable as set forth on Schedule 1 hereto and interest thereon will be payable monthly, commencing on the corresponding day of the month immediately succeeding the date of such Fixed Rate Advance, and on said due date. After the due date of any Fixed Rate Advance as defined in Section 2(b)(i) above or upon the failure to pay any Fixed Rate Advance or any Prime Rate Advance on demand or after judgment has been rendered on this Note, the unpaid principal balance of all Advances shall, at the option of the Bank, bear interest at a rate which is four (4) percentage points per annum greater than the Prime Rate. As used herein, the term "Prime Rate" shall mean the variable per annum rate of interest so designated from time to time by the Bank as its prime rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any borrower. Changes in the rate of interest resulting from changes in the Prime Rate shall take place immediately without notice or demand of any kind. Interest on this Note shall be computed on the basis of a 360-day year and actual days elapsed. (b) If the Bank shall deem applicable to this Note, (including, in each case, any borrowed and any unused portion thereof), any requirement of any law of the United States of America, any regulation, order, interpretation, ruling, official directive or guideline (whether or not having the force of law) of the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation or any other board or governmental or administrative agency of the United States of America which shall impose, increase, modify or make applicable to this Note or cause this Note to be included in any reserve, special deposit, calculation used in the computation of regulatory capital standards, assessment or other requirement which imposes on the Bank any cost that is attributable to the maintenance thereof, then, and in each such event, the Borrower shall promptly pay the Bank, upon its demand, such amount as will compensate the Bank for any such cost, which determination may be based upon the Bank's reasonable allocation of the aggregate of such costs resulting from such events. In the event any such cost is a continuing cost, a fee payable to the Bank may be imposed upon the Borrower periodically for so long as any such cost is deemed applicable to the Bank, in an amount determined by the Bank to be necessary to compensate the Bank for any such cost, which determination may be based upon the Bank's reasonable allocation of the aggregate of such costs resulting from such events. The determination by the Bank of the existence and amount of any such additional costs shall, in the absence of manifest error, be conclusive. (c) All agreements between the Borrower and the Bank are hereby expressly limited so that in no contingency or event whatsoever shall the amount paid or agreed to be paid to the Bank for the use or the forbearance of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof; provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then this Note shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of the Borrower and the Bank in the execution, delivery and acceptance of this Note to contract in strict compliance with the laws of the Commonwealth of Massachusetts from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof at the time of performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law, then the obligation to be fulfilled shall automatically be reduced to the limits of such validity, and if under or from circumstances whatsoever the Bank should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest. This provision shall control every other provision of all agreements between the Borrower and the Bank. 4. LATE CHARGE. If the entire amount of any required principal and/or interest is not paid in full within ten (10) days after the same is due, the Borrower shall pay to the Bank a late fee equal to five percent (5%) of the required payment. -2- 5. PAYMENTS; CHARGES. The Borrower may not prepay any Fixed Rate Advance prior to the due date noted on Schedule 1 with respect to such Fixed Rate Advance. In the event that a prepayment of a Fixed Rate Advance is permitted or required hereunder, the Borrower shall pay to Bank a yield maintenance fee in an amount computed as follows: The current rate for United States Treasury securities (bills on a discounted basis shall be converted to a bond equivalent) with a maturity date closest to the due date of the term chosen pursuant to the Fixed Rate Advance as to which the prepayment is made, shall be subtracted from the "Cost of Funds" or "LIBOR", as applicable, component of the fixed rate in effect at the time of prepayment. If the result is zero or a negative number, there shall be no yield maintenance fee. If the result is a positive number, then the resulting percentage shall be multiplied by the amount of the principal balance being prepaid. The resulting amount shall be divided by 360 and multiplied by the number of days remaining in the term chosen pursuant to the Fixed Rate Advance as to which the prepayment is made. Said amount shall be reduced to present value calculated by using the above-referenced United States Treasury securities rate and the number of days remaining in the term chosen pursuant to the Fixed Rate Advance as to which the prepayment is made. The resulting amount shall be the yield maintenance fee due to Bank upon prepayment of the Fixed Rate Advance. "Cost of Funds" as used herein shall mean the per annum rate of interest which the Bank is required to pay, or is offering to pay, for wholesale liabilities of like tenor, adjusted for reserve requirements and such other requirements as may be imposed by federal, state, or local government and regulatory agencies, as determined by the Bank. "LIBOR" as used herein shall mean, as applicable to any LIBOR loan ("LIBOR Loan") the rate per annum (rounded upward, if necessary, to the nearest 1/32 of one percent) as determined on the basis of the offered rates for deposits in U.S. dollars, for a period of time comparable to such LIBOR Loan which appears on the Telerate page 3750 as of 11:00 a.m. London time on the day that is two (2) Business Days preceding the first day of such LIBOR Loan; provided, however, if the rate described above does not appear on the Telerate System on any applicable interest determination date, the LIBOR rate shall be the rate (rounded upwards as described above, if necessary), for deposits in dollars for a period substantially equal to the interest period on the Reuters Page "LIBO" (or such other page as may replace the LIBO Page on that service for the purpose of displaying such rates), as of 11:00 a.m. (London time), on the day that is two (2) Business Days prior to the beginning of such interest period. If both the Telerate and Reuters systems are unavailable, then the rate for that date will be determined on the basis of the offered rates for deposits in U.S. dollars for a period of time comparable to such LIBOR Loan which are offered by four major banks in the London interbank market at approximately 11:00 a.m. London time, on the day that is two Business Days preceding the first day of such LIBOR Loan as selected by the Bank. The principal London office of each of the four major London banks will be requested to provide a quotation of its U.S. dollar deposit offered rate. If at least two such quotations are provided, the rate for that date will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that date will be determined on the basis of the rates quoted for loans in U.S. dollars to leading European banks for a period of time comparable to such LIBOR Loan offered by major banks in New York City at approximately 11:00 a.m. New York City time, on the day that is two Business Days preceding the first day of such LIBOR Loan. In the event that the Bank is unable to obtain any such quotation as provided above, it will be deemed that LIBOR pursuant to a LIBOR Loan cannot be determined. In the event that the Board of Governors of the Federal Reserve System shall impose a Reserve Percentage with respect to LIBOR deposits of the Bank, then for any period during which such Reserve Percentage shall apply, LIBOR shall be equal to the amount determined above divided by an amount equal to 1 minus the Reserve Percentage. The Borrower may repay any Prime Rate Advance at any time in whole or in part without penalty or premium. If, at any time, the aggregate principal amount of all Advances outstanding under this Note shall exceed the maximum amount permitted by this Note, the Borrower shall immediately repay so much of the outstanding principal balance, together with accrued interest on the portion of principal so repaid, as shall be necessary in order that the unpaid principal balance, after giving effect to such prepayments, shall not be in excess of the maximum amount permitted by this Note. All such payments shall be applied first to the payment of all interest accrued to the date of payment and the remainder to the principal balances as instructed by the Borrower. 6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Bank (which representations and warranties will survive the delivery of this Note and the making of the Advances and shall be deemed to be continuing until this Note is fully paid) that: (a) Corporate Existence and Power. The Borrower is, and will continue to be, ----------------------------- a corporation duly organized, validly existing and in good standing under the laws of its state of organization and is duly qualified and in good standing to -3- do business in all other jurisdictions in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, and it has the corporate power to execute and deliver this Note and to borrow hereunder. The Borrower has all requisite permits, authorizations and licenses, without unusual restrictions or limitations, to own, operate and lease its properties and to conduct the business in which it is presently engaged, all of which are in full force and effect. (b) Corporate Authority. The making and performance by the Borrower of this ------------------- Note has been duly authorized by all necessary corporate action. The execution and delivery of this Note, the consummation of the transactions herein contemplated, the fulfillment of or compliance with the terms and provisions hereof and of each and every other instrument, agreement or document required to be executed and delivered to the Bank by the Borrower in connection with the extension of credit evidenced hereby, are within its powers and will not violate any provision of law or of its charter or By-Laws or result in the breach of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any property or assets of the Borrower pursuant to any indenture or bank loan or credit agreement, other than pursuant to this Note, or other agreement or instrument to which the Borrower is a party. No approval, authorization, consent or other order of or registration or filing with any governmental body is required in connection with the making and performance of this Note. (c) Information Complete. Subject to any limitations stated therein or in -------------------- connection therewith, all information furnished or to be furnished by the Borrower pursuant to the terms hereof, is, or will be at the time the same is furnished, accurate and complete in all material respects necessary in order to make the information furnished, in the light of the circumstances under which such information is furnished, not misleading. (d) Statutory Compliance. The Borrower is in compliance with all federal, -------------------- state, county and municipal laws, ordinances, rules or regulations applicable to it, its property or the conduct of its business, including, without limitation, those pertaining to or concerning the public health, safety and the environment. (e) Litigation. No proceedings by or before any private, public or ---------- governmental body, agency or authority and no litigation is pending, or so far as is known to the Borrower or any of its officers, threatened against it, except such proceedings or litigation which, if adversely determined, would not have a material adverse effect on the assets, liabilities, business or financial condition of the Borrower. (f) Validity. This Note, upon the execution and delivery hereof, will be the -------- legal, valid, binding and enforceable obligation of the Borrower or the person executing the same, as the case may be, in accordance with its terms. (g) Taxes. The Borrower has filed all tax returns and reports required to be ----- filed by it with all federal, state or municipal authorities and has paid in full or made adequate provision of the payment of all taxes, interest, penalties, assessments or deficiencies shown to be due or claimed to be due on or in respect of such tax returns and reports. 7. CONDITIONS PRECEDENT. (a) The initial Advance hereunder may be made in the sole discretion of the Bank, but in any event shall be subject to the following conditions precedent: (i) Approval of Bank Counsel. All legal matters incident to the transactions ------------------------ hereby contemplated shall be satisfactory to counsel for the Bank; and (ii) Proof of Corporate Action. The Bank shall have received certified copies ------------------------- of all corporate action taken by the Borrower to authorize the execution and delivery of this Agreement and the Note and the borrowings hereunder and such other papers as the Bank or its counsel shall reasonably request; and (b) Any subsequent Advance hereunder may be made by the Bank in the sole discretion of the Bank, but in any event shall be subject to the following conditions precedent that: -4- (i) No Material Adverse Change. There has been no material adverse change (as -------------------------- determined solely by the Bank) in the assets, liabilities, financial condition or business of the Borrower since the date of any financial statements delivered to the Bank before or after the date of this Agreement; and (ii) Representations and Warranties. That the representations and warranties ------------------------------ continued herein are true and correct, and that an officer of the Borrower shall have so certified to the Bank. Any request for a borrowing shall be deemed a certification by the Borrower as to the truth and accuracy of the representations and warranties contained herein. 8. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that from the date hereof until payment full of this Note, unless the Bank otherwise consents in writing, the Borrower shall: (a) Financial Statements. The Borrower shall deliver to the Bank (i) within -------------------- sixty (60) days after close of each quarter of each fiscal year of the Borrower, a balance sheet of the Borrower as of the close of each quarter and statements of income and retained earnings for that portion of the fiscal year-to-date then ended, prepared in conformity with generally accepted accounting principles, applied on a basis consistent with that of the preceding period or containing disclosure of the effect on financial position or results of operations of any change in the application of generally accepted accounting principles during the period, and certified by the president or the chief financial officer of the Borrower as accurate, true and complete; (ii) within one hundred twenty (120) days after the close of each fiscal year of the Borrower, financial statements, including a balance sheet as of the close of such fiscal year and statements of income and retained earnings and cash flows for the year then ended, prepared in conformity with generally accepted accounting principles, applied on a basis consistent with that of the preceding year or containing disclosure of the effect on financial position or results of operations of any change in the application of accounting principles during the year and accompanied by a report thereon, containing an opinion, unqualified as to scope, of a firm of independent certified public accountants selected by the Borrower and acceptable to the Bank; (iii) promptly upon the Bank's written request, such other information about the financial condition, business and operations of the Borrower as the Bank may, from time to time, reasonably request. (b) Compliance with Laws; Tax and Other Liens. Comply with all federal, ----------------------------------------- state, county and municipal laws, rules, ordinances and regulations applicable to it, its business or its property, including without limitation, those pertaining to or concerning public health, safety and the environment. Pay all taxes, assessments, governmental charges or levies, or claims for labor, supplies, rent and other obligations made against it or its property which, if unpaid, might become a lien or charge against the Borrower or its property, except liabilities being contested in good faith with the prior written consent of the Bank. (c) Litigation. Promptly advise the Bank of the commencement of or threat of ---------- litigation, including arbitration proceedings and any proceedings before any governmental agency, which might have a material adverse effect upon the condition (financial, operating or otherwise) of the Borrower. (d) Maintenance of Existence. Continue to conduct its business as presently ------------------------ conducted, maintain its existence and comply with all valid and applicable statutes, rules and regulations, and maintain its properties in good repair, working order and operating condition. The Borrower shall immediately notify the Bank of any event causing material loss or unusual depreciation in the value of its business assets and the amount of same. (e) Use of Proceeds. The Borrower shall use the proceeds of each Advance for --------------- general commercial purposes, provided that no part of such proceeds will be used, in whole or in part, for the purpose of (i) acquiring all or substantially all of the assets or stock of any person, firm or corporation or (ii) purchasing or carrying any "margin stock" as such term is noted in Regulation U of the Board of Governors of the Federal Reserve System. 9. DEMAND. All Prime Rate Advances and Fixed Rate Advances are payable ON DEMAND (whether or not scheduled payments have been made), together with accrued interest thereon, at the option of the Bank. 10. LIEN AND SET-OFF. The Borrower hereby grants to the Bank a continuing lien, security interest, and right of set off as security for all of the Borrower's liabilities and obligations to the Bank, whether now existing or hereafter arising, upon and against all the deposits, credits, collateral and property of the Borrower now or hereafter in the possession, custody, or control -5- of the Bank or any entity under the control of FleetBoston Financial Corporation or in transit to any of them. At any time, without demand or notice (any such notice being expressly waived by the Borrower), the Bank may set off the same or any part thereof and apply the same to any liability or obligation of the Borrower even though unmatured and regardless of the adequacy of any other collateral securing the loan evidenced hereby. TO THE EXTENT PERMITTED BY LAW, ANY AND ALL RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE LIABILITIES PRIOR TO EXERCISING ITS RIGHT OF SET OFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER, ARE HEREBY VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVED. 11. JURY TRIAL WAIVER; DAMAGES. THE BORROWER AND THE BANK (BY ACCEPTANCE OF THIS NOTE) MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH ("LOAN DOCUMENTS") OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE BANK RELATING TO THE ADMINISTRATION OF THE LOAN OR ENFORCEMENT OF THE LOAN DOCUMENTS, AND AGREE THAT NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWER CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO ACCEPT THIS NOTE AND MAKE ADVANCES HEREUNDER. 12. PLEDGE TO THE FEDERAL RESERVE BANK. The Bank may at any time pledge or assign all or any portion of its rights under the Loan Documents including any portion of this Note to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or assignment or enforcement thereof shall release the Bank from its obligations under any of the Loan Documents. 13. SALE OF PARTICIPATION. The Bank shall have the unrestricted right at any time and from time to time, and without the consent of or notice to the Borrower, to grant to one or more banks or other financial institutions (each, a "Participant") participating interests in the Bank's obligation to lend hereunder and/or any or all of the loans held by the Bank hereunder. In the event of any such grant by the Bank of a participating interest to a Participant whether or not upon notice to the Borrower, the Bank shall remain responsible for the performance of its obligations hereunder and the Borrower shall continue to deal solely and directly with the Bank in connection with the Bank's rights and obligations hereunder. The Bank may furnish any information concerning the Borrower in its possession from time to time to prospective assignees and Participants, provided that the Bank shall require any such prospective assignee or Participant to agree in writing to maintain the confidentiality of such information. 14. LOST DOCUMENT. Upon receipt of an affidavit of an officer of the Bank as to the loss, theft, destruction or mutilation of the Note or any other security document which is not of public record, and, in the case of any such loss, theft, destruction or mutilation, upon cancellation of such Note or other security document, the Borrower will issue, in lieu thereof, a replacement note or other security document in the same principal amount thereof and otherwise of like tenor. 15. ASSIGNMENT. The Bank shall have the unrestricted right at any time or from time to time, and without Borrower's consent, to assign all or any portion of its rights and obligations hereunder to one or more banks or other financial institutions (each, an "assignee"), and the Borrower agrees that it shall -6- execute, or cause to be executed, such documents, including without limitation, amendments to this Note and to any other documents, instruments and agreements executed in connection herewith as the Bank shall deem necessary to effect the foregoing. In addition, at the request of the Bank and any such assignee, the Borrower shall issue one or more new promissory notes, as applicable, to any such assignee and, if the Bank has retained any of its rights and obligations hereunder following such assignment, to the Bank, which new promissory notes shall be issued in replacement of, but not in discharge of, the liability evidenced by the promissory note held by the Bank prior to such assignment and shall reflect the amount of the respective commitments and loans held by such assignee and the Bank after giving effect to such assignment. Upon the execution and delivery of appropriate assignment documentation, amendments and any other documentation required by the Bank in connection with such assignment, and the payment by assignee of the purchase price agreed to by the Bank, and such assignee, such assignee shall be a party to this Note and shall have all of the rights and obligations of the Bank hereunder (and under any and all other guaranties, documents, instruments and agreements executed in connection herewith) to the extent that such rights and obligations have been assigned by the Bank pursuant to the assignment documentation between the Bank and such assignee, and the Bank shall be released from its obligations hereunder and thereunder to a corresponding extent. The Bank may furnish any information concerning the Borrower in its possession from time to time to prospective assignees, provided that the Bank shall require any such prospective assignees to agree in writing to maintain the confidentiality of such information. 16. The Borrower shall pay on demand all expenses of the Bank in connection with the preparation, administration, demand, collection, waiver or amendment of loan terms, or in connection with the Bank's exercise, preservation or enforcement of any of its rights, remedies or options hereunder, including, without limitation, fees of outside legal counsel or the allocated costs of in- house legal counsel, accounting, consulting, brokerage or other similar professional fees or expenses, and any fees or expenses associated with travel or other costs relating to any appraisals or examinations conducted in connection with the loan or any collateral therefor, and the amount of all such expenses shall, until paid, bear interest at the rate applicable to principal hereunder (including any default rate) and be an obligation secured by any collateral. 17. WAIVERS, BINDING EFFECT, MISCELLANEOUS. (a) Borrower waives presentment, demand, notice, protest, notice of acceptance of this Note, notice of Advances made, credit extended, notice of nonpayment or other action taken in reliance hereon. With respect to its liabilities, Borrower assents to any extension or postponement of the time of payment or any other indulgence, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payments thereon and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Bank may deem advisable. (b) The Bank shall not be deemed to have waived any of its rights unless such waiver be in writing and signed by the Bank. The Loan Documents are the final, complete and exclusive statement of the terms governing this loan transaction. All prior or contemporaneous promises, agreements and understandings, whether oral or written, are deemed to be superseded by the Loan Documents; and no party is relying on any promise, agreement or understanding not set forth in the Loan Documents. No modification or amendment hereof shall be effective unless the same shall be in writing and signed by the Bank and the Borrower. No delay or omission on the part of the Bank in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right on any future occasion. All rights and remedies of the Bank hereunder, under any document, instrument or agreement evidencing, governing or securing this Note or under all applicable laws shall be cumulative and may be exercised singularly or concurrently. (c) The provisions of this Note shall bind the successors and assigns of the Borrower and shall inure to the benefit of the Bank, its successors and assigns. (d) This Note shall be governed and construed under the laws of the Commonwealth of Massachusetts (excluding laws applicable to conflicts or choice of law). (e) If any provision of this Note shall to any extent be held invalid or unenforceable, then only such provision shall be deemed ineffective and the remainder of this Note shall not be affected. -7- 17. ACKNOWLEDGMENT OF BORROWER. Borrower acknowledges receipt of a copy of this Note, attests that each Advance is to be used for general business purposes and that no part of such proceeds will be used, in whole or in part, for the purpose of purchasing or carrying any "margin stock" as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System. 18. AMENDMENT. This Note amends and restates in its entirety that certain Amended and Restated Guidance Promissory Note, dated June 1, 2000, from the Borrower in favor of the Bank in the original maximum principal amount of Ten Million Dollars ($10,000,000.00). IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed as a sealed instrument. WITNESS: KEANE, INC. - ------------------------------------ ---------------------------------- By: /s/ Francis M. Cleary Its: Treasurer FLEET NATIONAL BANK By: -------------------------------- Its: -8- SCHEDULE 1
- ---------------------------------------------------------------------------------------------------------------------------------- Date Amount of Advance Interest Rate Date Advance is Due (Fixed Amount of Principal Balance Amount of Made This Date (indicate Rate, Rate, give date due) (Prime Principal Remaining Interest if Fixed or Rate, due on demand) Prepaid Unpaid Paid Prime Rate, if This Date Variable) - ---------------------------------------------------------------------------------------------------------------------------------- ================================================================================================================================
Advances and payments of principal and interest pursuant to an Amended and Restated Guidance Promissory Note dated__________________________________ between Keane, Inc. and Fleet National Bank. -----END PRIVACY-ENHANCED MESSAGE-----