-----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, RXRliq9UPcl1oUvudE+jy5bIqW2O70uVm3IVQ9CuyQ07WPI+s3WIujv/clpauAVa 9td8w9aJzgyLzxq6s1cAvg== 0001047469-05-006538.txt : 20050315 0001047469-05-006538.hdr.sgml : 20050315 20050315162327 ACCESSION NUMBER: 0001047469-05-006538 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050315 DATE AS OF CHANGE: 20050315 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07516 FILM NUMBER: 05681984 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-K 1 a2153146z10-k.htm FORM 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
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 (State or Other Jurisdiction of Incorporation or Organization)		04-2437166 (I.R.S. Employer Identification Number)
100 City Square, Boston, Massachusetts (Address of Principal Executive Offices)		02129 (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, $.10 par value

Name of Each Exchange on Which Registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes o No ý

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

The aggregate market value of the common stock held by non-affiliates of the registrant, based on the last sale price of the common stock on the New York Stock Exchange on June 30, 2004, was approximately $653,965,000. As of March 3, 2005, there were 62,367,269 shares of common stock, $.10 par value per share and no shares of Class B common stock, $.10 par value per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE.

The Registrant intends to file a definitive proxy statement pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934, as amended, to be used in connection with the Registrant's Annual Meeting of Stockholders to be held on May 12, 2005. The information required in response to Items 10-14 of Part III of this Form 10-K is hereby incorporated by reference to such proxy statement.

TABLE OF CONTENTS

		Page
	PART I
Item 1.	BUSINESS	3
Item 2.	PROPERTIES	9
Item 3.	LEGAL PROCEEDINGS	10
Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	10
	DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY	10
	PART II
Item 5.	MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	14
Item 6.	SELECTED FINANCIAL DATA	16
Item 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	17
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	44
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	90
Item 9A.	CONTROLS AND PROCEDURES	90
Item 9B.	OTHER INFORMATION	92
	PART III
Item 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	92
Item 11.	EXECUTIVE COMPENSATION	92
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	92
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	93
Item 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	93
	PART IV
Item 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	93
SIGNATURES		94

PART I

This annual report 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. However, we caution investors not to place undue reliance on any forward-looking statements in this annual report because these statements speak only as of the date when made. 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 in this Annual Report on Form 10-K under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS."

ITEM 1. BUSINESS

OVERVIEW

Keane, Inc. is a leading provider of Information Technology ("IT") and Business Process Services. In business since 1965, our mission is to help clients improve business and IT effectiveness through outsourcing, development and integration, and other IT services.

We deliver our IT services through an integrated network of regional offices in North America and the United Kingdom ("UK"), and through Advanced Development Centers ("ADCs") in the United States ("U.S."), Canada, and India. This global delivery model enables us to provide our services to customers onsite, at our nearshore facilities in Canada, and through our offshore development centers in India. Our regional offices are supported by centralized Strategic Practices and Quality Assurance Groups.

Our clients consist primarily of Global 2000 companies across several industries. We have specific expertise and depth of capability in financial services, insurance, healthcare, and the public sector and other verticals. We strive to build long-term relationships with our customers by improving their business and IT performance, reducing their costs, and increasing their organizational flexibility. We achieve recurring revenue as a result of our multi-year outsourcing contracts and our long-term client relationships.

We are a Massachusetts corporation headquartered in Boston. Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "KEA." We maintain a Web site with the address www.keane.com. Our Web site includes links to our Corporate Governance Guidelines, our Code of Business Conduct, and our Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee charters, which are available in print to any shareholder upon request. We are not including the information contained in our Web site as part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available, free of charge, through our Web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practical after we electronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission ("SEC").

Our registered trademarks or service marks include: Application Lifecycle Optimization, EZ-Access, Keane, the Keane logo, Patcom and We Get IT Done. Other trademarks and service marks include: Application Development and Integration Services, Application Development and Management Outsourcing Services, Enterprise Application Integration, Keane InSight and VistaKeane.

All other trademarks, service marks, or tradenames referenced in this Form 10-K are the property of their respective owners.

SERVICES

We seek to improve our clients' business performance by maximizing the effectiveness of their business and IT operations. We apply our rigorous processes and management disciplines to our client engagements, enabling clients to reduce costs and increase organizational flexibility and efficiency. We focus on three service offerings:

•: Outsourcing services, which include Application Outsourcing, Application Maintenance, Healthcare Solutions Maintenance, and Business Process Outsourcing;
•: Development and Integration services, which include Application Development & Integration ("AD&I") and Healthcare Solutions Products; and
•: Other IT services, which include IT Consulting and Staff Augmentation.

Services are delivered using our global delivery model, from operations in the U.S., UK, Canada, and India. See Note 16 "SEGMENT INFORMATION" in the notes to the accompanying consolidated financial statements for discussion of our domestic and international revenues.

We experience a moderate amount of seasonality. Our consulting revenue and profitability are affected by the number of workdays in a quarter. Typically our billable hours are reduced in the second half of the year, especially during the fourth quarter, due to the large number of holidays and vacation time.

Outsourcing Services

Application 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. In a typical Application Outsourcing engagement, we assume responsibility for managing a client's business applications with the goal of instituting operational efficiencies that enhance flexibility, freeing up client personnel resources, and achieving higher user satisfaction. We seek to obtain competitive advantages in the application outsourcing market by targeting our Global 2000 client base and generating measurable operational and financial benefits to our clients. We achieve these client benefits through the use of our world-class methodologies, continuous process improvement, and our global delivery model.

Our global delivery model offers customers the flexibility and economic advantage of allocating work among a variety of delivery options, including onsite at a client's facility, nearshore in Halifax, Nova Scotia and Toronto, Ontario, and offshore at one of our four locations in India. This integrated, highly flexible mix of cost-effective onsite, nearshore, and offshore delivery is now a component of most of our new outsourcing engagements. The distribution of work across multiple locations is typically based on a client's cost, technology, and risk management requirements. Our project management approach ensures common methodologies and disciplines across locations, and provides a single point of accountability to the client.

Forty-seven of our Application Outsourcing engagements have been independently assessed at Level 3 or 4 on the Software Engineering Institute's ("SEI") Capability Maturity Model ("CMM"). In addition, our four ADCs in India, located in Hyderabad, Delhi and Gurgaon, were independently evaluated at Level 5 on the SEI CMMI and comply with ISO 9001: 2000 standards. Our ADC in Halifax, Nova Scotia, has also been independently evaluated at Level 5 on the SEI CMMI. The SEI CMM has five levels of process maturity, and many IT organizations typically operate at Level 1, the lowest level of maturity. Since 1997, we have used the SEI CMM as a standard for objectively measuring our success in improving our clients' application management environments. The SEI CMM

has become the industry's standard method for evaluating the effectiveness of an IT environment and the process maturity of outsourcing vendors.

We enter into large, long-term contracts for the provision of Application Outsourcing services. These client engagements usually span three to five years. Application Outsourcing projects typically supply us with contractually obligated recurring revenue and with an ability to cross-sell other solutions to those clients. We believe that our ability to consistently provide measurable business value for an existing client fosters profitable, long-term client relationships and strongly positions us to win additional outsourcing engagements, as well as development and integration projects.

Business Process Outsourcing. We provide Business Process Outsourcing ("BPO") services through Keane Worldzen, our majority owned subsidiary. Keane Worldzen specializes in providing BPO services to clients with complex operational processes in the financial services, insurance, and healthcare industries, and to clients with back office processes in several industries. Keane Worldzen's deep expertise in process redesign and optimization is an important competitive differentiator. Keane Worldzen's BPO services are designed to reduce the cost of processing and increase the efficiency of our clients' business transactions, enabling companies to focus on their more strategic activities, and avoid the overhead and management distraction of non-core back-office processes. Keane Worldzen provides these low-cost, high-value outsourcing services from operations in both the U.S. and India.

Development and Integration Services

AD&I. 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 AD&I projects leverage "best of breed" technology platforms to support integrated development, Application Outsourcing and BPO solutions for our clients. These "best of breed" solutions are often industry-specific, and therefore leverage Keane's vertical expertise. AD&I services include custom development, Enterprise Resource Planning ("ERP") implementations, and other vertically aligned solutions.

As a result of our significant expertise and experience, including our deep technical experience in leading edge and commercially accepted tools, we have become a top-tier provider of large, complex software development and integration projects for Global 2000 companies. We also provide AD&I services to the public sector, which includes agencies within the U.S. Federal Government, various states, and other local government entities. We believe that we are well positioned to bid on and win large-scale AD&I projects from both the commercial and public sector markets due to our core competencies in project management, integration, and global delivery. We believe that these competencies, together with our long-term relationships with Global 2000 companies, particularly with those clients for which we provide Application Outsourcing services, will provide a foundation for future growth through cross selling of Keane's complementary service offerings.

Healthcare Solutions. Our Healthcare Solutions Division ("HSD") develops and markets a complete line of open-architecture financial management, patient care, clinical operations, enterprise information, long-term care, and practice management systems for healthcare organizations. The consulting, development, and integration of these systems is included in Development and Integration services. In addition, HSD provides long-term management of these applications, which is included in Outsourcing Services.

HSD's products help healthcare organizations overcome the challenge of providing higher quality patient care while administering more efficient operations through the use of information technology. HSD's core healthcare solutions include EZ-Access, Keane InSight, and VistaKeane. EZ-Access is a browser-based family of healthcare information systems designed to improve access to patient data, reduce the occurrence of medical errors, and protect client investment in information technology. EZ-Access includes our widely installed Patcom Plus, a patient management system that is considered a

market leader by industry analysts. Keane InSight is a comprehensive healthcare information system that provides immediate access to patient information using secure, browser-based technology. VistaKeane is a fully integrated financial and clinical solution for long-term and post-acute care providers. HSD's customers include integrated delivery networks, hospitals, long-term care facilities, and physician group practices. HSD currently provides proprietary software and services to more than 280 hospital-based clients and approximately 4,000 long-term care facilities throughout the U.S.

Other IT Services

IT Consulting. Our IT Consulting services include several offerings that help companies develop and implement their IT and business process improvement strategies. Many clients engage us to provide Project Management services to ensure consistency of quality and delivery over multiple projects within a client organization. Other IT Services also includes Network Integration Planning, Strategic Information Planning, and Package Selection.

Staff Augmentation. Our Staff Augmentation service provides clients with a team of professionals with specialized technical skills to augment their in-house staffs. These professionals help clients develop or manage their applications or assist with short-term IT services requirements without adding to their fixed personnel costs. In many instances, we provide staff augmentation resources to clients who are also utilizing our outsourcing or AD&I services. In addition, we believe that staff augmentation services provide us with a foundation from which to establish new client relationships and ultimately expand our base of services by cross-selling our other offerings.

STRATEGY

Our goal is to be recognized as one of the world's premier IT and business service providers by our clients, employees, and shareholders. We believe that we can achieve this goal by helping clients improve their business and IT effectiveness through the consistent delivery of high-value development and outsourcing services. Specifically, we believe that applications services and business process services are large and synergistic growth markets, and that a significant emerging business trend is corporations leveraging Application Outsourcing, BPO, and global delivery to achieve meaningful cost reductions and business improvement. We believe that our depth of capability in each of these areas, along with our vertical expertise, strong customer relationships and process management capabilities, will enable us to capitalize on this market opportunity. We have five major strategic priorities for 2005:

Achieve sustainable revenue and earnings growth.

Our objective is to achieve long-term revenue expansion by growing our Application Outsourcing, AD&I and BPO businesses, as well as by leveraging our strong position in less cyclical industries such as healthcare and in the public sector. We expect to increase our operating margins over the short-term by improving billing rates and utilization as the IT services sector continues its economic recovery, and by aggressively controlling selling, general, and administrative ("SG&A") expenses. Longer term, we intend to increasingly leverage lower-cost offshore resources in providing outsourcing and AD&I services, while continuously adjusting our expenses to ensure cost-effective delivery. We expect our ability to effectively manage our working capital, most notably Days Sales Outstanding ("DSO"), and capital spending will enable us to generate strong operating cash flow. We plan to use excess cash to complete attractive acquisitions and to continue to repurchase shares of our common stock from time-to-time.

Enhance and leverage our vertical go-to-market approach

We are recognized by industry analysts and clients as one of the leading application outsourcing vendors in North America, for our ability to consistently generate measurable business value. With our entrance into the BPO market through our majority owned subsidiary, Keane Worldzen, we believe that

BPO represents a significant additional future growth opportunity for us. We have observed the convergence of applications outsourcing and BPO to be an increasing trend in client buying behavior, and feel that deep industry knowledge is increasingly an important strategic differentiator as clients decide to outsource a broader portfolio of IT and business initiatives. Accordingly, we plan to capitalize on our expertise in the financial services, insurance, healthcare and public sector verticals to go to market with integrated business solutions allowing Keane to go beyond simply delivering cost and performance improvements to our clients and allow us to deliver transformational business benefits.

Build scale and market share in growing business process outsourcing market

We entered the BPO market in October 2003 through our majority investment in Keane Worldzen, which provides clients with high-value business process services, including process optimization and transaction outsourcing. We believe that client demand for these transformational business process services, often bundled with applications outsourcing, represents a significant future growth opportunity. As a result, in 2005, we plan to invest in additional capability and scale in our BPO operations, both through Keane Worldzen and potential additional investments.

Strengthen our position as an industry leader in advanced global delivery

Global sourcing has become an important component of our clients' overall sourcing strategies. Use of nearshore and offshore delivery enables clients to access a large pool of cost-effective technical personnel, while enhancing productivity via a 24 hours a day, seven days a week development approach. As a result, global delivery capability is critical for success in today's IT services market. During 2004, we significantly enhanced our global sourcing capabilities, opening a fourth offshore development center in India and a second nearshore development center in Canada. During 2005, we expect to expand our efforts to position Keane as a leading provider of global AD&I and outsourcing solutions by continuing to invest in our India and Canada operations.

Enhance growth and market positioning through Mergers and Acquisitions

Our long-term growth strategy includes both a strong focus on organic expansion and enhanced growth through mergers and acquisitions ("M&A"). In 2003 and 2004, we acquired several companies that met specific strategic criteria, including enhancing Keane's capabilities and client relationships. In 2005, we will continue to proactively focus resources on identifying, evaluating, and, when appropriate, consummating M&A transactions that have the potential to create long term per share value. We proactively target applications services and business process services firms that provide scale and/or are additive to Keane's strategic positioning.

COMPETITION

The IT services market is highly competitive and driven by continual changes in client business requirements and advances in technology. Our competition varies by the type of service provided and by geographic markets.

We compete with traditional players in the IT services industry, including large integrators (such as Accenture ("ACN"), Electronic Data Systems ("EDS"), Computer Sciences Corporation ("CSC"), IBM Global Services ("IBM"), and Perot Systems ("PER")); offshore solution providers, including Wipro ("WIT") and Infosys ("INFY"); IT solutions providers (such as Sapient Corporation ("SAPE"), BearingPoint ("BE"), and Ciber ("CBR")); and management consulting firms (such as McKinsey and Booz Allen). Some of these competitors are larger and have greater financial resources than we do.

We believe that competition in the IT services industry is based on firms' ability to deliver integrated solutions that best meet the needs of customers, provide competitive pricing, develop strong

client relationships, generate recurring revenue, and offer flexible delivery options. We believe that we compete favorably with respect to these factors.

CLIENTS

Our clients consist primarily of Global 2000 organizations, government agencies, and healthcare organizations. These organizations generally have significant IT budgets and frequently depend on service providers for outsourcing services.

In 2004, we derived our revenue from the following industry groups:

Industry	Percentage of Revenue
Financial services	30.9	%
Healthcare	19.2
Government	18.7
Manufacturing	12.0
High Technology/Software	8.8
Other	3.8
Energy/Utilities	2.8
Retail/Consumer goods	2.7
Telecommunications	1.1

Our 10 largest clients, including various agencies of the Federal Government, accounted for approximately 35.9%, 35.6%, and 29.0% of our total revenues during the years ended December 31, 2004, 2003, and 2002, respectively. Our two largest clients during 2004 and 2003 were the Federal Government and PacifiCare Health Systems, Inc. ("PacifiCare"), with approximately 9.4% and 5.3% of our total revenues in 2004, respectively and approximately 9.2% and 6.5% of our total revenues in 2003, respectively. In 2002, the Federal Government and IBM were our two largest clients. Federal Government contracts accounted for approximately 7.6% of our total revenues in 2002 and IBM accounted for approximately 4.4% of our total revenues in 2002. A significant decline in revenue from the Federal Government or PacifiCare would have a material adverse effect on our total revenue. With the exception of the Federal Government, PacifiCare, and IBM, no single client accounted for more than 5% of our total revenues during any of the three years ended on or before December 31, 2004.

In accordance with industry practice, many of our orders are terminable by either the client or us on short notice. Moreover, any and all orders relating to the Federal Government may be subject to renegotiation of profits or termination of contract or subcontractors at the election of the Federal Government. We had orders at December 31, 2004 of approximately $600.4 million, representing backlog for the fiscal year ended December 31, 2005. Because our clients can cancel or reduce the scope of their engagements on short notice, we do not believe that backlog is a reliable indication of future business.

SALES, MARKETING, AND ACCOUNT MANAGEMENT

We market our services and software products through our direct sales force, which is based in our field offices and regional areas, as well as through our Application Outsourcing, BPO and vertical practices. Our account executives are vertically aligned, and are assigned to a limited number of accounts so they can develop an in-depth understanding of each client's individual needs and form strong client relationships. Under the direction of Regional Sales Vice Presidents, these account executives identify IT services needs within clients and are responsible for developing solutions that meet these requirements. In addition, account executives ensure that clients receive responsive service that achieves their objectives. Account executives receive training in our sales processes and service

offerings and are supported by enterprise knowledge management systems in order to efficiently share organizational learning. Account executives collaborate with our Application Outsourcing and BPO practices, vertical practices, other regional offices, and our Global Services Group as needed to address specialized customer requirements.

Our Outsourcing Business Development Group employs specialized senior sales professionals to respond to client requirements and to pursue and close large, strategic outsourcing engagements. Application Outsourcing engagements provide a strong base of recurring revenue and afford the opportunity to cross-sell our other strategic services, including Business Process Services delivered through Keane Worldzen.

We focus our marketing efforts on organizations with significant IT budgets and recurring software development and outsourcing needs. We maintain a corporate branding campaign focused on communicating our value proposition of reliably delivering application solutions with quantifiable business results. These branding efforts are actively executed through multiple channels.

EMPLOYEES

As of December 31, 2004, we had 8,548 total employees, including 7,235 business and technical professionals whose services are billable to clients. This includes a base of 1,733 employees in India, including our Keane Worldzen operations. We sometimes supplement our technical staff by utilizing subcontractors, which as of December 31, 2004, consisted of 585 full-time professionals.

We believe our growth and success are dependent on the caliber of our people and will continue to dedicate significant resources to hiring, training and development, and career advancement programs. Our efforts in these areas are grounded in our core values, namely: respect for the individual, commitment to client success, achievement through teamwork, integrity, continuous improvement, and commitment to shareholder value. We strive to hire, promote, and recognize individuals and teams who embody these values.

We generally do not have employment contracts with our key employees. None of our employees are subject to a collective bargaining agreement and we believe that our relations with our employees are good.

ITEM 2. PROPERTIES

Our principal executive office as of December 31, 2004, was located at 100 City Square, Boston, Massachusetts 02129, in an approximately 95,000 square foot office building which is leased from Gateway Developers LLC ("Gateway LLC"). 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 the Board of Keane, and his immediate family members. See Item 13 "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

Based upon our knowledge of rental payments for comparable facilities in the Boston area, we believe that the rental payments under the lease for 100 City Square, 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.

On December 31, 2004, we leased and maintained sales and support offices in more than 70 locations in North America, the UK, and India. The aggregate annual rental expense for our sales and support offices was approximately $15.7 million in 2004. The aggregate annual rental expense for all of our facilities was approximately $16.4 million in 2004. For additional information regarding our lease obligations, see Note 15 "RELATED PARTIES, COMMITMENTS, AND CONTINGENCIES" in the notes to the accompanying consolidated financial statements.

ITEM 3. LEGAL PROCEEDINGS

We are involved in various litigation and 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY: The executive officers and directors of Keane as of March 3, 2005 are as follows:

Name	Committee	Age	Position
John F. Keane		73	Chairman of the Board and Director
Brian T. Keane		44	President, Chief Executive Officer and Director
John J. Leahy		46	Senior Vice President of Finance and Administration and Chief Financial Officer
Russell J. Campanello		49	Senior Vice President
Robert B. Atwell		56	Senior Vice President
Georgina L. Fisk		36	Vice President
Raymond W. Paris		67	Senior Vice President
Laurence D. Shaw		43	Senior Vice President
Maria A. Cirino	(2)(3)	41	Director
John H. Fain		56	Director
Philip J. Harkins	(2)(3)	57	Director
Winston R. Hindle, Jr.	(1)(3)	74	Director
John F. Keane, Jr.		45	Director
John F. Rockart	(1)(2)	73	Director
Stephen D. Steinour	(1)(2)	46	Director
James D. White	(2)(3)	44	Director

(1): Audit Committee
(2): Compensation Committee
(3): Nominating and Corporate Governance Committee

All Directors hold office until the next Annual Meeting of Stockholders and until their successors have been elected and qualified. Officers of Keane serve at the discretion of our Board of Directors.

Mr. John Keane, the founder of Keane, has served as Chairman of the Board of Directors since Keane's incorporation in March 1967. Mr. Keane served as Chief Executive Officer and President of Keane from 1967 to November 1999. Mr. John Keane is a director of American Power Conversion Corporation, a designer, developer, and manufacturer of power protection and management solutions for computer, communications, and electronic applications. Mr. John Keane is the father of Mr. Brian Keane, the President, Chief Executive Officer, and a director of Keane, and Mr. John Keane, Jr., a director of Keane.

Mr. Brian Keane joined Keane in 1986 and has served as Keane's President and Chief Executive Officer since November 1999 and as a director of Keane since May 1998. From September 1997 to November 1999, Mr. Keane served as Executive Vice President and a member of the Office of the President of Keane. From December 1996 to September 1997, he served as Senior Vice President. From December 1994 to December 1996, he was an Area Vice President of Keane. From July 1992 to December 1994, Mr. Keane served as a Business Area Manager, and from January 1990 to July 1992,

he served as a Branch Manager. Mr. Keane has served as a trustee of Mount Holyoke College since May 2000. Brian Keane is a son of John Keane, the founder, and Chairman of Keane, and the brother of John Keane, Jr., a director.

Mr. Leahy joined Keane in August 1999 as Senior Vice President of Finance and Administration and Chief Financial Officer. From 1982 to August 1999, Mr. Leahy was employed by PepsiCo, Inc., a multinational consumer products corporation, during which time he held a number of positions, serving most recently as Vice President of Business Planning and Development for Pepsi-Cola International.

Mr. Campanello joined Keane in September 2003 as Senior Vice President of Human Resources. From July 2000 to February 2003, he served as Chief People Officer at NerveWire, a technology and business consulting company. From January 1998 to July 2000, he led the human resource function at Genzyme Corporation, a biotechnology company.

Mr. Atwell initially joined Keane in 1974 and held a number of positions through 1986. Mr. Atwell left Keane from 1986 to 1991. In 1991, Mr. Atwell rejoined Keane when we acquired a branch of Broadway and Seymour, a regional applications services company where Mr. Atwell was serving as Vice President. Since that time, Mr. Atwell has held several positions with Keane and has held the position of Senior Vice President of North American Branch Operations since 1999.

Ms. Fisk joined Keane in August 1998 as Marketing Manager of Keane Ltd in the UK. From October 2000 to January 2001, Ms. Fisk served as the Director of Marketing of Keane Ltd in the UK. Since January 2001, Ms. Fisk has served as Director of Marketing for Keane, Inc. and in January 2004, was promoted to Vice President, Marketing of Keane, Inc.

Mr. Paris joined Keane in November 1976. Mr. Paris has served as Senior Vice President of Healthcare Solutions since January 2000 and served as Vice President and General Manager of the Healthcare Solutions Practice from August 1986 to January 2000. Mr. Paris also served as Area Manager of the Healthcare Solutions Practice from 1981 to 1986.

Mr. Shaw joined Keane in September 2002 as Managing Director of Keane Ltd. From 1996 to September 2002, Mr. Shaw was employed by Headstrong, a global restructuring corporation, during which time he held a number of positions, serving most recently as Chief Operating Officer of European Operations. During 2004, Mr. Shaw was promoted to Senior Vice President, International Operations for Keane, Inc.

Ms. Cirino has served as a director of Keane since July 2001. From February 2000 to February 2004, Ms. Cirino was CEO and Chairman of Guardent, Inc., ("Guardent") a managed security services corporation. On February 27, 2004, Guardent was acquired by VeriSign, Inc., ("VeriSign"), a provider of critical infrastructure services for Internet and telecommunications networks. Since then, Ms. Cirino has held the position of Senior Vice President of VeriSign Managed Security Services, a division of VeriSign. From November 1999 to February 2000, Ms. Cirino served as Vice President of Sales and Marketing for Razorfish Inc., a strategic digital communications company. From July 1997 to November 1999, Ms. Cirino served as Vice President of Sales and Marketing for iCube, Inc., a systems integration company, which was acquired by Razorfish in November 1999.

Mr. Fain has served as a director of Keane since November 2001 and served as Senior Vice President of Keane from November 2001 to March 2002. Prior to joining Keane, Mr. Fain was the founder, Chief Executive Officer, and Chairman of the Board of Directors of Metro Information Services Inc. ("Metro"), a provider of IT consulting, and custom software development services and solutions, which was acquired by Keane in November 2001. Mr. Fain's role at Metro also included serving as President from July 1979 until January 2001.

Mr. Harkins has served as a director of Keane since February 1997. Mr. Harkins is currently the President and Chief Executive Officer of Linkage, Inc., an organizational development company

founded by Mr. Harkins in 1988. Prior to 1988, Mr. Harkins was Vice President of Human Resources of Keane.

Mr. Hindle has served as a director of Keane since February 1995. Mr. Hindle is currently retired. From September 1962 to July 1994, Mr. Hindle served as a Vice President and, subsequently, Senior Vice President of Digital Equipment Corporation, a computer systems and services firm. Mr. Hindle is also a director of Mestek, Inc., a public company that manufactures and markets industrial products.

Mr. John Keane, Jr. has served as a director of Keane since May 1998. Mr. Keane is the founder of ArcStream Solutions, Inc., a consulting and systems integration firm focusing on mobile and wireless solutions, and has been its President and Chief Executive Officer since July 2000. From September 1997 to July 2000, he was Executive Vice President and a member of the Office of the President of Keane. From December 1996 to September 1997, he served as Senior Vice President. From December 1994 to December 1996, he was an Area Vice President. From January 1994 to December 1994, Mr. Keane served as a Business Area Manager. From July 1992 to January 1994, he acted as manager of Software Reengineering, and from January 1991 to July 1992, he served as Director of Corporate Development. John Keane, Jr. is a son of John Keane, the founder and Chairman of Keane, and the brother of Brian Keane.

Dr. Rockart has served as a director of Keane since Keane's incorporation in March 1967. Dr. Rockart has been a Senior Lecturer Emeritus at the Alfred J. Sloan School of Management of the Massachusetts Institute of Technology ("MIT") since July 2002. Dr. Rockart served as a Senior Lecturer at the Alfred J. Sloan School of Management of MIT from 1974 to July 2002 and was the Director of the Center for Information Systems Research from 1998 to 2000. Dr. Rockart is also a director of Selective Insurance Group, a public holding company for property and casualty insurance companies.

Mr. Steinour has served as a director of Keane since July 2001. Since July 2001, Mr. Steinour has served as the Chief Executive Officer of Citizens Bank of Pennsylvania. From January 1997 to July 2001, Mr. Steinour served as Vice Chairman of Citizens Financial Group, a commercial bank holding company. From October 1992 to December 1996, Mr. Steinour served as the Executive Vice President and Chief Credit Officer, as well as Managing Director, of the Citizens Wholesale Banking Division within Citizens Financial Group.

Mr. White has served as director of Keane since February 2004. Since July 2002, Mr. White has served as the Senior Vice President of Business Development for The Commercial Operations North America of The Gillette Company. From June 1986 to May 2002, Mr. White was employed by Nestlé, during which time he held a number of positions, serving most recently as the Vice President of Customer Interface for Nestlé Purina Pet Care Company.

The compensation of the non-employee members of the Board of Directors is as follows:

Compensation		Amount
Annual retainer		$20,000
Additional compensation:
Fee per Board Meeting		2,000
Annual fee for Chairperson of Nominating and Corporate Governance Committee		5,000
Annual fee for Chairperson of Compensation Committee		15,000
Annual fee for Chairperson of Audit Committee		25,000
Committee meetings and telephonic meetings of the Board		No additional fee (part of annual retainer)
Initial stock option grant for a new Director		10,000 shares of common stock to be granted on the date of election. These options vest in three equal annual installments and have an exercise price equal to the closing price of our common stock on the NYSE on the date of grant.
Annual stock option grant		5,000 shares of common stock to be granted on the date of each Annual Meeting. These options vest in three equal annual installments and have an exercise price equal to the closing price of our common stock on the NYSE on the date of grant.

Directors generally make their elections as to the form of compensation for his or her annual fee or meeting attendance fees in July of each year and such election is valid for the Annual Directors Term beginning in the calendar year in which the election is made.

Non-employee directors are also eligible to receive stock options under our stock incentive plans. During 2004, we did not grant stock options to non-employee directors, other than the initial stock option grant or the annual stock option grant discussed above. Directors who are officers or employees of Keane do not receive any additional compensation for their services as directors.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our authorized capital stock consists of 200,000,000 shares of common stock, $.10 par value per share; 503,797 shares of Class B common stock, $.10 par value per share, and 2,000,000 shares of preferred stock, $.01 par value per share. As of March 3, 2005, there were 62,367,269 shares of common stock outstanding and held of record by approximately 2,135 registered stockholders and no shares of Class B common stock or preferred stock outstanding. Effective February 1, 2004, each share of our Class B common stock, $.10 par value per share, was automatically converted into one share of common stock.

COMMON STOCK

Voting. Each share of our common stock is entitled to one vote on all matters submitted to stockholders. Voting for directors is non-cumulative.

On January 13, 2004, we announced that our Board of Directors voted to convert all of the outstanding shares of Class B common stock into shares of our common stock on a one-for-one basis, effective February 1, 2004. As of December 31, 2003, the Class B common stock represented less than 1% of our outstanding equity, but had approximately 4.3% of the combined voting power of our combined stock.

Dividends and Other Distributions. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by our Board of Directors, out of funds legally available therefore. In the event of a liquidation, dissolution, or winding up of Keane, holders of common stock have the right to ratable portions of our net assets after the payment of all debts and other liabilities.

Other Matters. The holders of common stock have no preemptive rights or rights to convert their stock into any other securities and are not subject to future calls or assessments by Keane. The common stock was listed on the American Stock Exchange ("AMEX") under the symbol "KEA" through October 29, 2003. On October 30, 2003, we began trading our common stock on the NYSE under the symbol "KEA." All outstanding shares of common stock are fully paid and non-assessable. The rights, preferences, and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock, which we may designate and issue in the future.

PREFERRED STOCK

Our articles of organization authorize the issuance of up to 2,000,000 shares of preferred stock. Shares of preferred stock may be issued from time-to-time in one or more series, and our Board of Directors is authorized to determine the rights, preferences, privileges, and restrictions, including the dividend rights, conversion rights, voting rights, terms of redemption, redemption price or prices, and liquidation preferences, of any series of preferred stock, and to fix the number of shares of any such series of preferred stock without any further vote or action by the stockholders. The voting and other rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. The issuance of shares of preferred stock, while providing desirable flexibility in connection with acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the outstanding voting stock of Keane. We have no present plans to issue any shares of preferred stock.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our common stock was traded on the AMEX from January 1, 2003 to October 29, 2003 under the symbol "KEA." We began trading our common stock on the NYSE under the symbol "KEA" on October 30, 2003. The following table sets forth, for the periods indicated, the high and low sales price per share as reported by AMEX and NYSE, as the case may be.

Stock Price
Period	High		Low
2004
First Quarter	$	18.20	$	14.00
Second Quarter		16.44		12.68
Third Quarter		15.67		12.70
Fourth Quarter		16.39		14.52
2003
First Quarter	$	10.09	$	6.90
Second Quarter		14.00		7.80
Third Quarter		15.19		12.30
Fourth Quarter		15.13		12.72

The closing price of our common stock on the NYSE on March 3, 2005 was $13.32.

We have not paid any cash dividend since June 1986. We currently intend to retain all of our earnings to finance future growth and therefore do not anticipate paying any cash dividend in the foreseeable future. Our $50.0 million credit facility with two banks contains restrictions that may limit our ability to pay cash dividends in the future.

The following table provides information about purchases by Keane during the three months ended December 31, 2004 of equity securities that are registered by Keane pursuant to Section 12 of the Exchange Act:

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares (or Units) Purchased (1)	Average Price Paid per Share (or Unit)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
	(a)	(b)		(c)	(d)
10/01/04-10/31/04	—	$	—	—	2,871,600
11/01/04-11/30/04	—	$	—	—	2,871,600
12/01/04-12/31/04	—	$	—	—	2,871,600
Total:	—	$	—	—	2,871,600

(1): For the three months ended December 31, 2004, we did not repurchase any of our common stock
(2): Our Board of Directors approved the repurchase by us of 3.0 million shares of our common stock pursuant to the June 2003 Program and 3.0 million shares of our common stock pursuant to the June 2004 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. The expiration date of the June 2003 Program was June 12, 2004; as of the expiration date of the June 2003 program we had purchased 1,817,700 shares. Unless terminated earlier by resolution of our Board of Directors, the June 2004 Program will expire upon the earlier of the date we repurchase all shares authorized for repurchase thereunder or June 13, 2005.

ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

Years ended December 31,	2004			2003			2002			2001			2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Income Statement Data:
Revenues	$	911,543		$	804,976		$	873,203		$	779,159		$	871,956
Operating income		51,433			42,180			10,357			19,753			27,921
Net income (3)		32,282			29,222			8,181			17,387			20,354
Basic earnings per share		0.52			0.44			0.11			0.25			0.29
Diluted earnings per share (1)	$	0.48		$	0.43		$	0.11		$	0.25		$	0.29
Basic weighted average common shares outstanding		62,601			65,771			74,018			68,474			69,646
Diluted weighted average common shares and common share equivalents outstanding (1)		71,807			70,817			74,406			69,396			69,993
Balance Sheet Data:
Total cash and marketable securities	$	199,152		$	206,136		$	68,255		$	129,243		$	115,212
Total assets		804,194			793,101			685,674			679,903			463,594
Total debt (2)		190,952			193,371			45,647			15,357			8,616
Stockholders' equity		461,703			458,132			490,584			529,173			370,677
Book value per share	$	7.42		$	7.20		$	7.06		$	7.00		$	5.48
Number of shares outstanding		62,184			63,629			69,521			75,509			67,675
Financial Performance:
Revenue (decline) growth		13.2	%		(7.8	)%		12.1	%		(10.6	)%		(16.2	)%
Net margin		3.5	%		3.6	%		0.9	%		2.2	%		2.3	%

(1): Reflects the adoption of Emerging Issues Task Force ("EITF") Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share." See Note 12 "EARNINGS PER SHARE" in the notes to the accompanying consolidated financial statements for further discussion.
(2): Includes $40,042, $40,500, $40,888, and $13,000 in accrued building costs for the years ended December 31, 2004, 2003, 2002, and 2001, respectively.
(3): Net income for 2004 includes an adjustment recorded in the Fourth Quarter of 2004 for an additional deferred tax asset totaling approximately $2.2 million and a corresponding decrease to the provision for income taxes. See Note 14 "INCOME TAXES" in the notes to the accompanying consolidated financial statements for further discussion. Net income for 2003 includes a $7.3 million, $4.4 million after tax, favorable judgment in an arbitration award proceeding related to damages for breach of an agreement between Signal Corporation and our Federal Systems subsidiary.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report on Form 10-K 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 Annual Report on Form 10-K. 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 annual report should be read as being applicable to all related forward-looking statements wherever they appear in this annual 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. We undertake no obligation to publicly update any forward-looking statements in this annual report, whether as a result of new information, future events, or otherwise.

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes included in this annual report.

OVERVIEW

Components of Revenues

We seek to help clients improve their business and information technology ("IT") effectiveness. In order to align our reporting with our strategic priorities, beginning January 1, 2004, we classified our service offerings into the following three categories: Outsourcing, Development & Integration, and Other IT Services. These services were previously classified within our Plan, Build, and Manage service offerings in our Annual Report on Form 10-K for the year ended December 31, 2003. Prior period amounts have been reclassified to conform to the current presentation. Below is a description of each of our service offerings:

Outsourcing: Our outsourcing services include Application and Business Process Outsourcing, as well as ongoing maintenance related to Development & Integration work for our Healthcare Solutions Division. 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.

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, highly 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 successful track record in absorbing the local staff of our clients is particularly attractive to many prospective clients.

Our Business Process Outsourcing ("BPO") services are provided by our majority owned subsidiary, Worldzen, Inc., now 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 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 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. The solutions sets that we offer to our clients have five major elements. They are:

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

•: Third, these solutions 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 nearly always incorporate our global delivery capabilities.

While, we are still in the early stages of implementing this new market approach, 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 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.

NEW CONTRACT BOOKINGS

New contract bookings for the year ended December 31, 2004 were $1.1 billion, an increase of $230.4 million, or 26.5%, over new bookings of $868.5 million for the year ended December 31, 2003. For the year ended December 31, 2004, Outsourcing bookings increased 37.7% to $574.7 million, Development & Integration bookings increased 20.1% to $124.8 million, and Other IT bookings increased 15.0% to $399.4 million compared to the same period in 2003.

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.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenue and expenses. On an on-going basis, we

evaluate our estimates including those related to revenue earned but not yet billed, costs to complete fixed-price projects, the collectibility of accounts receivable, acquisition accounting, the valuation of goodwill, certain accrued liabilities and other reserves, income taxes, and others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. Application of these policies is particularly important to the portrayal of our financial condition and results of operations. We believe that the accounting policies described below meet these characteristics. Our significant accounting policies are more fully described in the notes to the accompanying consolidated financial statements.

Revenue Recognition

We recognize revenue as services are performed or products are delivered in accordance with contractual agreements and generally accepted accounting principles. For general consulting engagements, we recognize revenue on a time and materials basis as services are delivered. For the majority of our outsourcing engagements, we provide a specific level of service each month for which we bill a standard monthly fee. We recognize revenue for these engagements in monthly installments over the billable portion of the contract. These installments may be adjusted to reflect changes in staffing requirements and service levels consistent with terms of the contract. Costs of transitioning the employees may be capitalized over defined periods of time and amortized over the period in which the associated revenue is recognized.

For fixed-price engagements, we recognize revenue on a proportional performance basis over the life of the contract. We use estimated labor-to-complete to measure the proportional performance. Proportional performance recognition relies on accurate estimates of the cost, scope, and duration of each engagement. If we do not accurately estimate the resources required or the scope of the work to be performed, then future revenues may be negatively affected or losses on existing contracts may need to be recognized. All future anticipated losses are recognized in the period they are identified.

We recognize revenue associated with application software products as the software products are installed and as implementation services are delivered. We recognize software maintenance fees on installed products on a pro-rated basis over the term of the agreement. In multiple element arrangements, Keane uses the residual value method in accordance with Statement of Position ("SOP") SOP 97-2 ("SOP 97-2"), "Software Revenue Recognition," and SOP 98-9 ("SOP 98-9"), "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." Revenue earned on software arrangements involving multiple elements which qualify for separate element accounting treatment is allocated to each undelivered element using the relative fair values of those elements based on vendor-specific objective evidence with the remaining value assigned to the delivered element, the software license.

In all consulting engagements, outsourcing engagements, and software application sales, the risk of issues associated with satisfactory service delivery exists. Although we believe these risks are adequately addressed by our adherence to proven project management methodologies, proprietary frameworks, and internal project audits, the potential exists for future revenue charges relating to service delivery issues. Historically, we have not experienced major service delivery issues.

Allowance for Bad Debts

We maintain an allowance for doubtful accounts at an amount we estimate to be sufficient to cover the risk of collecting less than full payment on our receivables. Our allowance for bad debts is

based upon specific identification of likely and probable losses. Each accounting period, we evaluate accounts receivable for risk associated with a client's inability to make contractual payments or unresolved issues with the adequacy of our services. Billed and unbilled receivables that are specifically identified as being at risk are provided for with a charge to revenue in the period the risk is identified. We use considerable judgment in assessing the ultimate realization of these receivables, including reviewing the financial stability of the client, evaluating the successful mitigation of service delivery disputes, and gauging current market conditions. If our evaluation of service delivery issues or a client's ability to pay is incorrect, we may incur future reductions to revenue.

Business Combinations

In connection with acquisitions, we estimate the fair value of assets acquired and liabilities assumed. Some of the items, including accounts receivable, property and equipment, other intangible assets, certain accrued liabilities, and legal and other reserves require a high degree of management judgment. Certain estimates may change as additional information becomes available. In particular, restructuring liabilities are subject to change as we complete our assessment of the acquired operations and finalize our integration plan.

Valuation of Goodwill

We have recorded a significant amount of goodwill resulting from acquisitions. Effective January 1, 2002, goodwill is no longer amortized but is subject to annual impairment testing. The impairment test involves the use of estimates related to the fair value of the business operations with which the goodwill is associated. The estimate of fair value requires significant judgment. We estimate the fair value of the business operations using a discounted cash flow model based on the future annual operating plan of each reporting unit. This model determines the present value of the estimated cash flows of the reporting unit. Any loss resulting from an impairment test would be reflected in operating income in our consolidated statement of income. The annual impairment testing process is subjective and requires judgment at many points throughout the analysis. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets not previously recorded. As of December 31, 2004, our goodwill totaled $306.0 million.

Valuation of Intangible Assets

In connection with our acquisitions, we are required to recognize other intangible assets separate and apart from goodwill if such assets arise from contractual or other legal rights or if such assets are separable from the acquired business. Other intangible assets include, among other things, customer-related assets such as order backlog, customer contracts, and customer relationships. Determining a fair value for such items requires a high degree of judgment, assumptions, and estimates. In most situations, we use third parties to assist us with such valuations. In addition, these intangible assets are amortized over the best estimate of their useful life.

We review our identifiable intangible assets for impairment in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." In determining whether an intangible asset is impaired, we must make assumptions regarding estimated future cash flows from the asset, intended use of the asset, and other related factors. If the estimates or the related assumptions used to determine the value of the intangible assets change, we may be required to record impairment charges for these assets. As of December 31, 2004, our intangible assets totaled $62.9 million.

Income Taxes

To record income tax expense, we are required to estimate our income taxes in each of the jurisdictions in which we operate. We account for income taxes in accordance with SFAS No. 109 ("SFAS 109"), "Accounting for Income Taxes," which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. In addition, income tax expense at interim reporting dates requires us to estimate our expected effective tax rate for the entire year. This involves estimating our actual current tax liability together with assessing temporary differences that result in deferred tax assets and liabilities and expected future tax rates.

We record a valuation allowance to reduce our deferred tax assets to an amount we believe is more likely than not to be realized. We consider future taxable income and prudent and feasible tax planning strategies in assessing the need for a valuation allowance. We have recorded a valuation allowance for the tax benefits of certain subsidiary net operating losses and the minimum pension liability.

Our policy is to establish reserves for taxes that may become payable in future years as a result of an examination by the 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 the adjustment to the reserve. If we determine that we will require more or less of our reserves in the future, such adjustment would be recorded as an increase or reduction of income tax expense in the period such determination is made. Circumstances that could cause our estimates of income tax expense to change include: the impact of information that subsequently becomes available as we prepare our tax returns; revision to tax positions taken as a result of further analysis and consultation; the actual level of pre-tax income; changes in tax rules, regulations, and rates; and changes mandated as a result of audits by taxing authorities.

Stock-based Compensation

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. We also grant restricted stock for a fixed number of shares to employees for nominal consideration.

We adopted the disclosure provisions of SFAS No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation—Transition and Disclosure," an amendment to SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." 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 recognize compensation expense based on the difference between the market value at grant date and the grant price and record the compensation expense ratably over the restriction period. We do not recognize compensation expense on our stock option grants as the stock options are granted at the market price at the date of grant.

Had expense been recognized using the fair value method described in SFAS 123, using the Black-Scholes option-pricing model, we would have recorded additional compensation expense and reduced net income by approximately $3.8 million, $4.6 million, and $11.3 million in 2004, 2003, and 2002, respectively.

See "RECENT ACCOUNTING PRONOUNCEMENTS" for discussion on SFAS No. 123 (revised 2004) ("SFAS 123(R)") "Share-Based Payment," which was issued in December 2004 and is a revision of SFAS 123 and supersedes APB 25 and its related implementation guidance.

Restructuring

We have recorded restructuring charges and reserves associated with restructuring plans approved by management in the last six years. As of January 1, 2003, we adopted SFAS No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities," which requires us to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to exit or disposal plan exists. These reserves include estimates pertaining to employee separation costs and real estate lease obligations. The reserve associated with lease obligations could be materially affected by factors such as the ability to obtain subleases, the creditworthiness of our sub-lessees, market value of properties, and the ability to negotiate early termination agreements with lessors. While we believe that our current estimates regarding lease obligations are adequate, future events could require adjustments to these estimates. Based on the assumptions included in our analysis as of December 31, 2004, to the extent that we are unable to maintain all of our current, contractual subleases, we could incur an additional restructuring charge up to approximately $2.3 million. In addition, if we are able to negotiate early terminations of our operating leases or to obtain a sublessee, we would record a reduction to the restructuring liability and a corresponding expense reduction. In 2004 and 2003, we recorded an expense reduction of $2.4 million and $1.0 million, respectively, associated with early lease terminations and unanticipated subleases.

Accrued Compensation and Other Liabilities

Employee compensation costs are our largest expense category. We have a number of different variable compensation programs, which are highly dependent on estimates and judgments, particularly at interim reporting dates. Some programs are discretionary while others have quantifiable performance metrics. Certain programs are annual, while others are quarterly or monthly. Often, actual compensation amounts cannot be determined until after we report our results. We believe we make reasonable estimates and judgments using all significant information available. We also estimate the amounts required for incurred but not reported health claims under our self-insured employee benefit programs. Our accrual for health costs is based on historical experience and actual amounts may vary from these estimates. In addition, with respect to our potential exposure to losses from litigation, claims and other assessments, we record a liability when such amounts are believed to be probable and can be reasonably estimated.

We have a foreign defined benefit plan that provides pension benefits to employees of our subsidiary located in the UK, ("UK DBP"). Assumptions used in determining projected benefit obligations and the fair values of plan assets for our UK DBP are evaluated periodically by management in consultation with outside actuaries and investment advisors. Changes in assumptions are based on relevant Company data. Critical assumptions, such as the discount rate used to measure the benefit obligations, the expected long-term rate of return on plan assets and healthcare cost projections, are evaluated and updated annually. We have assumed that the expected long-term rate of return on plan assets will be 7.75%.

At the end of each year, we determine the discount rate that reflects the current rate at which the pension liabilities could be effectively settled. This rate should be in line with rates for high quality fixed income investments available for the period to maturity of the pension benefits, and changes as long-term interest rates change. At December 31, 2004, we determined this rate to be 5.40%.

During 2004, we closed the 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." As a result, we recorded a curtailment loss of approximately $0.2 million to expense the unrecognized prior service cost, and we recorded an additional required minimum pension liability of approximately $6.6 million as a non-cash adjustment through accumulated other

comprehensive loss in the accompanying consolidated balance sheets. As of December 31, 2004, the minimum pension liability was $13.5 million and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheet. See Note 13 "BENEFIT PLANS" in the notes to the accompanying consolidated financial statements for further discussion.

CONSOLIDATED RESULTS OF OPERATIONS

2004 Compared to 2003

	REVENUES (Dollars in thousands)
	Years Ended December 31,								Increase (Decrease)
	2004		%		2003		%		$			%
Outsourcing	$	465,077	51		$	371,294	46		$	93,783		25.3
Development & Integration		176,781	19			162,113	20			14,668		9.0
Other IT Services		269,685	30			271,569	34			(1,884	)	(0.7	)

Total	$	911,543	100	%	$	804,976	100	%	$	106,567		13.2

Revenues

Revenues for the year ended December 31, 2004 were $911.5 million, an increase of $106.6 million, or 13.2%, compared to revenues of $805.0 million for the year ended December 31, 2003. Revenues in 2004 increased compared to 2003 due primarily to the growth in Outsourcing services and revenues from our acquired businesses. We completed our acquisition of Nims Associates, Inc. ("Nims"), an IT and consulting services company with offices in the Midwest, on February 27, 2004, and as a result, the operating results of Nims have been included in our consolidated financial statements beginning March 1, 2004. In addition, we completed the acquisition of Fast Track Holdings Limited ("Fast Track") on July 13, 2004, and have included its operating results in our consolidated financial statements beginning July 14, 2004. Fast Track was a privately held consulting firm based in the United Kingdom that manages the design, integration, and rapid deployment of large-scale SAP implementations.

Outsourcing. Outsourcing service revenues for the year ended December 31, 2004 were $465.1 million, an increase of $93.8 million, or 25.3%, compared to the year ended December 31, 2003. The increase in Outsourcing service revenues was primarily due to increased revenues from large outsourcing contracts, as well as the revenues generated by Nims. 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. During the Second Quarter ended June 30, 2004, PacifiCare requested that we further reduce service levels to levels below the minimums provided in our contract. The requested change was not consistent with the terms of our contract with PacifiCare and would have resulted in a reduction in our monthly billings to PacifiCare. Accordingly, we did not agree to this change. Since then, through the year ended on December 31, 2004, we have continued providing services at or above the minimum levels set forth in the contract. In accordance with the contract terms, we and PacifiCare jointly engaged an independent third party to conduct a study to compare our billing rates with benchmark rates. The results assert that our rates are higher than the benchmark rates. To the extent that the lower rates identified in the study would go in effect in the Second Quarter of 2005, our annual revenues and operating income would decline. We have thirty days to evaluate the results of the study and expect that we will enter into discussions with PacifiCare thereafter.

Development & Integration. Development & Integration service revenues for the year ended December 31, 2004 were $176.8 million, an increase of $14.7 million, or 9.0%, compared to the year ended December 31, 2003 partly due to the revenues associated with the acquisition of Fast Track in the Third Quarter ended September 30, 2004.

Other IT Services. Other IT Services revenues for the year ended December 31, 2004 were $269.7 million, a decrease of $1.9 million, or 0.7%, compared to the year ended December 31, 2003. During the Second Quarter ended June 30, 2004 we agreed to a 5% price reduction for one of our large customers and mitigated the impact of that price reduction on gross margin by negotiating lower pricing of our subcontractor personnel. Additionally, this customer also notified us in the Fourth Quarter of 2004 that they would be reducing their purchasing requirements, which will have an impact of reducing annual revenues by approximately $7.0 million to $8.0 million in 2005 from that customer. In addition, a large client in the UK has notified us that they would be reducing their purchasing requirements, which will have an impact of reducing annual revenue by approximately $10.0 million to $14.0 million in 2005.

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

	Years Ended December 31,						Increase (Decrease)
	2004			2003			$		%
Revenues	$	911,543		$	804,976		$	106,567	13.2
Salaries, wages, and other direct costs		637,240			554,375			82,865	14.9

Gross margin	$	274,303		$	250,601		$	23,702	9.5

Gross margin %		30.1	%		31.1	%

Salaries, wages, and other direct costs

Salaries, wages, and other direct costs for the year ended December 31, 2004 were $637.2 million, an increase of $82.9 million compared to $554.4 million for the year ended December 31, 2003. The increase was primarily attributable to costs of client service personnel to support the increased service revenues as well as an increase in direct costs to support the revenues generated by our acquired Nims business. Salaries, wages, and other direct costs were 69.9% of total revenues for the year ended December 31, 2004 compared to 68.9% of total revenues for the year ended December 31, 2003.

Total billable employees for all operations were 7,235 as of December 31, 2004, compared to 6,369 total billable employees as of December 31, 2003. This includes a base of billable employees within our India operations of 1,454, which represents an increase of 421 employees, or 40.8%, over the year ended December 31, 2003. We added our India operation in March 2002 with our acquisition of SignalTree Solutions. In addition, total billable employees include a base of 370 billable employees within our Keane Worldzen operations. 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 585 subcontractors as of December 31, 2004. 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 year ended December 31, 2004 increased $23.7 million, or 9.5%, compared to the year ended December 31, 2003. Gross margin as a percentage of revenues for the year ended December 31, 2004 was 30.1% compared to 31.1% for

the year ended December 31, 2003. Although gross margin for the year ended December 31, 2004 decreased by approximately 100 basis points compared to the year ended December 31, 2003, we believe that the relatively constant gross margin percentage over the past two years is indicative of a more stable environment for IT services, and firmer utilization rates, as well as the benefit of our global delivery 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

	Years Ended December 31,						Increase
	2004			2003			$		%
Selling, general, and administrative expenses (SG&A)	$	206,747		$	192,900		$	13,847	7.2

SG&A as a % of revenue		22.7	%		24.0	%

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 year ended December 31, 2004 increased $13.8 million, or 7.2%, compared to the year ended December 31, 2003. The increase in SG&A expenses was due to higher compensation costs in 2004 compared to 2003, resulting from higher headcount associated with our acquired business, Keane Worldzen in the Fourth Quarter ended December 31, 2003, Nims in the First Quarter ended March 31, 2004 and Fast Track in the Third Quarter ended September 30, 2004. Also contributing to the increase in SG&A expenses were higher costs associated with the growth of our India operations. SG&A expenses for the year ended December 31, 2004 were 22.7% of total revenues, as compared to 24.0% of total revenues for the year ended December 31, 2003. The decrease in SG&A expenses as a percentage of revenue in 2004 was due in part to the acquisition of Nims, the integration of the operations of Nims, and increasing revenues.

Amortization of intangible assets

Amortization of intangible assets for the year ended December 31, 2004 was $16.2 million, compared to $15.8 million for the year ended December 31, 2003. The amortization of intangible assets for 2004 increased $0.4 million due to the additional intangible assets resulting from our Nims acquisition in the First Quarter ended March 31, 2004 and, to a lesser extent, our Fast Track acquisition in the Third Quarter ended September 30, 2004. These amounts were offset in part by certain intangibles that have become fully amortized.

Restructuring charges, net

During the Fourth Quarter of 2004, we reevaluated our estimates recorded for the restructuring charge taken in 2002 and 2003 and as a result recorded an expense reduction of $2.4 million and a charge of $2.3 million, resulting in a net expense reduction of $0.1 million. During 2003, we reevaluated our estimates recorded for the restructuring charge taken in 2002 and as a result recorded an expense reduction of $1.5 million for workforce reductions, and $1.0 million related to the costs of consolidating and/or closing certain non-profitable offices. In addition, during 2003 we recorded a restructuring charge of $2.2 million. Of this charge, $1.3 million was for an additional workforce reduction of 75 employees and $0.9 million was for the costs associated with a branch office closing. The net impact of these actions resulted in a net expense reduction to the restructuring charge of $326,000 in our consolidated statement of income.

Interest and dividend income

Interest and dividend income for the year ended December 31, 2004 was $3.9 million compared to $3.0 million for the year ended December 31, 2003. The increase in interest and dividend income was the result of higher average cash balances and marketable securities. The higher average cash balances and marketable securities was due to the investment of the net proceeds from the issuance of our 2.0% Convertible Subordinate Debentures due 2013 ("Debentures") issued in June 2003 and strong cash flow, offset in part by the impact of our share repurchases during 2003 and the year ended December 31, 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 year ended December 31, 2004 was $5.7 million compared to $4.2 million for the year ended December 31, 2003. The increase in interest expense was primarily related to a full year of interest recognized on our Debentures and the imputed interest expense on the accrued building costs as a result of our occupation of our corporate facility. As explained in Note 15 "RELATED PARTIES, COMMITMENTS, AND CONTINGENCIES" in the notes to the accompanying consolidated financial statements, the accounting for the facility requires us to impute interest expense on the accrued building costs.

Other (expense) income, net

Other expense, net was $0.7 million for the year ended December 31, 2004 and other income, net was $7.1 million for the year ended December 31, 2003. Other income, net during the First Quarter of 2003 included a $7.3 million, $4.4 million after tax, favorable judgment in an arbitration award proceeding related to damages for breach of an agreement between Signal Corporation and our Federal Systems subsidiary.

Minority Interest

During the Fourth Quarter of 2003, we completed our acquisition of a controlling interest in Keane Worldzen, a privately held BPO firm. Our initial investment resulted in an equity position of approximately 62% of the issued and outstanding capital stock of Keane Worldzen with the right to increase our ownership position over time. As a result of this transaction, we began to consolidate Keane Worldzen's financial results with ours in the Fourth Quarter of 2003. The amount in minority interest represents the loss attributable to minority shareholders for the period that we consolidated Keane Worldzen.

Income taxes

The provision for income taxes represents the amounts owed for federal, state, and foreign taxes. Our effective tax rate was 37.3% for the year ended December 31, 2004. Our effective tax rate was 40% for the year ended December 31, 2003. 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. During the Third Quarter ended September 30, 2004, certain events occurred, which impacted our tax provision. These events include the expiration of certain state statutes and changes in estimates, which resulted in a reduction to our tax provision of approximately $1.1 million, and the enactment of certain tax laws, which resulted in an imposition of tax retroactive to January 1, 2004 and that resulted in an

increase to our tax provision of approximately $0.6 million. The net impact of these events was a reduction of our tax provision by approximately $0.5 million. In accordance with SFAS 5 and SFAS No. 109 ("SFAS 109"), "Accounting for Income Taxes," we adjusted our tax reserves in the period where the conditions under SFAS 5 were no longer met and as of the enactment date of the new tax laws.

For the year ended December 31, 2004, the Company identified errors relating to deferred tax balances arising from transactions in prior years. As a result, an adjustment to reduce goodwill by approximately $2.1 million has been recorded in the accompanying consolidated balance sheet as of December 31, 2004 with a corresponding reduction to deferred tax liabilities. Furthermore, as of December 31, 2004, the Company recorded an adjustment to record an additional deferred tax asset totaling approximately $2.2 million and a corresponding decrease to the provision for income taxes. This income tax adjustment results from book to tax timing differences related to depreciation expense that management believes relate to a period, or periods prior to 2004. Since the specific period to which this adjustment relates cannot be identified with certainty, the adjustment has been recorded in the year ended December 31, 2004.

Net income

Net income for the year ended December 31, 2004 was $3.1 million higher compared to the year ended December 31, 2003. The increase is due to higher income before taxes and the lower effective tax rate for the year ended December 31, 2004.

2003 Compared to 2002

	REVENUES (Dollars in thousands)
	Years Ended December 31,								Increase (Decrease)
	2003		%		2002		%		$			%
Outsourcing	$	371,294	46		$	344,497	40		$	26,797		7.8
Development & Integration		162,113	20			185,830	21			(23,717	)	(12.8	)
Other IT Services		271,569	34			342,876	39			(71,307	)	(20.8	)

Total	$	804,976	100	%	$	873,203	100	%	$	(68,227	)	(7.8	)

Revenues

Revenues in 2003 compared to 2002 decreased as a result of clients' decisions to continue to defer discretionary technology-related expenditures during a period of economic uncertainty. However, throughout the course of the year, we experienced a more stable demand for our services and believe that we are beginning to see some indications of increases in discretionary IT spending.

Outsourcing. Outsourcing service revenues for the year ended December 31, 2003 were $371.3 million, an increase of $26.8 million, or 7.8%, compared to the year ended December 31, 2002. The increase in Outsourcing service revenues was primarily due to increased revenues from large outsourcing contracts.

Development & Integration. Development & Integration service revenues for the year ended December 31, 2003 were $162.1 million, a decrease of $23.7 million, or 12.8%, compared to the year ended December 31, 2002. Development and Integration service revenues were adversely affected during 2003 by customers' decisions to defer software development projects due to the reduction in capital spending related to technology.

Other IT Services. Other IT Services revenues for the year ended December 31, 2003 were $271.6 million, a decrease of $71.3 million, or 20.8%, compared to the year ended December 31, 2002, largely due to lower revenues associated with staff augmentation and other services.

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

	Years Ended December 31,						Increase (Decrease)
	2003			2002			$			%
Revenues	$	804,976		$	873,203		$	(68,227	)	(7.8	)
Salaries, wages, and other direct costs		554,375			630,047			(75,672	)	(12.0	)

Gross margin	$	250,601		$	243,156		$	7,445		3.1

Gross margin %		31.1	%		27.8	%

Salaries, wages, and other direct costs

The decrease in salaries, wages, and other direct costs in 2003, as compared to 2002, was primarily attributable to ongoing efforts to bring our costs in alignment with anticipated revenues through workforce reductions and increased offshore staffing, primarily at our India facilities. Salaries, wages, and other direct costs were $554.4 million, or 68.9%, of total revenues, for 2003 and $630.0 million, or 72.2%, of total revenues in 2002. Total billable employees for all operations were 6,182 at the end of 2003, compared to 6,175 total billable employees at the end of 2002. In addition to these employees, we occasionally use subcontractors to augment our billable staff. The base of billable employees within our India operation was 876 at the end of 2003, an increase of 463 employees, or 112.1%, compared to 2002. We added our India operation in March 2002 with our acquisition of SignalTree Solutions. We closely monitor utilization rates, billable employees, and other direct costs in an effort to avoid adverse impacts to our gross margin.

Gross margin

We believe gross margin (revenues less salaries, wages, and other direct costs) provides an important measure of our profitability. Gross margin as a percentage of revenue for 2003 was 31.1%, compared to 27.8% in 2002. The increase in gross margin as a percentage of revenue was largely the result of a more stable environment for IT services and improved utilization related to our base of billable personnel in North America. Also contributing to the improvement in the gross margin percentage was our lower labor cost due to increased use of offshore resources at our India facilities.

Selling, general and administrative expenses

	Years Ended December 31,						Decrease
	2003			2002			$			%
Selling, general, and administrative expenses (SG&A)	$	192,900		$	198,813		$	(5,913	)	(3.0	)

SG&A as a % of revenue		24.0	%		22.8	%

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 2003 decreased $5.9 million, or 3.0%, compared to 2002. SG&A expenses for 2003 were $192.9 million, or 24.0%, of total revenue, compared to $198.8 million, or 22.8%, of total revenue for 2002. The decrease in SG&A expenses in 2003 was the result of our

Fourth Quarter of 2002 workforce reduction, our continued focus on tightly controlling discretionary expenses, and the cost synergies of fully integrating the acquisitions that we made in 2001 and 2002.

Amortization of intangible assets

Amortization of intangible assets for 2003 was $15.8 million, a decrease of $0.5 million, or 3.3%, compared to 2002. The decrease in amortization of intangible assets in 2003 was primarily due to fully amortizing intangibles associated with prior year acquisitions offset in part by the full year amortization of additional intangible assets resulting from the acquisitions of SignalTree Solutions in March 2002 and one other acquisition complementary to our business strategy made during the Third Quarter of 2002.

Restructuring charges, net

During 2003, we reevaluated our estimates recorded for the restructuring charge taken in 2002 and as a result recorded an expense reduction of $1.5 million for workforce reductions, and $1.0 million related to the costs of consolidating and/or closing certain non-profitable offices. In addition, during 2003 we recorded a restructuring charge of $2.2 million. Of this charge, $1.3 million was for an additional workforce reduction of 75 employees and $0.9 million was for the costs associated with a branch office closing. The net impact of these actions resulted in a net expense reduction to the restructuring charge of $326,000 in our consolidated statement of income.

During 2002, we recorded a restructuring charge of $17.6 million. This charge consisted of $3.2 million related to a workforce reduction of approximately 229 employees, $12.1 million for branch office closings and certain other expenditures, $1.8 million of assets which became impaired as a result of these restructuring actions, and $0.5 million for a net change in the prior year's estimate for workforce reductions, branch office closures, and other expenditures.

Interest and dividend income

Interest and dividend income for 2003 was $3.0 million compared to $2.2 million in 2002. The increase in interest and dividend income was the result of higher average cash balances and marketable securities offset in part by overall lower interest rates compared to the same period in 2002. The higher average cash balances and marketable securities was due to the investment of the net proceeds from the issuance of Debentures in June 2003 and our strong cash flow. Our cash balances were reduced by cash used to repurchase shares of our common stock in 2003.

Interest expense

Interest expense for 2003 was $4.2 million compared to $255,000 in 2002. The interest expense increase is primarily related to the issuance of our Debentures and our new corporate facility. The accounting for the facility as explained in Note 15 "RELATED PARTIES, COMMITMENTS, AND CONTINGENCIES" in the notes to the accompanying consolidated financial statements, requires us to impute interest expense on the accrued building costs.

Other income, net

Other income was $7.1 million for 2003 compared to $1.3 million in 2002. Other income in 2003 included a $7.3 million payment received for a favorable judgment in an arbitration award proceeding related to damages for breach of an agreement between Signal Corporation and our Federal Systems subsidiary.

Minority interest

Income taxes

We generated income before taxes of $48.7 million for 2003 compared to $13.6 million in 2002. The provision for income taxes represents the amounts owed for federal, state, and foreign taxes. The effective income tax rate is the provision for income taxes as a percentage of income before the provision for income taxes. Our effective tax rate was 40.0% for 2003 and 2002, and reflects an adjustment of prior year's estimated tax liability in 2003 and 2002. A reconciliation of the statutory federal income tax rate to the effective rate for each period is included in Note 14 "INCOME TAXES" in the notes to the accompanying consolidated financial statements.

Net income

Net income increased to $29.2 million in 2003 compared to $8.2 million in 2002. The improvement in net income is the result of the absence of a restructuring charge in 2003, improved operating income margins, and the favorable judgment in an arbitration award in 2003.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," as amended by FASB Interpretation No. 46(R) ("FIN 46(R)"), 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. FIN 46(R) is effective prospectively for all variable interests obtained subsequent to December 31, 2002. For variable interests existing prior to December 31, 2002, consolidation is required for periods ending after March 15, 2004, with the exception of interests in special purpose entities, which were required in financial statements of public companies for periods ending after December 15, 2003.

We have evaluated the applicability of FIN 46(R) to our relationship with each of City Square Limited Partnership ("City Square") and Gateway LLC and determined that these entities are not required to be consolidated 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 May 2003, the EITF reached a consensus on Issue No. 01-08 ("EITF 01-8"), "Determining Whether an Arrangement Contains a Lease." EITF 01-08 provides guidance on how to determine

whether an arrangement contains a lease that is within the scope of SFAS No. 13 ("SFAS 13"), "Accounting for Leases." The guidance in EITF 01-08 is based on whether the arrangement conveys to the purchaser (lessee) the right to use a specific asset. EITF 01-08 is effective for arrangements entered into or modified in the Second Quarter of 2004. The adoption of this statement did not have a significant effect on our unaudited condensed consolidated financial position or results of operations.

In December 2003, the FASB issued SFAS No. 132 (revised 2003) ("SFAS 132 as revised"), "Employers' Disclosures about Pensions and Other Post Retirement Benefits." This Statement revises employers' disclosures about pension plans and other postretirement benefit plans but does not change the measurement or recognition provisions of SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits" and SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other than Pensions." SFAS 132 as revised requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement plans. This Statement is effective for financial statements with fiscal years ending after December 15, 2003, except the additional disclosure information about foreign plans is effective for fiscal years ending after June 15, 2004. We have a foreign defined benefit plan and, as a result, have included the required additional disclosures in the notes to the accompanying consolidated financial statements.

In March 2004, the EITF reached consensuses on Issue No. 03-6 ("EITF 03-6"), "Participating Securities and the Two-Class Method" under FASB Statement No. 128, "Earnings per Share," which requires that convertible participating securities should be included in the computation of basic earnings per share using the two-class method. Our Debentures are not participating securities under the provisions of EITF 03-6 as they do not participate in undistributed earnings with our common stock. No separate disclosure of basic or diluted earnings per share has been made for the Class B common stock as the impact was immaterial and, effective February 1, 2004, all of the Class B common stock was converted into shares of our common stock. In addition, there was no impact on the basic and diluted earnings per share for our common stock for all periods presented in the accompanying unaudited condensed consolidated statements of income. See Note 8 "Capital Stock" in the notes to the accompanying unaudited condensed consolidated financial statements for additional disclosure.

In September 2004, the EITF reached consensus on Issue No. 04-8 ("EITF 04-8"), "The Effect of Contingently Convertible Debt on Diluted Earnings per Share," which requires that contingently convertible debt should be included 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. See Note 2 "Earnings Per Share Data" in the notes to the accompanying consolidated financial statements for additional disclosure. In accordance with this Issue, we have adopted the consensus as of December 31, 2004 and have restated all prior periods presented. The adoption of EITF 04-8 resulted in a reduction of diluted earnings per share for the years ended December 31, 2004 and 2003, but did not have any impact on diluted earnings per share for the year ended December 31, 2002 as our Debentures were issued in 2003.

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. SFAS 123(R) is effective for public companies (excluding small business issuer as defined in SEC Regulation S-B) at the beginning of the first interim or annual period beginning after June 15, 2005.

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. 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 impact in future periods.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated Financial Condition (Dollars in thousands)

Years Ended December 31,		2004			2003			2002
	Cash Flows Provided By (Used in)
	Operating activities	$	51,919		$	77,572		$	62,525
	Investing activities		(16,436	)		(150,202	)		(34,737	)
	Financing activities		(25,240	)		82,437			(48,989	)
	Effect of exchange rate on cash		509			546			2,028

Increase (Decrease) in Cash and Cash Equivalents		$	10,752		$	10,353		$	(19,173	)

We have historically financed our operations with cash generated from operations. In addition, 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 December 31, 2004, we had $198.2 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 from operating activities

Net cash provided by operating activities totaled $51.9 million in 2004 as compared to net cash provided by operations of $77.6 million in 2003. The decrease in net cash provided by operating activities was driven in part by the absence of a $7.3 million payment that we received in connection with an arbitration proceeding in the First Quarter of 2003, $10.4 million of higher tax payments during 2004 and higher working capital requirements due to the timing of payroll and subcontractor costs. Accounts receivable increased $13.2 million to $126.5 million in 2004 compared to 2003. The accounts receivable increase was largely driven by the revenue growth experienced in 2004. However, Day Sales Outstanding ("DSO"), an indicator of the effectiveness of our accounts receivable collections, was 52 days as of December 31, 2004 compared to 53 days as of December 31, 2003 and 59 days as of December 31, 2002. We calculate DSO using the trailing three months total revenues divided by the number of days in the quarter to determine daily revenues. The average accounts receivable balance for the three-month period is then divided by daily revenues. Changes in accounts receivable have a

significant effect on our cash flow. Items that can affect our accounts receivable DSO include, contractual payment terms, client payment patterns (including approval or processing delays and cash management), fluctuations in the level of IT product sales and our level of collection efforts. Many individual reasons are outside of our control. As a result, our DSO will normally fluctuate from period to period affecting our liquidity.

Net cash provided by operating activities in 2003 increased $15.0 million compared to 2002 due to higher net income and improvements in working capital. We drove the improvements in working capital through our continuing efforts to increase collections of accounts receivable. The improvement in collections is evident by a reduction in DSO. Cash provided by operating activities also improved due to a $7.3 million award that we received in the First Quarter of 2003. This award was the result of an arbitration proceeding that we initiated in 2000 for a breach of an agreement between Signal Corporation and our Federal Systems subsidiary. Partially offsetting this increase is approximately $11.9 million that we paid associated with prior and current restructuring charges and $3.5 million that we paid in connection with settling a legal claim in the Third Quarter of 2003. During 2002, we paid $16.5 million associated with prior and current restructuring charges.

We believe that cash generated from our operating activities will be sufficient to fund our working capital requirements through the next 12 months and beyond. However, in order to protect against the current economic conditions persisting in 2005 and beyond, we have taken and will continue to take, as we deem necessary, steps to reduce our expenses and align our cost structure to our revenue. We anticipate that current cash on hand and cash generated from operations will be adequate to fund our planned capital and financing expenditures for the next 12 months and beyond.

Cash flows used in investing activities

Net cash used in investing activities in each of 2004, 2003, and 2002 was primarily for investments, acquisitions, and capital expenditures.

During 2004, we purchased $62.6 million and sold $77.6 million in marketable securities, generating a net source of cash of $15.0 million. In addition, we invested $10.3 million in property and equipment, and capitalized software costs in connection with the implementation of our PeopleSoft Enterprise Resource Planning applications in 2004. On February 27, 2004, we acquired Nims, an information technology and consulting services company. We paid $18.1 million in cash, including transaction costs and net of cash acquired, for all of the outstanding capital stock of Nims. The purchase price 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. Based on the forecasted financial performance related to the first earn-out, we expect to pay approximately $3.3 million contingent consideration in April of 2005. On July 13, 2004, we acquired Fast Track, a privately held consulting firm based in the United Kingdom that manages the design, integration, and rapid 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 transactions costs, with the potential to pay up to approximately $5.0 million, additionally, in earn-out consideration over the next two years, contingent upon the achievement of certain future financial targets.

During 2003, we purchased $144.2 million and sold $18.1 million in marketable securities, generating a net use of cash of $126.1 million. In addition, we invested $15.3 million on property and equipment, and capitalized software costs in connection with the implementation of our PeopleSoft Enterprise Resource Planning applications. We also invested $7.5 million, net of cash acquired, for the controlling interest in Keane Worldzen and paid $0.9 million related to prior year's acquisitions.

During 2002, we purchased $27.9 million and sold $69.8 million in marketable securities, generating net cash of $41.9 million, which we used to partially fund acquisitions. In 2002, we paid $63.2 million, net of cash acquired, to acquire SignalTree Solutions, and another smaller business that is

complementary to our business strategy. In connection with the smaller complementary business acquisition, 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. As of December 31, 2004, the deferred revenue and non-interest bearing note each had a balance of $0.6 million, which reflects an aggregate reduction of $4.8 million resulting from the delivery of related service credits. 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. During 2002, we also invested $13.7 million on property and equipment, and capitalized software costs in connection with the implementation of our PeopleSoft Enterprise Resource Planning applications.

Cash flows provided by (used in) financing activities

Net cash flows used for financing activities was $25.2 million in 2004 compared to net cash flows provided by financing activities of $82.4 million in 2003. Net cash flows used for financing activities were primarily for the repurchase of our common stock.

In June 2003, we received $150.0 million in proceeds from our issuance of convertible subordinated debentures. From these proceeds, we simultaneously invested approximately $37.3 million to repurchase approximately 3.0 million shares of our common stock from authorizations approved by our Board of Directors in October of 2002 and May of 2003. Net proceeds after the repurchase of shares and approximately $4.4 million debt issuance costs were approximately $108.3 million. See Note 9 "CONVERTIBLE SUBORDINATED DEBENTURES" in the notes to the accompanying consolidated financial statements for additional information on our Debentures.

Additionally during 2004 and 2003, we were authorized to repurchase shares of our common stock on the open market or in negotiated transactions, with the timing and amount of shares purchased determined by our management based on its evaluation of market and economic conditions and other factors. From January 1, 2002 through December 31, 2004, our Board of Directors authorized us to repurchase up to 17.6 million shares of our common stock. The following is a summary of our repurchase activity for 2004, 2003, and 2002 (dollars in thousands):

	2004				2003				2002
	Shares		Amount		Shares		Amount		Shares		Amount
Prior year authorizations at January 1,	3,181,200				3,676,400				1,542,800
Authorizations	3,000,000				6,000,000				8,632,200
Repurchases	(2,127,300	)	$	30,096	(6,495,200	)	$	66,696	(6,498,600	)	$	54,092
Expirations	(1,182,300	)			—				—

Shares remaining as of December 31,	2,871,600				3,181,200				3,676,400

Between May 1999 and December 31, 2004, we have invested approximately $259.8 million to repurchase approximately 20.6 million shares of our common stock under ten separate authorizations. These share repurchases more than offset the shares issued under our various stock ownership programs. Under these stock ownership programs, we issued 682,250 shares, 603,235 shares, and 510,312 shares and received proceeds of $5.6 million, $4.4 million, and $6.4 million for the years ended December 31, 2004, 2003, and 2002, respectively.

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. 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 December 31, 2004, 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.

Net cash used in financing activities in 2002 was primarily the result of our share repurchase program. During 2002, we repurchased 6,498,600 shares of our common stock for a total investment of approximately $54.1 million at an average per share price of $8.32, which was partially offset by $6.3 million in cash proceeds from our various stock ownership programs.

Increase (Decrease) in Cash and Cash Equivalents

Our cash and cash equivalents totaled $67.5 million, $56.7 million, and $46.4 million at December 31, 2004, 2003, and 2002, respectively.

The following table summarizes our contractual obligations by year as of December 31, 2004:

	Payments due by Period (Dollars in thousands)
Contractual obligations	2005		2006		2007		2008		2009		2010 & thereafter		Total
Note Payable	$	649	$	—	$	—	$	—	$	—	$	—	$	649
Put Option	$	2,858		—		—		—		—		—		2,858
Long-term debt (1)		—		—		—		—		—		150,000		150,000
Operating leases (2)		19,457		16,195		13,354		10,299		7,479		22,435		89,219
Capital lease obligations		243		17		—		—		—		—		260

Total contractual cash obligations (3)	$	23,207	$	16,212	$	13,354	$	10,299	$	7,479	$	172,435	$	242,986

(1): Excludes contractual and contingent interest as described in Note 9 "CONVERTIBLE SUBORDINATED DEBENTURES."
(2): Our operating lease commitment balances include lease obligations for properties that have been restructured in prior years and are accrued, net of contractual sublease income of approximately $2.3 million, on our accompanying consolidated balance sheets.
(3): Total contractual cash obligations exclude the potential future cash payments required (i) in connection with potential earn-out contingent consideration associated with the Third Quarter of 2002 acquisition (ii) to settle the first earn-out associated with the Nims acquisition totaling approximately $3.3 million and expected to be paid in April of 2005 (iii) to settle the other put and call options associated with our Keane Worldzen acquisition (see Note 6 "BUSINESS ACQUISITIONS" in the notes to the accompanying consolidated financial statements for further discussion) and (iv) to settle the accrued deferred compensation liability of approximately $8.1 million and the UK accrued pension liability of approximately $13.5 million (see Note 13 "BENEFIT PLANS" in the notes to the accompanying consolidated financial statements for further discussion).

Our material commitments are primarily related to our Debentures and our office rentals. Contractual obligations related to operating leases reflect existing rental leases and the corporate facility as discussed in Note 15 "RELATED PARTIES, COMMITMENTS, AND CONTINGENCIES" in the notes to the accompanying consolidated financial statements. Further discussion regarding our Debentures can be found in Note 9 "CONVERTIBLE SUBORDINATED DEBENTURES."

Seasonality

OFF-BALANCE SHEET ARRANGEMENTS

In January 2003, the FASB issued FIN 46, 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. FIN 46 is effective prospectively for all variable interests obtained subsequent to December 31, 2002. For variable interests existing prior to December 31, 2002, consolidation will be required beginning July 1, 2003. In December 2003, the FASB agreed to a broad-based deferral of the effective date of FIN 46 for public companies until the end of periods ending after March 15, 2004, with the exception of interests in special purpose entities, which are required in financial statements of public companies for periods ending after December 15, 2003.

We have evaluated the applicability of FIN 46 to our relationship with each of City Square and Gateway LLC and determined that these entities are not required to be consolidated within our 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 November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The statement requires a guarantor to record certain guarantees at fair value and to make significant new disclosures, even when the likelihood of making any payments under the guarantee is remote. The interpretation and its disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The interpretation's initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Under FIN 45, the guarantor's previous accounting for guarantees issued prior to December 31, 2002 will not be revised or restated.

We are a guarantor with respect to a line of credit for Innovate EC, an entity in which we acquired a minor 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.

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 Annual Report on Form 10-K 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 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 18.5% of our revenue in 2004, while no individual client accounted for more than 6.0% of our total revenue. The various agencies of the federal government represent our largest client, accounting for 9.4% of total revenue in 2004. 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, governments 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 2004, approximately 18.7% 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.

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 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 December 31, 2004, we have completed 14 acquisitions. The aggregate merger and consideration costs of these acquisitions totaled approximately $414.4 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.

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 December 31, 2004, we had approximately 1,466 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.

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 December 31, 2004, we had approximately $191.0 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;
•: 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.

ITEM 7A. 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 February 2005 meeting of the Federal Open Market Committee increased rates for the sixth time, a total of 150 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 annual interest income would change by approximately $0.8 million for the year ended December 31, 2004 and approximately $0.7 million for the year ended December 31, 2003 for each 100 basis point increase or decrease in interest 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. The fair value of our investment portfolio at December 31, 2003 would

decrease by approximately $3.2 million for each 100 basis point increase in rates and would increase by approximately $2.6 million for each 100 basis point 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. During 2004, we had a net unrealized loss of approximately $0.9 million. During 2003, we had a net unrealized gain of approximately $0.2 million.

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 year ended December 31, 2004 compared to the same period in 2003, the fluctuation in foreign currency exchange rates negatively impacted net income by approximately $1.7 million. Relative to the foreign currency exposures existing at December 31, 2004, a 10% unfavorable movement would have resulted in an additional $4.4 million reduction of net income for the year ended December 31, 2004. Net revenues derived from our foreign operations totaled approximately 6% of our total revenues for the year ended December 31, 2004 and totaled approximately 3% of our total revenues for both of the years ended December 31, 2003 and 2002.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of independent registered public accounting firm		45
Consolidated statements of income for the years ended December 31, 2004, 2003, and 2002		46
Consolidated balance sheets as of December 31, 2004 and 2003		47
Consolidated statements of stockholders' equity for the years ended December 31, 2004, 2003, and 2002		48
Consolidated statements of cash flows for the years ended December 31, 2004, 2003, and 2002		49
Notes to consolidated financial statements		50-89

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Keane, Inc.:

We have audited the accompanying consolidated balance sheets of Keane, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Keane, Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, in 2004 the Company retroactively changed the manner in which it calculates diluted earnings per share upon the adoption of Emerging Issues Task Force Issue No. 04-08, The Effect of Contingently Convertible Debt on Diluted Earnings per Share.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Keane, Inc.'s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2005 expressed an unqualified opinion thereon.

		/s/ Ernst and Young LLP
Boston, Massachusetts March 11, 2005

KEANE, INC.

CONSOLIDATED STATEMENTS OF INCOME

		For the years ended December 31,
		2004			2003			2002
		*(In thousands, except per share amounts)*
Revenues		$	911,543		$	804,976		$	873,203
Operating expenses
	Salaries, wages, and other direct costs		637,240			554,375			630,047
	Selling, general, and administrative expenses		206,747			192,900			198,813
	Amortization of intangible assets		16,234			15,847			16,382
	Restructuring charges, net		(111	)		(326	)		17,604

Operating income			51,433			42,180			10,357
Other income (expense)
	Interest and dividend income		3,906			2,981			2,246
	Interest expense		(5,682	)		(4,156	)		(255	)
	Other income, net		(665	)		7,119			1,288
	Minority interest		2,516			572			—

Income before income taxes			51,508			48,696			13,636

Provision for income taxes			19,226			19,474			5,455

Net income		$	32,282		$	29,222		$	8,181

Basic earnings per share		$	0.52		$	0.44		$	0.11

Diluted earnings per share		$	0.48		$	0.43		$	0.11

Basic weighted average common shares outstanding			62,601			65,771			74,018

Diluted weighted average common shares and common share equivalents outstanding			71,807			70,817			74,406

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

KEANE, INC.

CONSOLIDATED BALANCE SHEETS

			As of December 31,
			2004			2003
			(Dollars in thousands, except per share amounts)
Assets
Current:
	Cash and cash equivalents		$	67,488		$	56,736
	Restricted cash			986			1,586
	Marketable securities			130,678			147,814
	Accounts receivable, net:
		Trade		125,319			112,404
		Other		1,148			908
	Prepaid expenses and deferred taxes			16,515			17,630

		Total current assets		342,134			337,078
Property and equipment, net				76,761			75,431
Goodwill				305,965			292,924
Customer lists, net				53,040			57,908
Other intangible assets, net				9,904			13,124
Other assets, net				16,390			16,636

		Total assets	$	804,194		$	793,101

Liabilities
Current:
	Accounts payable		$	9,511		$	10,136
	Accrued expenses and other liabilities			50,967			37,011
	Accrued building costs			498			458
	Accrued restructuring			3,513			6,947
	Accrued compensation			39,763			37,308
	Note payable			649			1,969
	Accrued income taxes			1,295			1,937
	Unearned income			9,376			8,869
	Current capital lease obligations			243			709

		Total current liabilities		115,815			105,344
Convertible debentures				150,000			150,000
Accrued long-term building costs				39,545			40,042
Accrued long-term restructuring				5,164			7,073
Deferred income taxes				25,924			23,775
Long-term portion of capital lease obligations				17			193

		Total liabilities		336,465			326,427
Minority interest				6,026			8,542
Stockholders' equity
Preferred stock, par value $.01, authorized 2,000,000 shares, issued none				—			—
Common stock, par value $.10, authorized 200,000,000 shares, issued and outstanding 62,183,559 at December 31, 2004 and 75,545,391 at December 31, 2003				6,218			7,555
Class B common stock, par value $.10, authorized 503,797 shares, issued and outstanding, none at December 31, 2004 and 284,599 at December 31, 2003				—			28
Additional paid-in capital				33,752			167,548
Accumulated other comprehensive loss				(6,657	)		(1,392	)
Retained earnings				431,046			398,764
Unearned compensation				(2,656	)		(704	)
Less treasury stock at cost, none at December 31, 2004 and 12,201,381 shares at December 31, 2003				—			(113,667	)

		Total stockholders' equity		461,703			458,132

		Total liabilities and stockholders' equity	$	804,194		$	793,101

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

KEANE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except for share data)

														Accumu- lated other compre- hensive loss
						Class B Common stock																Treasury stock at cost
For the years ended December 31, 2002, 2003, and 2004	Common stock
	Common stock										Additional paid-in capital						Retained earnings		Unearned compen- sation								Total stockholders' equity
	Shares		Amount			Shares		Amount			Additional paid-in capital						Retained earnings		Unearned compen- sation			Shares		Amount			Total stockholders' equity
Balance December 31, 2001	75,223,971		$	7,522		284,891		$	28		$	162,269		$	(2,007	)	$	361,361	$	—		—		$	—		$	529,173

Common stock issued under stock option and employee purchase plans	321,128			33								4,045										189,184			2,364			6,442
Conversions of Class B common stock into common stock	287			—		(287	)		—																			—
Income tax benefit from stock option plans												284																284
Repurchase of common stock																						(6,498,600	)		(54,092	)		(54,092	)
Minimum pension liability, net of taxes of $773															(1,159	)												(1,159	)
Investments valuation adjustment, net of taxes of $182															(273	)												(273	)
Foreign currency translation															2,028													2,028
Net income																		8,181										8,181

Comprehensive income																												8,777

Balance December 31, 2002	75,545,386		$	7,555		284,604		$	28		$	166,598		$	(1,411	)	$	369,542	$	—		(6,309,416	)	$	(51,728	)	$	490,584

Issuance of restricted stock award												80								(277	)	25,000			200			3
Employee stock option grant and accelerated vesting of certain stock options												541								(541	)							—
Amortization of unearned compensation																				114								114
Common stock issued under stock option and employee purchase plans												(116	)									578,235			4,557			4,441
Conversions of Class B common stock into common stock	5			—		(5	)		—																			—
Income tax benefit from stock option plans												445																445
Repurchase of common stock																						(6,495,200	)		(66,696	)		(66,696	)
Minimum pension liability, net of taxes of ($773)															(2,342	)												(2,342	)
Investments valuation adjustment, net of taxes of $108															162													162
Foreign currency translation															2,199													2,199
Net income																		29,222										29,222

Comprehensive income																												29,241

Balance December 31, 2003	75,545,391		$	7,555		284,599		$	28		$	167,548		$	(1,392	)	$	398,764	$	(704	)	(12,201,381	)	$	(113,667	)	$	458,132

Issuance of restricted stock award	145,000			14								2,194								(2,194	)							14
Employee stock option grant and accelerated vesting of certain stock options												287																287
Amortization of unearned compensation																				242								242
Common stock issued under stock option and employee purchase plans	251,481			25								3,432										285,769			2,273			5,730
Conversions of Class B common stock into common stock	284,599			28		(284,599	)		(28	)																		—
Income tax benefit from stock option plans												377																377
Repurchase of common stock																						(2,127,300	)		(30,096	)		(30,096	)
Reclassification of repurchased stock as unissued according to Massachusetts Business Corporation Act	(14,042,912	)		(1,404	)							(140,086	)									14,042,912			141,490			—
Minimum pension liability, net of taxes of $0															(6,646	)												(6,646	)
Investments valuation adjustment, net of taxes of $570															(859	)												(859	)
Foreign currency translation															2,240													2,240
Net income																		32,282										32,282

Comprehensive income																												27,017

Balance December 31, 2004	62,183,559		$	6,218		—		$	—		$	33,752		$	(6,657	)	$	431,046	$	(2,656	)	—		$	—		$	461,703

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

KEANE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				For the years ended December 31,
				2004			2003			2002
				*(In thousands)*
Cash flows from operating activities:
	Net income			$	32,282		$	29,222		$	8,181
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			28,741			27,081			27,452
		Deferred income taxes			5,340			18,710			(3,796	)
		Provision for doubtful accounts			(1,530	)		(2,802	)		(5,514	)
		Minority interest			(2,516	)		(572	)		—
		Gain on sale of property and equipment			(56	)		(179	)		(46	)
		Gain on sale of investments			(6	)		(51	)		(387	)
		Other charges, net			(3,267	)		(1,387	)		—
		Non-cash restructuring charges			—			—			1,847
		Income tax benefit from stock options			377			445			284
		Changes in operating assets and liabilities, net of acquisitions:
			(Increase) decrease in accounts receivable		(4,088	)		19,979			49,888
			Increase in prepaid expenses and other assets		(2,311	)		(866	)		(4,900	)
			Increase (decrease) in accounts payable, accrued expenses, unearned income, and other liabilities		32			(14,621	)		(5,789	)
			(Decrease) increase in income taxes payable		(1,079	)		2,613			(4,695	)

	Net cash provided by operating activities				51,919			77,572			62,525

Cash flows from investing activities:
	Purchase of investments				(62,566	)		(144,218	)		(27,859	)
	Sale and maturities of investments				77,622			18,082			69,788
	Purchase of property and equipment				(10,259	)		(15,336	)		(13,656	)
	Restricted cash				(192	)		(1,436	)		—
	Proceeds from the sale of property and equipment				378			1,113			410
	Payments for current year acquisitions, net of cash acquired				(21,354	)		(7,504	)		(63,236	)
	Payments for prior years acquisitions				(65	)		(903	)		(184	)

	Net cash used for investing activities				(16,436	)		(150,202	)		(34,737	)

Cash flows from financing activities:
	Proceeds from issuance of convertible debentures				—			150,000			—
	Debt issuance costs				(42	)		(4,364	)		—
	Payments under long-term debt, net				—			(100	)		—
	Principal payments under capital lease obligations				(709	)		(847	)		(1,227	)
	Proceeds from issuance of common stock				5,607			4,444			6,330
	Repurchase of common stock				(30,096	)		(66,696	)		(54,092	)

	Net cash provided by (used for) financing activities				(25,240	)		82,437			(48,989	)

	Effect of exchange rate changes on cash				509			546			2,028
	Net increase (decrease) in cash and cash equivalents				10,752			10,353			(19,173	)
Cash and cash equivalents at beginning of year					56,736			46,383			65,556

Cash and cash equivalents at end of year				$	67,488		$	56,736		$	46,383

Supplemental information:
	Income taxes paid			$	14,604		$	4,219		$	16,511

	Interest paid			$	3,070		$	1,598		$	209

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

KEANE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION: The accompanying consolidated financial statements include the accounts of Keane, Inc. and all of its wholly and majority owned subsidiaries. Upon consolidation, all significant intercompany accounts and transactions are eliminated. Our fiscal year ends on December 31. Certain reclassifications have been made to the 2003 and 2002 financial statements to conform to the 2004 presentation. These reclassifications have no effect on previously reported net income or stockholders' equity.

NATURE OF OPERATIONS: We are a leading provider of Information Technology ("IT") and Business Consulting services. In business since 1965, our mission is to help clients improve business and IT effectiveness through outsourcing services. In order to align our reporting with our strategic priorities, beginning January 1, 2004, we are classifying our service offerings into the following three categories: Outsourcing, Development & Integration, and Other IT Services. These services were previously classified within our Plan, Build, and Manage service offerings in our Annual Report on Form 10-K for the year ended December 31, 2003. Outsourcing includes Application Outsourcing and Business Process Outsourcing ("BPO"). We optimize clients' internal processes through BPO services through Keane Worldzen, Inc. ("Keane Worldzen"), our majority owned subsidiary.

We deliver our IT services through an integrated network of regional offices in North America and the UK, and through Advanced Development Centers ("ADCs") in the U.S., Canada, and India. This global delivery model enables us to provide our services to customers onsite at a client's facility, at our nearshore facilities in Halifax, Nova Scotia, and Toronto, Ontario, and through our offshore 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. Our regional offices are supported by centralized Strategic Practices and Quality Assurance Groups. This integrated, highly 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 successful track record in absorbing the local staff of our clients is particularly attractive to many prospective clients.

Our clients consist primarily of Global 2000 companies across several industries. We have specific expertise and depth of capability in financial services, insurance, healthcare, and the public sector. We strive to build long-term relationships with our customers by improving their business and IT performance, reducing their costs, and increasing their organizational flexibility. We achieve recurring revenue as a result of our multi-year outsourcing contracts and our long-term client relationships.

INDUSTRY SEGMENT INFORMATION: Based on qualitative and quantitative criteria established by Statement of Financial Accounting Standards ("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 Outsourcing, Development and Integration, and Other IT services.

REVENUE RECOGNITION: We recognize revenue on time and materials contracts at contractually agreed upon rates. For these types of contracts, we recognize revenue as the services are performed. In some cases, we invoice customers prior to performing the service, resulting in deferred revenues, which are reported as unearned income in the accompanying consolidated balance sheets.

For the majority of outsourcing engagements, we provide a specific level of service each month for which we bill a standard monthly amount. We recognize revenue for these engagements in monthly

installments over the billable portion of the contract or on a time and materials basis. Installment amounts may be adjusted to reflect changes in staffing requirements or service level agreements. Costs of transitioning the employees may be capitalized over defined periods of time and amortized over the period in which the associated revenue is recognized.

For fixed-price contracts, we recognize revenue using the proportional performance method. We use estimated labor-to-complete to measure the proportional performance. Proportional performance recognition relies on accurate estimates of cost, scope, and duration of each engagement. If we do not accurately estimate the cost or scope or do not manage our projects properly within the expected period of the project, future revenues may be negatively impacted. Adjustments to revenue are recorded in the period of which the over/under estimate is detected. Our management regularly reviews profitability and underlying estimates for fixed-price contracts. Losses, if any, on fixed-price contracts are recorded in the period in which the loss is identified.

We recognize revenue associated with application software products as the software products are installed and as implementation services are delivered. We recognize software maintenance fees on installed products on a pro-rated basis over the term of the agreement. In multiple element arrangements, Keane uses the residual value method in accordance with ("SOP 97-2"), "Software Revenue Recognition," and ("SOP 98-9"), "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions." Revenue earned on software arrangements involving multiple elements which qualify for separate element accounting treatment is allocated to each undelivered element using the relative fair values of those elements based on vendor-specific objective evidence with the remaining value assigned to the delivered element, the software license.

ALLOWANCE FOR BAD DEBTS: Each accounting period, we evaluate accounts receivable for risk associated with a client's inability to make contractual payments or unresolved issues with the adequacy of our services. Billed and unbilled receivables that are specifically identified as being at risk are provided for with a charge to revenue in the period the risk is identified. Considerable judgment is used in assessing the ultimate realization of these receivables, including reviewing the financial stability of the client, evaluating the successful mitigation of service delivery disputes, and gauging current market conditions. When we determine that an account is deemed uncollectible, we write-off the receivable against the allowance for bad debts.

FOREIGN CURRENCY TRANSLATION: For our subsidiaries in Canada, the UK, and India, the Canadian dollar, British pound, and Indian rupee, respectively, are the functional currencies. All assets and liabilities of our Canadian, English, and Indian subsidiaries are translated at exchange rates in effect at the end of the period. Income and expenses are translated at average exchange rates that approximate those in effect on transaction dates. The translation adjustments are recorded in accumulated other comprehensive loss, a separate component of stockholders' equity in the accompanying consolidated balance sheets. Realized foreign exchange gains and losses are included in other income, net, in the accompanying consolidated statements of income.

CASH AND CASH EQUIVALENTS: Cash and cash equivalents consist of highly liquid investments with a maturity of three months or less at the time of purchase. Cash equivalents are currently designated as available-for-sale. Cash equivalents at December 31, 2004 included investments in money market funds totaling $3.0 million and investments in commercial paper totaling

$33.5 million. Cash equivalents at December 31, 2003 included investments in money market funds totaling $14.8 million and investments in commercial paper totaling $21.0 million.

RESTRICTED CASH: Restricted cash is primarily related to amounts deposited to secure letters of credit for certain foreign capital purchases and amounts deposited until the purchase price for the acquisition of Fast Track Holdings Limited ("Fast Track") is finalized.

FINANCIAL INSTRUMENTS: The amounts reflected in the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximate their fair value due to their short maturities. Our marketable securities are designated as available-for-sale and are stated at fair market value. As of December 31, 2004, based on an available market quote, the fair value of our convertible subordinated debentures was approximately $154.9 million compared to the carrying value of $150.0 million. As of December 31, 2003, based on an available market quote, the fair value of our convertible subordinated debentures was approximately $158.1 million compared to the carrying value of $150.0 million. Financial instruments that potentially subject us to concentration of credit risk consist primarily of investments and trade receivables. See below for discussion of marketable securities. Our customer base consists of geographically dispersed customers in many different industries. Therefore, we do not consider concentration of credit risk with respect to trade receivables significant.

MARKETABLE SECURITIES: Marketable securities are stated at fair value as reported by the investment custodian. We determine the appropriate classification of debt and equity securities at the time of purchase and re-evaluate such designations as of each balance sheet date. Marketable securities are currently designated as available-for-sale, and as such, unrealized gains and losses, net of tax effect are reported in accumulated other comprehensive loss in the accompanying consolidated balance sheets. We invest primarily in U.S. government obligations. We also invest in tax-exempt municipal bonds with at least a single A rating by Moody's grading service and corporate bonds. The majority of our investments have a maturity date of not more than five years. We view our marketable securities portfolio as available for use in our current operations, and accordingly, these marketable securities are classified as current assets in the accompanying consolidated balance sheet. As of December 31, 2004 and 2003, our marketable securities reflect a net unrealized loss of $0.9 million and a net unrealized gain of $0.6 million, respectively. Realized gains and losses are determined by deducting the amortized cost of the security from the proceeds received. The realized gains and losses, as well as interest, dividends, and capital gain/loss distributions on all securities, are included in interest income in the accompanying consolidated statements of income.

PROPERTY AND EQUIPMENT: Property and equipment is carried at cost less accumulated depreciation and amortization. Property and equipment are reviewed periodically for indicators of impairment and assets are written down to their fair value as appropriate. Depreciation expense is computed on a straight-line basis over the estimated useful lives of 25 to 40 years for buildings and improvements, and two to seven years for office equipment, computer equipment, and software.

Leasehold improvements are amortized over the shorter of the estimated useful life of the improvement or the term of the lease not to exceed seven years. Repair and maintenance costs are charged to expense. Upon disposition, the cost and related accumulated depreciation are removed from the consolidated balance sheet, and any gain or loss is included in other income, net in the accompanying consolidated statements of income.

COMPUTER SOFTWARE COSTS: We capitalize the cost of internal-use software, which has a useful life in excess of one year in accordance with SOP No. 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Subsequent additions, modifications, or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred. Capitalized computer software costs are amortized using the straight-line method over a period of three to seven years. The net computer software costs are included in property and equipment in the accompanying consolidated balance sheets.

SOFTWARE DEVELOPMENT COSTS: In accordance with SFAS No. 86 ("SFAS 86"), "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," we capitalize costs incurred to develop commercial software products after technological feasibility has been established. Costs incurred to establish technical feasibility are charged to expense as incurred. Enhancements to software products are capitalized where such enhancements extend the life or significantly expand the marketability of the products. Amortization expense is computed on a straight-line basis over three years and totaled approximately $0.8 million, $0.4 million, and $0.4 million, for the years ended December 31, 2004, 2003, and 2002, respectively. As of December 31, 2004 and 2003, the unamortized software development costs were approximately $1.7 million and $1.8 million, respectively, and are included in other assets in the accompanying consolidated balance sheets.

GOODWILL AND INTANGIBLE ASSETS: SFAS No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," clarified criteria to recognize intangible assets from goodwill and established requirements to cease amortizing goodwill and indefinite lived intangibles and to begin an annual review for impairment. On January 1, 2002, we adopted SFAS 142 and were, therefore, required to perform an impairment test on our goodwill and other intangibles with indefinite lives during the first six months of 2002, and then on a periodic basis thereafter. Our initial goodwill impairment analysis was completed during the Second Quarter of 2002, and was based on January 1, 2002 balances. Through this analysis, we determined that there was no impairment as of that date. Subsequently, during the Fourth Quarters of 2002, 2003, and 2004, we completed our annual impairment review based on October 1, 2002, 2003, and 2004 balances, respectively, and determined that there was no impairment as of those dates. We estimate the fair value of the business operations using a discounted cash flow model based on the future annual operating plan of each reporting unit. This model determines the present value of the estimated cash flows of the reporting unit. Future changes in estimates may result in a non-cash goodwill impairment that could have a material adverse impact on our financial condition and results of operations. As of December 31, 2004 and 2003, our goodwill totaled $306.0 million and $292.9 million, respectively.

We periodically review our identifiable intangible assets for impairment in accordance with SFAS No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." In determining whether an intangible asset is impaired, we must make assumptions regarding estimated future cash flows from the asset, intended use of the asset, and other related factors. If the estimates or the related assumptions used to determine the value of the intangible assets change, we may be required to record impairment charges for these assets. As of December 31, 2004 and 2003, we reported total intangibles of customer lists and other intangibles of $62.9 million and $71.0 million, respectively. Intangibles are amortized on a straight-line basis over two to 15 years.

INCOME TAXES: We account for income taxes in accordance with SFAS No. 109 ("SFAS 109"), "Accounting for Income Taxes," which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. We account for income taxes under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

COMPREHENSIVE INCOME: 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.

The following table summarize the components of accumulated other comprehensive loss, net of taxes (dollars in thousands):

As of December 31,	2004			2003
Foreign currency translation adjustments	$	4,004		$	1,764
Securities valuation adjustment		(514	)		345
Minimum pension liability adjustment (Note 13)		(10,147	)		(3,501	)

Accumulated other comprehensive loss	$	(6,657	)	$	(1,392	)

See Note 13 "BENEFIT PLANS" for further discussion on the minimum pension liability adjustment.

STOCK-BASED COMPENSATION: We have stock-based compensation plans that are described in detail in Note 13 "BENEFIT PLANS." 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 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.

Had compensation cost 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 years ended December 31, 2004, 2003, and 2002 would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):

Years ended December 31,	2004			2003			2002
Net income—as reported (1)	$	32,282		$	29,222		$	8,181
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		388			164			28
Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects		(4,215	)		(4,739	)		(11,289	)

Net income (loss)—pro forma	$	28,455		$	24,647		$	(3,080	)

Earnings (loss) per share:
Basic—as reported		0.52			0.44			0.11
Basic—pro forma		0.45			0.37			(0.04	)
Diluted—as reported (1)		0.48			0.43			0.11
Diluted—pro forma (1)		0.43			0.37			(0.04	)

(1): See Note 12 "EARNINGS PER SHARE" for reconciliation of net income as reported to net income used in calculation of diluted earnings per share.

LEGAL COSTS: We accrue costs of settlement, damages, and under certain conditions, costs of defense when such costs are probable and estimable. Otherwise, such costs are expensed as incurred.

GRANT ACCOUNTING: Our ADC in Halifax, Nova Scotia, has received grants from Nova Scotia Business Inc. and the Nova Scotia Office of Economic Development. These grants include employment and research and development grants. Employment grants, which relate to employee hiring and training, and research and development grants are recognized as a reduction to salaries expense in earnings in the accompanying consolidated statements of income in the period in which the related expenditures are incurred. In 2004, we received a payment of approximately $1.0 million as a result of achieving and maintaining certain conditions under the grant, of which approximately $0.6 million has been recognized as a reduction to salaries expense. This payment represented 2 of 3 payments under the grant. We are eligible to receive an additional payment if we are able to achieve and maintain additional milestones.

In addition, in January 2004, we were granted $1.0 million, which is part of a two-year $3.0 million H-1B Technical Skills Training Grant ("H-1B Grant") that is shared by us and two other unrelated third parties. As part of the grant, we are the financial administrator of the authorized funds. For the

year ended December 31, 2004, we received a payment of approximately $0.2 million, which was recognized as a reduction of salaries expense and represents the reimbursement to us under the H-1B Grant.

USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

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)"), 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. FIN 46(R) is effective prospectively for all variable interests obtained subsequent to December 31, 2002. For variable interests existing prior to December 31, 2002, consolidation is required for periods ending after March 15, 2004, with the exception of interests in special purpose entities, which were required in financial statements of public companies for periods ending after December 15, 2003. We have evaluated the applicability of FIN 46(R) to our relationship with each of City Square Limited Partnership ("City Square") and Gateway LLC and determined that these entities are not required to be consolidated 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 May 2003, the EITF reached a consensus on Issue No. 01-08 ("EITF 01-8"), "Determining Whether an Arrangement Contains a Lease." EITF 01-08 provides guidance on how to determine whether an arrangement contains a lease that is within the scope of SFAS No. 13 ("SFAS 13"), "Accounting for Leases." The guidance in EITF 01-08 is based on whether the arrangement conveys to the purchaser (lessee) the right to use a specific asset. EITF 01-08 is effective for arrangements entered into or modified in the Second Quarter of 2004. The adoption of this Issue did not have a significant effect on our consolidated financial position or results of operations.

Plans and for Termination Benefits," and SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other than Pensions." SFAS 132 as revised requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement plans. This Statement is effective for financial statements with fiscal years ending after December 15, 2003, except the additional disclosure information about foreign plans is effective for fiscal years ending after June 15, 2004. We have a foreign defined benefit plan and, as a result, have included the required additional disclosures as of December 31, 2004. See Note 13 "BENEFIT PLANS" for further discussion.

In March 2004, the Emerging Issues Task Force ("EITF") reached consensus on Issue No. 03-6 ("EITF 03-6"), "Participating Securities and the Two-Class Method under FASB Statement No. 128, "Earnings per Share," which requires that convertible participating securities should be included in the computation of basic earnings per share using the two-class method. Our 2% Convertible Subordinated Debentures due 2013 ("Debentures") are not participating securities under the provisions of EITF 03-6 as they do not participate in undistributed earnings with our common stock. No separate disclosure of basic or diluted earnings per share has been made for the Class B common stock as the impact was immaterial and, effective February 1, 2004, all of the Class B common stock was converted into shares of our common stock. In addition, there was no impact on the basic and diluted earnings per share for our common stock for all periods presented in the accompanying consolidated statements of income. See Note 11 "Capital Stock" for additional disclosure.

In September 2004, the EITF reached consensus on Issue No. 04-8 ("EITF 04-8"), "The Effect of Contingently Convertible Debt on Diluted Earnings per Share," which requires that contingently convertible debt be included 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. See Note 2 "Earnings Per Share Data" for additional disclosure. In accordance with this Issue, we have adopted the consensus as of December 31, 2004 and have restated all prior periods presented. The adoption of EITF 04-8 resulted in a reduction of diluted earnings per share for the years ended December 31, 2004 and 2003, but did not have any impact on diluted earnings per share for the year ended December 31, 2002 as our Debentures were issued in 2003.

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 accounting treatment. SFAS 123(R) is effective for public companies (excluding small business issuers as defined in SEC Regulation S-B) at the beginning of the first interim or annual period beginning after June 15, 2005.

prior to the effective date of SFAS 123(R) that remain unvested on the effective date. 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 to 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 is expected to have a significant impact on our results of operations, however we are currently evaluating SFAS 123(R) and have not yet determined the impact in future periods.

2. MARKETABLE SECURITIES

The following is a summary of our available-for-sale marketable securities (dollars in thousands):

			Gross unrealized
	Cost		Gain		Losses			Fair value
As of December 31, 2004
United States Government obligations	$	71,744	$	64	$	(595	)	$	71,213
Corporate bonds		32,282		—		(333	)		31,949
Municipal bonds		27,506		51		(41	)		27,516

Total	$	131,532	$	115	$	(969	)	$	130,678

As of December 31, 2003
United States Government obligations	$	53,574	$	224	$	(3	)	$	53,795
Corporate bonds		63,065		257		(188	)		63,134
Municipal bonds		30,600		286		(1	)		30,885

Total	$	147,239	$	767	$	(192	)	$	147,814

The following is a summary of the cost and fair value of current available-for-sale marketable securities at December 31, 2004, by contractual maturity (dollars in thousands):

	Cost		Fair value
Due in one year or less	$	40,424	$	40,228
Due after one year through three years		88,077		87,429
Due after three years		3,031		3,021

	$	131,532	$	130,678

Proceeds from the sale and maturity of available-for-sale securities were approximately $77.6 million with $0.4 million realized gains and $0.4 million realized losses, $18.1 million with $69,000 realized gains and $18,000 realized losses, and $69.8 million with $0.8 million realized gains and $0.4 million realized losses, for the years ended December 31, 2004, 2003, and 2002, respectively.

At December 31, 2004, we held available-for-sale securities with an aggregate fair value of approximately $100.6 million that had aggregate gross unrealized losses of approximately $1.0 million. All such securities have been in a continuous unrealized loss position for less than 12 months. We believe that the impairments to these investments are not other-than-temporary at this time as these securities are all highly rated investments which have been subject to routine market changes that have not been significant to date.

3. TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable consists of the following (dollars in thousands):

As of December 31,	2004			2003
Billed	$	81,616		$	94,699
Unbilled		47,250			22,782
Allowance for doubtful accounts		(3,547	)		(5,077	)

Total	$	125,319		$	112,404

Trade accounts receivable is presented net of doubtful accounts. The activity in the allowance for doubtful accounts is as follows (dollars in thousands):

Years ended December 31,	2004			2003			2002
Beginning of year balance	$	5,077		$	7,879		$	13,014
Provision/ (recoveries), net		2,341			(1,147	)		1,893
Write-offs		(3,871	)		(1,655	)		(7,028	)

End of year balance	$	3,547		$	5,077		$	7,879

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (dollars in thousands):

As of December 31,	2004			2003
Buildings and improvements	$	47,964		$	47,022
Office equipment		16,140			15,510
Computer equipment and software		77,293			68,917
Leasehold improvements		10,294			12,167

		151,691			143,616
Less accumulated depreciation and amortization		(74,930	)		(68,185	)

Total	$	76,761		$	75,431

Depreciation expense, including amortization of assets under capital leases, was $12.5 million, $11.2 million, and $11.1 million, for the years ended 2004, 2003, and 2002, respectively. Computer equipment and software includes assets arising from capital lease obligations at a cost of $1.6 million and $2.7 million, with accumulated amortization totaling $1.6 million and $2.3 million as of December 31, 2004 and 2003, respectively.

In 2002, we began capitalizing the costs of internally developed software with a useful life in excess of one year in accordance with SOP 98-1. We have classified these costs within computer equipment and software. During 2004, 2003, and 2002, we capitalized approximately $2.5 million, $4.3 million, and $4.1 million, respectively, which consists primarily of internal and external labor costs. As of December 31, 2004, 2003, and 2002, these unamortized capitalized costs, which were related to the implementation of our PeopleSoft Enterprise Resource Planning applications were approximately $10.3 million, $8.4 million, and $4.1 million, respectively.

Our principal executive office is located at 100 City Square in Boston, Massachusetts (the "New Facility"). We lease the New Facility from Gateway LLC as described further in Note 15 "RELATED PARTIES, COMMITMENTS, AND CONTINGENCIES." In view of the related party transactions discussed in Note 15, 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." We began occupying the New Facility and making lease payments in March 2003. As a result of the completion of the construction phase and our current occupancy, the related capitalized costs are now classified as "Building" within property and equipment, net, in the accompanying consolidated balance sheets. A liability for the same amount appears as accrued building costs in both our short- and long-term liabilities. The costs of the building are being amortized on a straight-line basis over a 39-year useful life.

Effective January 1, 2002, we adopted SFAS 144, which supersedes SFAS No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of," and provides a single accounting model for long-lived assets to be disposed of. Adoption of this statement did not have a material effect on our results of operations for the years ended December 31, 2004, 2003, or 2002.

5. GOODWILL AND OTHER INTANGIBLE ASSETS

In accordance with SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized, but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Any impairment would be measured based upon the fair value of the related asset based upon the provisions of SFAS No. 142. There were no impairment losses related to goodwill during the years ended December 31, 2004, 2003 and 2002. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives.

The following table presents the change in the carrying amount of goodwill (dollars in thousands):

	2004			2003
Balance as of January 1,	$	292,924		$	277,435
Goodwill acquired during the year		13,890			13,840
Currency translation adjustment effect		1,383			1,884
Adjustments to goodwill balances		(2,232	)		(235	)

Balance as of December 31,	$	305,965		$	292,924

The adjustment to goodwill balances represents an adjustment to the acquired balance and additional transaction costs for prior year acquisitions. In addition, goodwill was adjusted by $2.1 million related to deferred tax liabilities established in purchase accounting, which has been reclassified from deferred tax liabilities to goodwill as of December 31, 2004. See Note 14 "INCOME TAXES" for further discussion.

Amortized intangible assets consist of the following:

Intangible assets (dollars in thousands):	Cost		Accumulated Amortization			Net Book Value
As of December 31, 2004
Customer lists	$	88,532	$	(35,492	)	$	53,040
Contracts		30,213		(23,091	)		7,122
Non-compete agreements		7,524		(7,299	)		225
Technology		7,775		(5,399	)		2,376
Tradename		193		(12	)		181

Total	$	134,237	$	(71,293	)	$	62,944

As of December 31, 2003
Customer lists	$	81,532	$	(23,624	)	$	57,908
Contracts		29,250		(21,015	)		8,235
Non-compete agreements		7,524		(6,122	)		1,402
Technology		7,775		(4,288	)		3,487

Total	$	126,081	$	(55,049	)	$	71,032

Amortization expense for the years ended December 31, 2004, 2003, and 2002 was approximately $16.2 million, $15.8 million, and $16.4 million, respectively. Future estimated amortization expense is $15.7 million, $15.2 million, $12.9 million, $11.9 million, and $3.7 million for the years ended December 31, 2005, 2006, 2007, 2008, and 2009, respectively.

6. BUSINESS ACQUISITIONS

Fast Track Holdings Limited

On July 13, 2004, we acquired Fast Track Holdings Limited ("Fast Track"), a privately held consulting firm based in the UK that manages the design, integration, and rapid 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, with the potential to pay up to an additional approximate $5.0 million in earn-out consideration over the next two years, contingent upon the achievement of certain future financial targets. 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 No. 142. The purchase price for this acquisition may be subject to further refinements based on future adjustments relating to the value of the acquired net assets. The portion of the purchase price related to the intangible assets has been finalized and was identified by independent appraisers utilizing standard valuation procedures and techniques. The total cost of the acquisition through December 31, 2004 was $4.1 million, which included net assets acquired of approximately ($0.2) million, goodwill of approximately $3.1 million and intangible assets of $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 consolidated statement of operations

beginning July 14, 2004. Pro forma results for this acquisition have not been provided since this acquisition was not material.

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 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.

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 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, if any, will be accounted for as additional purchase price. The acquisition was accounted for under the purchase method in accordance with SFAS 141 and SFAS 142. The total cost of the acquisition was $22.8 million, which includes net assets acquired of approximately $5.0 million, goodwill of approximately $10.8 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 independent appraisers utilizing standard valuation procedures and techniques. The operating results of Nims have been included in our 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 $1.4 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, 2003. 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):

	2004		2003
	(Unaudited)
Revenues	$	920,048	$	853,304
Net income (1)		32,481		30,082
Basic earnings per share		0.52		0.46
Diluted earnings per share		0.49		0.44

(1): See Note 12 "EARNINGS PER SHARE" 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 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 transaction, we own 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 asset and liabilities contributed to Keane Worldzen were recorded in relation to each shareholder's ownership 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 recorded goodwill of approximately $13.8 million in the accompanying consolidated balance sheet.

In connection with the acquisition, 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 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 this first call option, using a Black-Scholes valuation model, is approximately $3.8 million and is included in other assets in the accompanying 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 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 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. Since 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 consolidated financial statements.

Also in connection with the acquisition, the minority shareholders granted two Keane Worldzen employees options to purchase an aggregate of approximately 720,000 of the shares of Keane Worldzen held by the minority shareholders. These stock options were granted at an exercise price below the fair market value of the shares at the grant date and vest over six years. In accordance with FIN 44 and APB 25, the intrinsic value of the stock options granted was approximately $0.4 million and was recorded as unearned compensation in Worldzen's consolidated balance sheet. As a result, Keane Worldzen is currently recognizing the compensation expense in the accompanying consolidated financial statements over the vesting period through December 31, 2009. Pro forma results for this acquisition have not been provided since this acquisition was not material.

SignalTree Solutions Holding, Inc.

On March 15, 2002, we acquired SignalTree Solutions Holding, Inc. ("SignalTree Solutions"), a privately held, U.S.-based corporation with two software development facilities in India and additional operations in the U.S. Under the terms of the merger agreement, we paid $68.2 million in cash for SignalTree Solutions.

We accounted for the acquisition as a purchase, pursuant to which the assets and liabilities of SignalTree Solutions, including intangible assets, were recorded at their respective fair values. All identifiable intangible assets are being amortized over their estimated useful life with the exception of goodwill. The financial position, results of operations, and cash flows of SignalTree Solutions were included in our financial statements effective as of the purchase date.

The total cost of the acquisition was $78.9 million. Portions of the purchase price, including intangible assets, were identified by independent appraisers utilizing proven valuation procedures and techniques. Goodwill was recorded at $41.0 million and other identified intangible assets were valued at $21.5 million. At the date of acquisition, we entered a plan to exit certain activities and consolidate facilities. As a result, we recorded a restructuring liability of $1.6 million related to the lease obligation and certain other costs for those facilities. In accordance with EITF 95-3, these costs have been reflected in the purchase price of the acquisition.

The components of the purchase price allocation is as follows (dollars in thousands):

Consideration and merger costs:	December 31, 2002		2003 Adjustments		December 31, 2004
Consideration paid	$	66,927	$	—	$	66,927
Transaction costs		1,303		—		1,303
Restructuring		1,553		—		1,553
Deferred tax liability		9,120		—		9,120

Total	$	78,903	$	—	$	78,903

Allocation of purchase price:	December 31, 2002		2003 Adjustments			December 31, 2004
Net asset value acquired	$	16,133	$	240		$	16,373
Customer lists (seven-year life)		18,800		—			18,800
Non-compete agreements (three-year life)		2,700		—			2,700
Goodwill		41,270		(240	)		41,030

Total	$	78,903	$	—		$	78,903

The following table presents the condensed balance sheet disclosing the amounts assigned to each of the major assets acquired and liabilities assumed of SignalTree Solutions at the acquisition date (dollars in thousands):

Condensed balance sheet:	December 31, 2002		2003 Adjustments			December 31, 2004
Cash	$	2,650	$	—		$	2,650
Accounts receivable		7,304		—			7,304
Other current assets		3,562		(2	)		3,560
Property and equipment, net		8,011		(75	)		7,936

Total assets		21,527		(77	)		21,450
Accounts payable		569		(11	)		558
Accrued compensation		1,569		—			1,569
Other liabilities		3,256		(306	)		2,950

Net assets	$	16,133	$	240		$	16,373

The unaudited pro forma combined condensed statements of income below present our historical statements and our acquisition of SignalTree Solutions on March 15, 2002 as if the purchase had occurred at January 1, 2002. 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):

	2004		2003		2002
	(Unaudited)
Revenues	$	911,543	$	804,976	$	883,412
Net income		32,282		29,222		8,910
Basic earnings per share		0.52		0.44		0.12
Diluted earnings per share		0.48		0.43		0.12

In addition to the Fast Track, Nims, Keane Worldzen, and SignalTree Solutions acquisitions, we completed an acquisition of a business complementary to our business strategy during the Third Quarter of 2002. The merger and consideration costs of this acquisition, which was accounted for using the purchase method of accounting, totaled $13.2 million, which includes a $0.2 million liability adjustment in the First Quarter of 2004. The purchase price included contingent consideration based upon operating performance of the acquired business. As of December 31, 2002, in connection with this acquisition, we had recorded a contingent liability of approximately $0.9 million related to certain earn-out considerations. The $0.9 million was paid out during the First Quarter of 2003. As of September 25, 2004, the earn-out periods had expired and no additional consideration was paid as a result of not reaching the required operating performance measures.

The results of operations of these acquired companies have been included in our 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 period of benefit. Pro forma results of operations for these acquisitions, except for SignalTree Solutions and Nims, have not been provided since these acquisitions were not material either individually or in the aggregate in the year of acquisition.

7. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following (dollars in thousands):

As of December 31,	2004		2003
Accrued employee benefits	$	6,032	$	5,427
Accrued pension liability		13,491		5,384
Accrued deferred compensation		8,083		5,559
Purchased services		5,904		5,051
Other		17,457		15,590

	$	50,967	$	37,011

Refer to Note 13 "BENEFIT PLANS" for additional information.

8. NOTES PAYABLE

In connection with the purchase of a business complementary to our operations during the Third Quarter of 2002, we issued a $3.0 million non-interest bearing note payable as partial consideration. 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. Additionally, during the Third Quarter of 2002, we acquired an existing $100,000 non-interest bearing note payable in connection with employment credits. During 2004 and 2003, we reduced the note payable balance by $1.3 million and $1.0 million, respectively, as a result of delivering related service credits. Also during 2003, we had paid the $100,000 note. The additional reduction in the non-interest bearing note payable during 2004 results in a remaining balance of $0.7 million as of December 31, 2004.

9. CONVERTIBLE SUBORDINATED DEBENTURES

In June 2003, we issued in a private placement $150.0 million principal amount of Debentures. 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 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 than 98% of the product of the closing sale price 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 12 "EARNINGS PER SHARE" for further discussion of the Debentures.

Debt issuance costs were approximately $4.4 million and are included in other assets, net, in the accompanying consolidated balance sheets. These costs are being amortized to interest expense over

five years on a straight-line basis. As of December 31, 2004 and 2003, the unamortized debt issuance costs were approximately $3.1 million and $3.9 million, respectively.

10. RESTRUCTURING CHARGES

Workforce reductions

In connection with the Fast Track acquisition noted in Note 6 "BUSINESS ACQUISITIONS," we entered into a plan to reduce the workforce by seven employees, most of who had a termination date of October 31, 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 approximately $0.1 million associated with severance, retention and other termination benefits and substantially completed the plan. 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. As of December 31, 2004, we had paid approximately $58,000 in severance and retention costs and had a remaining accrual balance of $76,000.

In connection with the Nims acquisition discussed in Note 6 "BUSINESS ACQUISITIONS," 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 approximately $0.3 million associated with severance, retention, and other termination benefits and have substantially completed the plan by December 31, 2004. 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. As of December 31, 2004, we had paid approximately $0.3 million in severance and retention costs and had a remaining reserve balance of $15,000.

During 2003, we had two additional workforce reductions related to our business consulting arm and one of our North America branches, which included a headcount reduction of 25 and 50 employees, respectively. As a result of these reductions, we recorded a total restructuring charge of $1.3 million, consisting of retention and severance costs. In accordance with SFAS No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities," we accrued for these costs beginning at the time of an employee's notification through the termination date. No further costs are anticipated to be incurred related to either of the two workforce reductions in 2003. During the Fourth Quarter of 2003, we evaluated the accrual balances of the current and prior year's workforce restructuring balance and determined that $0.1 million and $1.4 million of charges taken in 2003 and 2002, respectively, were no longer deemed to be necessary due to employee resignation prior to termination or revised workforce needs. The net impact of the workforce reductions to the 2003 consolidated statement of income was an expense reduction of $0.2 million.

As of December 31, 2004, we had completed all of the terminations related to the reductions in force for our business consulting arm and one of our North America branches, respectively. Cash expenditures in 2004 and 2003 related to the 2003 severance and retention restructuring accruals were $0.2 million and $1.1 million, respectively. No further costs are anticipated related to these restructurings.

In the Fourth Quarters of 2002 and 2001, we recorded restructuring charges of $17.6 million and $10.4 million, respectively. Of these charges, $3.2 million and $4.4 million related to a workforce

reduction of approximately 229 and 900 employees for the years 2002 and 2001, respectively. In 2002, we also had a change in estimate of $0.3 million in connection with workforce reductions, which resulted in a net workforce restructuring charge of $2.9 million. As of January 1, 2004, we had a remaining balance of approximately $24,000 related to the 2002 workforce reduction, all of which we paid in the First Quarter of 2004. No further payments related to the 2002 workforce reduction will be paid.

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 our consolidated statement of income.

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 have 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. No cash expenditures have been made as of December 31, 2004.

In connection with the Nims acquisition noted in Note 6 "BUSINESS ACQUISITIONS", we entered into a plan to exit certain activities and to consolidate certain facilities. As a result, we have 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 in 2004 related to all Nims-related branch office closings totaled $0.4 million, which is net of approximately $0.2 million of sublease payments received.

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, ("EITF 94-3"), "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)," we performed reviews of our business strategy and concluded that consolidating some of our branch offices was key to our success. As a result of this review, we charged to restructuring $12.1 million in 2002 and $4.0 million in 2001 for branch office closings and certain other expenditures. In the Fourth Quarter of 2002, we also performed a review of accrual balances for properties restructured in prior years. As a result, we determined that the cost to consolidate and/or close certain non-profitable offices would be higher than the original estimate. The change in estimates resulted in a net charge to our restructuring liability of $0.8 million and $1.2 million in 2002 and 2001, respectively.

The resulting net charge in 2002 and 2001 was $12.9 million and $5.1 million, respectively. During 2002, we adjusted the purchase price allocation principally as a result of an adjustment in the valuation of the liability assumed for the restructured facilities and for other matters unresolved at the time of acquisition. As a result of these non-cash adjustments, the goodwill balance was increased by $3.1 million. Cash expenditures in 2004 related to branch office closings were $6.7 million, which is net of approximately $1.7 million of sublease payments received.

Impairments

We also recorded an impairment charge of $1.8 million and $0.8 million in 2002 and 2001, respectively, for assets associated with the facilities identified in the branch office closures that became impaired as a result of these restructuring actions.

A summary of restructuring activity during the years 2004, 2003, and 2002, which is reported in the accompanying consolidated balance sheets, is as follows (dollars in thousands):

		Workforce reduction			Branch office closures & other expenditures			Impaired assets			Total
Beginning balance in fiscal 2002		$	10,428		$	11,295		$	—		$	21,723
	Charges in fiscal 2002		3,192			12,060			1,847			17,099
	Change in prior year's estimate		(251	)		756			—			505
	Cash expenditures in fiscal 2002		(10,177	)		(6,318	)		—			(16,495	)
	Acquisition related charge in fiscal 2002		93			2,136			187			2,416
	Acquisition related charges to increase prior year estimate		—			3,021			—			3,021
	Fixed asset impairment charges in fiscal 2002		—			—			(2,034	)		(2,034	)

Beginning balance in fiscal 2003			3,285			22,950			—			26,235
	Charges in fiscal 2003		1,345			870			—			2,215
	Change in current and prior year's estimate		(1,537	)		(1,004	)		—			(2,541	)
	Cash expenditures in fiscal 2003		(2,856	)		(9,033	)		—			(11,889	)

Beginning balance in fiscal 2004			237			13,783			—			14,020
	Charges in fiscal 2004		—			2,266			—			2,266
	Change in current and prior year's estimate		—			(2,376	)		—			(2,376	)
	Acquisition related charge in fiscal 2004		454			1,638			—			2,092
	Cash expenditures in fiscal 2004		(600	)		(6,725	)		—			(7,325	)

Balance as of December 31, 2004		$	91		$	8,586		$	—		$	8,677

As of December 31, 2004, the balance in the branch office closures reserve consisted of amounts for properties identified in 2004, 2003, 2002, 2001, 2000, and 1999 in the amounts of $3.5 million, $0.2 million, $4.3 million, $0.6 million, $5,000, and $18,000, respectively.

11. CAPITAL STOCK

On January 13, 2004, we announced that our Board of Directors had voted to convert all of our outstanding shares of Class B common stock into shares of our common stock on a one-for-one basis, effective February 1, 2004. Class B shares are entitled to 10 votes per share whereas shares of our common stock are entitled to only one vote per share on matters submitted to shareholders for vote. As of January 31, 2004, the Class B common stock represented less than 1% of the total of our outstanding shares of our Class B common stock and our common stock, net of treasury stock, but had approximately 4.3% of the combined voting power of our outstanding shares of our Class B common stock and our common stock, net of treasury stock.

On June 14, 2004, 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, 2004. This authorization replaced the June 12, 2003 authorization to purchase 3 million shares of our common stock, of which only 1,817,700 shares were repurchased prior to the expiration of the June 2003 authorization.

Effective July 1, 2004, companies incorporated in Massachusetts became subject to the Massachusetts Business Corporation Act, Chapter 156D. Chapter 156D provides that shares that are reacquired by a company become authorized but unissued shares. As a result, Chapter 156D eliminates the concept of "treasury shares" and provides that shares reacquired by a company become "authorized but unissued" shares. Accordingly, at July 2, 2004, we have redesignated our existing treasury shares, at an aggregate cost of $141.5 million, as authorized but unissued and allocated this amount to the common stock's par value and additional paid in capital.

Subsequent to February 1, 2004, we have two classes of stock: preferred stock and common stock. Holders of common stock are entitled to one vote for each share held. The Board of Directors is authorized to determine the rights, preferences, privileges, and restrictions of any series of preferred stock, and to fix the number of shares of any such series. For the period January 1, 2002 through December 31, 2004, our Board of Directors authorized us to repurchase up to 17.6 million shares of our common stock. A summary of repurchase activity for 2004, 2003, and 2002 is as follows (dollars in thousands):

	2004				2003				2002
	Shares		Amount		Shares		Amount		Shares		Amount
Prior year authorizations at beginning of year	3,181,200				3,676,400				1,542,800
Authorizations	3,000,000				6,000,000				8,632,200
Repurchases	(2,127,300	)	$	30,096	(6,495,200	)	$	66,696	(6,498,600	)	$	54,092
Expirations	(1,182,300	)			—				—

Shares remaining as of December 31,	2,871,600				3,181,200				3,676,400

Between May 1999 and December 31, 2004, we have invested approximately $259.8 million to repurchase approximately 20.6 million shares of our common stock under ten separate authorizations.

12. EARNINGS PER SHARE

A summary of our calculation of earnings per share is as follows (in thousands, except per share data):

Years Ended December 31,	2004			2003			2002
Net income used for basic earnings per share	$	32,282		$	29,222		$	8,181
Interest expense associated with convertible debentures, including amortization of debt issuance costs		3,880			2,062			—
Related tax effect		(1,448	)		(825	)		—

Net income used for diluted earnings per share	$	34,714		$	30,459		$	8,181

Weighted average number of common shares outstanding used in calculation of basic earnings per share		62,601			65,771			74,018
Incremental shares from restricted stock, employee stock purchase plan, and the assumed exercise of dilutive stock options		1,031			652			388
Incremental shares from assumed conversion of convertible debentures		8,175			4,394			—

Weighted average number of common shares and common share equivalents outstanding used in calculation of diluted earnings per share		71,807			70,817			74,406

Earnings per share
Basic	$	0.52		$	0.44		$	0.11

Diluted	$	0.48		$	0.43		$	0.11

Potential common shares consist of employee stock options and restricted common stock. Employee stock options to purchase 1,217,000, 1,453,000, and 2,374,000 shares for the years ended December 31, 2004, 2003, and 2002, 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 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. The total amount of shares issuable upon the conversion of the Debentures is approximately 8.2 million.

We adopted the provisions of EITF 04-8 which requires that contingently convertible debt should be included 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 has been included in the calculation of diluted earnings per share for the year ended December 31, 2004 and 2003 based on the period the Debentures were outstanding. There was no impact on diluted earnings per share for the year ended December 31, 2002 since the Debentures were issued in 2003.

During the quarter ended June 30, 2004, we adopted the provisions of EITF 03-6, which requires that convertible participating securities should be included in the computation of basic earnings per share using the two-class method. Our Debentures are not participating securities under the provisions of EITF 03-6 as they do not participate in undistributed earnings with our common stock. No separate disclosure of basic or diluted earnings per share has been made for the Class B common stock as the impact was immaterial and, effective February 1, 2004, all of the Class B common stock was converted into shares of our common stock. In addition, there was no impact on the basic and diluted earnings per share for our common stock for all periods presented in the accompanying consolidated statements of income. See Note 11 "CAPITAL STOCK" for further discussion.

13. BENEFIT PLANS

STOCK OPTION PLANS: Pro forma financial measures regarding net income and earnings per share is required by SFAS 123 for stock-based awards as if we had accounted for our stock-based compensation to employees under the fair value method prescribed in SFAS 123. As permitted by SFAS 148 and SFAS 123, we account for our stock-based compensation in accordance with APB 25, FIN 44, and related implementation guidance and apply the disclosure provisions of SFAS 148 and SFAS 123. Accordingly, our adoption of disclosure provisions of SFAS 148 does not impact our financial condition or results of operations.

The fair market value of each stock option is estimated using the Black-Scholes option pricing model, assuming no expected dividends with the following weighted-average assumptions:

Years ended December 31,	2004		2003		2002
Expected life (in years)	5.2		5.2		4.9
Expected stock price volatility	56	%	61	%	65	%
Risk-free interest rate	4.14	%	3.87	%	4.24	%

The weighted-average fair value of options granted under the option plans during the years ended December 31, 2004, 2003, and 2002, was $7.99, $4.90, and $8.52, respectively. The weighted-average fair value of restricted stock granted under the option plans during the years ended December 31, 2004, 2003, and 2002 was $15.14, $11.09, and $18.34, respectively.

The 1992 Stock Option Plan provides for grants of stock options for up to 3,600,000 shares of our common stock to our employees, officers, directors, consultants, and advisors. Generally, options expire five years from the date of grant, require a purchase price of not less than 100% of the fair market value of the stock as of the date of grant, and are exercisable at such time or times as the Board of Directors in each case determines. As of December 31, 2004 and 2003, there were no options outstanding under this plan and the plan has expired.

The 1998 Stock Incentive Plan, amended in December 1999, provides for grants of stock options and restricted stock for up to 7,000,000 shares of our common stock to our employees, officers, directors, consultants, and advisors. Generally, options expire five years from the date of grant, require a purchase price of not less than 100% of the fair market value of the stock as of the date of grant, and are exercisable at such time or times as the Board of Directors in each case determines.

In December 2000, we initiated a new "Time Accelerated Restricted Stock Award Plan" ("TARSAP") under our 1998 Stock Incentive Plan, whereby the vesting of certain stock options is directly impacted by our performance. The vesting of stock options granted under the TARSAP accelerates upon the meeting of certain profitability criteria. If these criteria are not met, such options will vest five years after the date of grant and expire at the end of 10 years.

The 2001 Stock Incentive Plan provides for grants of stock options for up to 7,000,000 shares of our common stock to our employees, officers, directors, consultants, and advisors. Generally, options expire five years from the date of grant, require a purchase price of not less than 100% of the fair market value of the stock as of the date of grant, and are exercisable at such time or times as the Board of Directors in each case determines.

For all of our stock plans, we may grant options that are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code ("incentive stock options") or nonstatutory options not intended to qualify as incentive stock options.

In November 2001, we completed a merger with Metro Information Services, Inc. ("Metro.") In connection with the merger, we assumed all options, vested and unvested, to purchase Metro's common stock, issued under Metro's stock option plan. Each option to purchase shares of Metro's common stock outstanding as of November 30, 2001 became an option to acquire a number of shares of our common stock equal to the number of shares of Metro's common stock subject to such option, multiplied by a conversion ratio of 0.48. The option price was proportionally adjusted. The number of adjusted shares under the Metro plan was 571,058, of which 6,864 shares, 480 shares, and 13,394 shares were exercised during 2004, 2003, and 2002, respectively.

In September of 2002, we completed the purchase of a business complementary to our business strategy. In connection with this acquisition, we assumed all vested and unvested options to purchase the stock of the acquired company, under the respective stock option plan. Each option to purchase shares of the acquired company, as of September 25, 2002, became an option to acquire a number of shares of our common stock equal to the number of shares of the acquired company subject to such option, multiplied by conversion ratio of 0.1766. The option price has been proportionally adjusted. The number of adjusted shares under the acquired company's plan is 87,502, of which 9,706 shares, 27,652 shares, and 14,184 shares were exercised from this plan during 2004, 2003, and 2002, respectively.

On August 20, 2002, our Board of Directors approved a stock option exchange offer. The offer was to exchange outstanding options to purchase shares of our common stock, which were granted on or after January 1, 2000 and had an exercise price of $12.00 or greater per share, for new options to purchase shares of common stock on substantially the following terms ("the Offer"). Pursuant to the terms of the Offer:

i.: all eligible and outstanding options issued under all of our stock option plans could be exchanged for new options at an exchange rate of four for every five surrendered;
ii.: the grant date of the new options would be the first business day that is at least six months and one day after the date of the expiration of the Offer; and
iii.: the exercise price of each new option would be the closing price of our common stock on the new grant date.

The Offer expired on October 7, 2002 ("expiration date"). Options for 1,888,394 shares of our common stock with a weighted average exercise price of $20.45 were eligible for the Offer. Of this amount, 1,348,949 options were surrendered for exchange, with 324,902 options being retained, and the balance of the 214,543 being cancelled because of terminations.

For the 1,348,949 options surrendered for exchange at a rate of four new options for every five surrendered, we granted new stock options for an aggregate of 1,079,159 shares at an exercise price of $8.28 per share on April 8, 2003. The balance of the surrendered options were canceled because of terminations.

Information with respect to activity under our stock option plans, including restricted stock awards, is set forth below:

	Common stock		Weighted average exercise price
Outstanding at December 31, 2001	6,270,330		$	19.20
Granted	689,342			13.43
Exercised	(145,734	)		13.08
Canceled/expired	(2,467,185	)		21.16
Outstanding at December 31, 2002	4,346,753			17.25
Granted	1,820,909			8.57
Exercised	(93,160	)		7.15
Canceled/expired	(1,428,642	)		21.65
Outstanding at December 31, 2003	4,645,860			12.42
Granted	1,357,700			15.08
Exercised	(157,188	)		8.73
Canceled/expired	(1,200,880	)		16.19

Outstanding at December 31, 2004	4,645,492		$	12.35

Shares available for future issuance under our stock option plans at December 31, 2004 are 9,558,317. During the years ended December 31, 2004, 2003, and 2002, we granted 145,000 shares, 25,000 shares, and 6,500 shares of restricted stock, respectively.

The following table summarizes information about stock options and restricted stock that were outstanding at December 31, 2004:

Range of exercise prices	Number outstanding	Weighted average remaining contractual life (in years)	Weighted average exercise price of options outstanding		Number exercisable	Weighted average exercise price of exercisable options
$ 0.04-$ 4.99	3,766	3.90	$	3.69	3,766	$	3.69
5.00-7.50	41,242	5.10		6.54	16,867		6.10
$7.51-11.27	2,572,188	5.70		8.97	306,997		8.69
11.28-16.90	1,390,734	7.90		14.99	26,484		13.14
16.91-25.35	551,000	5.50		18.31	118,000		22.28
25.36-38.02	72,162	2.30		31.07	72,162		31.07
38.03-57.03	720	1.40		47.14	720		47.14
57.04-85.54	13,680	3.40		57.61	13,680		57.61

Total	4,645,492				558,676

STOCK PURCHASE PLANS: Our 1992 ESPP provides for the purchase of 6,550,000 shares of common stock by qualifying employees at a purchase price of 85% of the market value of the stock on the offering commencement date or the last day of the purchase period, whichever is lower. During 2004, 2003, and 2002, participants in this plan purchased 369,056 shares, 484,020 shares, and 378,333 shares, respectively. Shares available for future purchases totaled 2,232,522 at December 31, 2004.

On February 13, 2003, our Board of Directors approved a new UK ESPP. We allocated 500,000 shares of the total number of shares reserved under our 1992 ESPP for issuance under the UK ESPP. During 2004, participants in this plan purchased 2,325 shares. Shares available for future purchases as of December 31, 2004 totaled 493,365.

INCENTIVE COMPENSATION PLANS: We have established incentive compensation plans for certain officers and selected employees. Payments under the plans are based on actual performance compared to stated plan objectives. Compensation expense under the plans in 2004, 2003, and 2002, approximated $15.7 million, $21.3 million, and $16.8 million, respectively. In addition, management may award discretionary bonuses based upon an individual's performance and/or contribution to us.

DEFERRED COMPENSATION, SAVINGS, AND PROFIT SHARING PLANS: During 1984, we established a deferred savings and profit sharing plan under Section 401(k) of the Internal Revenue Code. The plan enables eligible employees to reduce their taxable income by contributing up to 25% of their salary to the plan. After one year of employment, we contribute $0.50 for each pre-tax dollar deferred, up to 6.0% of eligible employee's annual salary contributed. We may elect to make an additional discretionary contribution to the plan based on our profitability each year. Our match and discretionary contributions, if any, vest 25% each year and are fully vested after five years of employment. Our contributions for 2004, 2003, and 2002 amounted to approximately $7.6 million, $7.5 million, and $8.4 million, respectively.

In addition, we have a deferred compensation plan for officers and eligible employees. The deferred compensation plan allows the participants to reduce their taxable income by contributing

5-50% of their annual salary and 10-90% of their bonus or incentive compensation to the plan. We may make discretionary contributions to the plan based on individual or corporate performance. The amounts deferred earn a yield as determined by the benchmark investments selected by the participant. As of December 31, 2004 and 2003, approximately $8.1 million and $5.6 million, respectively, was accrued under this plan and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

DEFINED BENEFIT PLANS:

The Gratuity Plan

We provide our employees in India with benefits under a defined benefit plan (the "Gratuity Plan") as required by India law. The Gratuity Plan provides a lump sum payment to vested employees on retirement or on termination of employment in an amount based on the respective employee's salary and years of employment with us. We determine our liability under the Gratuity Plan by actuarial valuation using the projected unit credit method. Under this method, we determine our liability based upon the discounted value of salary increases until the date of separation arising from retirement, death, resignation or other termination of services. Critical assumptions used in measuring the plan expense and projected liability under the projected unit credit method include the discount rate, expected return on assets and the expected increase in the compensation rates. We evaluate these critical assumptions at least annually. We periodically evaluate and update other assumptions used in the projected unit credit method involving demographic factors, such as retirement age and turnover rate, to reflect our experience.

The discount rate enables us to state expected future cash flows at a present value on the measurement date, which is November 30. The discount rate we use is equal to the yield on high-quality fixed income investments in India at the measurement date. A lower discount rate increases the present value of benefit obligations and therefore increases gratuity expense. Since our Gratuity Plan is unfunded, we have not assumed any returns on assets. As of December 31, 2004, the amount accrued under the Gratuity Plan was approximately $1.2 million and is included in accrued compensation in the accompanying consolidated balance sheet.

UK Defined Benefit Plan

We also have a defined benefit pension plan that provides pension benefits to employees of our subsidiary located in the UK, ("UK DBP"). These benefits are available to employees who were active on August 4, 1999 and not to employees who joined us 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. Total pension expense for 2004, 2003, and 2002, was approximately $1.2 million, $2.0 million, and $1.3 million, respectively.

During the First Quarter of 2004, we closed 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 the First Quarter of 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 pension liability of approximately $5.2 million through accumulated other

comprehensive loss in the accompanying consolidated balance sheets. In addition, during the Fourth Quarter of 2004, we recorded an additional required minimum pension liability of approximately $1.4 million. Therefore, during 2004, the total non-cash adjustment to equity to record the required minimum pension liability was $6.6 million and was recognized in accumulated other comprehensive loss. As a result of the curtailment, participants of the UK DBP are eligible to participate in a defined contribution plan, which is available to all employees of the UK subsidiary.

Assumptions

The following tables summarize the benefit costs and the weighted average assumptions associated with our UK DBP (dollars in thousands):

Years ended December 31,	2004			2003			2002
Components of net periodic benefit cost:
Service cost—benefits earned during the period	$	277		$	1,304		$	1,445
Interest cost on projected benefit obligations		1,807			1,376			1,103
Expected return on plan assets		(1,563	)		(1,125	)		(1,351	)
Net amortization and deferral—amortization of unrecognized net loss/(gain)		491			441			88

Net periodic pension cost		1,012			1,996			1,285

Curtailment loss (gain)		183			—			—

Net periodic pension cost after allowance for curtailment	$	1,195		$	1,996		$	1,285

The actuarial assumptions used are based on market interest rates, past experience, and management's best estimate of future economic conditions. Changes in these assumptions may impact future benefit costs and obligations. We change key employee benefit plan assumptions in response to current conditions in the securities market. The discount rate has been lowered from 5.75% in 2002 to 5.50% in 2003 and 5.40% in 2004 and is based on AA rated corporate bond yields of similar duration as the liabilities of the UK DBP. The expected rate of return on pension plan assets has been reduced from 8.00% in 2002 to 7.75% in both 2003 and 2004.

Years ended December 31,	2004		2003		2002
Weighted average assumptions:
Discount rate at end of the year	5.40	%	5.50	%	5.75	%
Expected return on plan assets for the year	7.75		7.75		8.00
Rate of compensation increase at end of the year***	—		4.25		3.75
Discretionary pension increased LPI* pension increases	0.00		0.00		0.00
LPI pension increases	2.80		2.75		2.25
Statutory revaluation of benefits (GMP)**	3.50		3.50		3.50

*: Limited Price Indexation
**: (Guaranteed Minimum Pension)
***: In 2004, the UK DBP was curtailed.

Plan Assets

The percentages of the fair value of the UK DBP assets by major category are as follows:

	Percentage of Plan Assets
As of December 31,	2004		2003
Equity securities	91	%	91	%
Debt securities	6		6
Real estate	3		3

Total	100	%	100	%

Investment Strategy

The UK DBP assets are invested with the objective of achieving a total rate of return over the long-term, sufficient to fund future pension obligations, to minimize future pension contributions and to ensure a minimum level of funding. We are willing to tolerate a commensurate level of risk to achieve this objective based on the funded status of the plan and the long-term nature of the UK DBP pension liability. Risk is controlled by maintaining a portfolio of assets that is diversified across a variety of asset classes. All of the assets are managed by external investment managers. Asset allocation target ranges were established consistent with the investment objectives, and the assets are rebalanced periodically. The expected long-term rate of return on plan assets was determined based on a variety of considerations, including the established asset allocation targets and expectations for those asset classes, historical returns of the plans' assets and the advice of outside advisors. For 2005, the target allocation range is 80%-90% for equity securities, 5% to 10% for debt securities and 0% to 10% each for real estate and other assets. The UK DBP assets are not invested in Keane common stock.

Obligation and Funded Status

The following tables summarize the benefit obligations and funded status associated with our UK DBP (dollars in thousands):

As of December 31,		2004			2003			2002
Change in projected benefit obligation:
	Benefit obligation at beginning of year	$	32,080		$	22,940		$	16,780
	Service cost		277			1,304			1,445
	Interest cost		1,807			1,376			1,103
	Employee contributions		52			209			286
	Actuarial (gain) loss		3,525			3,516			1,722
	Benefits paid		(504	)		(72	)		(403	)
	Prior service cost		—			178			—
	Curtailment (gain) loss		(2,288	)		(409	)		—
	Foreign currency translation		2,623			3,038			2,007

Benefit obligation at end of year			37,572			32,080			22,940

Change in plan assets:
Fair value of plan assets at beginning of year			19,725			13,844			15,546
	Actual return on plan assets		2,959			3,134			(4,017	)
	Employer contributions		297			737			931
	Employee contributions		52			209			286
	Benefits paid		(504	)		(72	)		(403	)
	Foreign currency translation		1,552			1,873			1,501

Fair value of plan assets at end of year			24,081			19,725			13,844

Funded status			(13,491	)		(12,355	)		(9,096	)

	Unrecognized net actuarial loss		10,147			10,472			8,726
	Unrecognized prior service cost		—			178			—

Accrued pension cost		$	(3,344	)	$	(1,705	)	$	(370	)

Amounts recognized in consolidated balance sheet:
	Intangible asset (in other assets)	$	—		$	178		$	—
	Deferred tax asset, long-term		—			—			773
	Accrued benefit liability (in accrued expenses and other liabilities)		(13,491	)		(5,384	)		(2,302	)
	Accumulated other comprehensive loss		10,147			3,501			1,159

Net amount recognized		$	(3,344	)	$	(1,705	)	$	(370	)

As of December 31, 2004, the accumulated benefit obligation and the projected benefit obligation were both $37.6 million. Expected employer contributions for 2005 are approximately $0.2 million.

Based on the same assumptions used to measure the UK DBP as of December 31, 2004, future benefit payments expected to be paid are $0.3 million, $0.3 million, $0.5 million, $0.4 million, and $0.9 million in 2005, 2006, 2007, 2008, and 2009, respectively. In addition, we expect to pay $4.5 million in the aggregate for the years ended 2010 through 2014.

14. INCOME TAXES

Income before income taxes includes the following components (dollars in thousands):

Years ended December 31,	2004		2003			2002
Domestic	$	47,151	$	48,799		$	13,085
Foreign		4,357		(103	)		551

Total income before provision for income taxes	$	51,508	$	48,696		$	13,636

The provision for income taxes consists of the following (dollars in thousands):

Years ended December 31,		2004		2003			2002
Current:
	Federal	$	11,729	$	359		$	5,996
	State		1,379		(240	)		2,573
	Foreign		778		645			682

Total			13,886		764			9,251
Deferred:
	Federal		3,430		15,515			(2,960	)
	State		1,910		3,195			(836	)

Total			5,340		18,710			(3,796	)

Total provision for income taxes		$	19,226	$	19,474		$	5,455

The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal income tax rate (dollars in thousands):

Years ended December 31,		2004			2003			2002
Federal income taxes at 35%		$	18,028		$	17,044		$	4,772
State income taxes, net			2,923			1,921			1,129
Disallowed meals expense			421			293			508
Foreign rate differential			(1,228	)		(642	)		489
Non-benefitable book losses			2,125			1,809			653
Adjustment of prior-year's estimated tax liabilities:
	Expiration of statutes and changes in estimates		(1,134	)		(1,669	)		(1,532	)
	Deferred tax asset adjustment		(2,180	)
Retroactive state tax			608
Other, net			(337	)		718			(564	)

Total		$	19,226		$	19,474		$	5,455

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.

During the Third Quarter ended September 30, 2004, certain events occurred, which impacted our tax provision. These events include the expiration of certain state statutes and changes in estimates, which resulted in a reduction to our tax provision of approximately $1.1 million, and the enactment of certain tax laws, which resulted in an imposition of tax retroactive to January 1, 2004 and an increase to our tax provision of approximately $0.6 million. The adjustment of prior years' estimated tax liability of $1.7 million and $1.5 million for the years ended December 31, 2003 and December 31, 2002, respectively, are primarily attributable to the expiration of the statutory period for assessing state tax on periods ended in 1996, 1997 and 1998, and federal tax for the period ended in 1998, respectively. In accordance with SFAS 5 and SFAS No. 109 ("SFAS 109"), "Accounting for Income Taxes," we have adjusted our tax reserves in the period where the conditions under SFAS 5 are no longer met and as of the enactment date of the new tax laws.

For the year ended December 31, 2004, the Company identified errors relating to deferred tax balances arising from transactions in prior years. As a result, an adjustment to reduce goodwill by $2.1 million has been recorded in the accompanying consolidated balance sheet as of December 31, 2004 with a corresponding reduction to deferred tax liabilities. Furthermore, as of December 31, 2004 the Company recorded an adjustment to record an additional deferred tax asset totaling approximately $2.2 million and a corresponding decrease to the provision for income taxes. This income tax adjustment results from book to tax timing differences related to depreciation expense that management believe relate to a period, or periods prior to 2004. Since the specific period to which this adjustment relates cannot be identified with certainty, the adjustment has been recorded in the year ended December 31, 2004.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax

purposes. Significant components of net deferred tax asset and liabilities are as follows (dollars in thousands):

As of December 31,			2004			2003
Deferred tax assets:
	Current:
		Allowance for doubtful accounts and other reserves	$	1,428		$	2,059
		Restructuring reserve		1,435			2,838
		Accrued expenses		2,313			2,435

				5,176			7,332
		Valuation allowance		(120	)		—

	Net current deferred taxes		$	5,056		$	7,332
	Noncurrent deferred tax assets:
		Restructuring reserve	$	2,056		$	2,889
		Deferred compensation		3,303			2,271
		Depreciation		6,040			4,527
		Minimum pension liability adjustment		4,047			1,615
		Acquired domestic net operating loss carryforwards		2,027			1,814
		Other net operating loss carryforwards		8,945			2,686
		Other, net		182			(313	)

Total noncurrent deferred tax assets				26,600			15,489

		Valuation allowance		(13,016	)		(4,301	)

	Net noncurrent deferred tax assets			13,584			11,188

Deferred tax liabilities:
	Noncurrent:
		Intangibles		(34,633	)		(30,879	)
		Capitalized software		(4,875	)		(4,084	)

Total noncurrent deferred tax liabilities				(39,508	)		(34,963	)

Total net noncurrent deferred tax liability			$	(25,924	)	$	(23,775	)

The valuation allowance for deferred tax assets increased by $8.8 million as a result of the minimum pension liability adjustment and certain subsidiary net operating losses. The tax effect of the minimum pension liability adjustment in 2004 totaling $2.1 million was charged to other comprehensive income. Approximately $3.0 million of the benefit of any future reduction of the valuation allowance attributable to the minimum pension liability would be directly allocated to other comprehensive income.

At December 31, 2004, we had domestic net operating loss ("NOL") carryforwards for tax purposes of $15.0 million expiring in years ending in 2014 through 2024. Of these NOL carryforwards, $4.9 million relates to a prior acquisition and is subject to limitation pursuant to IRC Section 382.

On October 22, 2004, the American Jobs Creation Act of 2004 ("AJCA") was signed into law. The AJCA creates a temporary incentive for U.S. multinational corporations to repatriate accumulated

income abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. In December 2004, the FASB issued Financial Staff Position ("FSP") No. FSP 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" ("FSP 109-2"). FSP 109-2 is effective immediately and provides accounting and disclosure guidance for the repatriation provision. FSP 109-2 allows companies additional time to evaluate the effects of the law on its unremitted earnings for the purpose of applying the "indefinite reversal criteria" under APB 23, "Accounting for Income Taxes-Special Areas," and requires explanatory disclosures from companies that have not yet completed the evaluation. We are currently evaluating the effects of the repatriation provision and their impact on the consolidated financial statements. The minimum amount of dividend distribution of foreign earnings that could potentially be subject to the provisions of the AJCA would be $0 and the maximum would be $14.7 million, which is the cumulative undistributed earnings of our foreign subsidiaries at December 31, 2004. The related income tax expense on the amounts eligible for the temporary deduction under the provisions of the AJCA would be $0 to approximately $800,000.

In addition, our India subsidiary, part of the SignalTree Solutions acquisition, has tax holidays in India, which reduce or eliminate the income tax in that country. The holidays expire between 2006 and 2009. Based on the currently enacted regular corporate income tax rate in India, the benefit to us of the tax holidays for the year ended December 31, 2004 was approximately $1.5 million.

15. RELATED PARTIES, COMMITMENTS, AND CONTINGENCIES

Related Party Transactions

In October 2001, we entered into a lease for the New Facility with 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. 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, one of our 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.

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 2004 were approximately $3.4 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 construction-in-progress costs." For purposes of the 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 consolidated balance sheets. A liability for the same amount appears as accrued building costs into both our short- and long-term liabilities. The costs of the building are being amortized on a straight-line basis over a 39-year useful life. Additionally, the obligation is being 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.

In February 1985, we entered into a lease, which subsequently was extended to a term of 20 years, with 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, one of our 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 and are in the process of seeking a third party to sublease the remaining space.

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 2004, we paid approximately $1.1 million in lease payments and as of December 31, 2004, we had a remaining reserve balance of $1.8 million.

We have evaluated the applicability of FIN 46 to our relationship with each of City Square and Gateway LLC and determined that we are not required to consolidate these entities within our

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 March 2003, our Audit Committee approved a related party transaction involving a director of Keane. We had subcontracted with Guardent, Inc. ("Guardent") for a customer project. Maria Cirino, a member of our Board of Directors, was at the time an executive officer, director, and shareholder of Guardent. In addition, the Audit Committee approved our engagement of Guardent as a sub-contractor for the purpose of providing future services to our customers. Under the terms of this approval, no payment to Guardent for a single engagement could exceed $75,000 and no payment to Guardent for all engagements in any calendar year could exceed $250,000. We did not make any payments to Guardent during the year ended December 31, 2004. On February 27, 2004, Guardent was acquired by VeriSign, Inc. ("VeriSign"). Since then, Ms. Cirino has held the position of Senior Vice President of VeriSign Managed Security Services.

In July 2003, our Audit Committee approved a related party transaction involving a member of our Board of Directors. We sub-contracted with ArcStream Solutions, Inc. ("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. During the year ended December 31, 2004, we made payments of approximately $225,000 to ArcStream, including the termination payment referred to above. During the year ended December 31, 2003, we made payments of approximately $112,000 to ArcStream.

During the Third Quarter of 2004, Keane Worldzen sold a portfolio of receivables to World Credit LLC for approximately $0.6 million. A principal of World Credit LLC is a family member of the President of Keane Worldzen and, as a result, we have determined that World Credit LLC is a related party to Keane Worldzen. The sale of the portfolio was deemed to be an arms length transaction. In addition, World Credit LLC is an affiliate of World Credit Fund I, LLC and World Credit Fund II, LLC and Prairie Financial LLC. Two non-executive employees of Keane Worldzen hold non-controlling equity interests in World Credit Fund I, LLC and World Credit Fund II, LLC. Keane Worldzen entered into a collection services agreement with World Credit LLC in December 2002. Under this agreement Keane Worldzen provides collection services, and related activities, to World Credit LLC. Keane Worldzen earned a total of $107,800 from World Credit in 2004 for these services.

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 UK, 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. Rental expense for all of our facilities amounted to approximately $16.4 million in 2004, $15.0 million in 2003, and $17.6 million in 2002. We have subleases for certain restructured properties. The related cash receipts for these properties is reflected against the restructuring liability and are not recorded in the accompanying consolidated statements of income.

As of December 31, 2004, the future minimum lease payments for the next five years and thereafter under operating and capital leases, were as follows (dollars in thousands):

Years Ended December 31,	Operating Leases		Capital Leases
2005	$	19,457	$	243
2006		16,195		17
2007		13,354		—
2008		10,299		—
2009		7,479		—
Thereafter		22,435		—

Total minimum lease payments	$	89,219	$	260

Less imputed interest				—

Present value of minimum capital lease payments			$	260

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 new $50.0 million unsecured revolving credit facility (the "credit facility") with two banks. The credit facility replaces 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 dispositions of assets, create liens, and pay dividends. On June 11, 2003, we and two of our 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 two of our banks further amended certain provisions of the credit facility to expand our ability to make certain acquisitions. 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 December 31, 2004, 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 First Quarter of 2003, we paid $0.9 million related to certain earn-out considerations in connection with an acquisition made during the Third Quarter of 2002. We also recorded, in the Third Quarter of 2002, $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 2004, we recognized revenue of approximately $2.6 million in relation to the contingent service credits and reduced each of the related deferred revenue and note by approximately $1.3 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. In connection with the Nims acquisition and based on the forecasted financial performance related to the first earn-out, we expect to pay approximately $3.3 million contingent consideration in April of 2005.

During the First Quarter of 2003, we received a $7.3 million award in connection with an arbitration proceeding initiated by us in 2000 against Signal Corporation for a breach of an agreement between Signal Corporation and our Federal Systems subsidiary.

We are involved in other 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.

16. SEGMENT INFORMATION

Based on qualitative and quantitative criteria established by SFAS 131, we operate within one reportable segment: Professional Services.

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

		2004				2003				2002
		Revenues		Property & equipment		Revenues		Property & equipment		Revenues		Property & equipment
Domestic		$	860,354	$	64,173	$	781,255	$	64,799	$	843,918	$	22,583
International			51,189		12,588		23,721		10,632		29,285		8,578

	Total	$	911,543	$	76,761	$	804,976	$	75,431	$	873,203	$	31,161

We have no single customer that provides revenues that equal or exceed 10 percent of our consolidated revenues.

17. SUBSEQUENT EVENTS

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. The company offers integrated strategy, creative design, technology architecture, solutions construction, and application management services to large enterprise

clients. In exchange for all of netNumina's outstanding stock, we will pay $5.8 million in cash to shareholders of netNumina. The acquisition will be accounted for under the purchase method in accordance with SFAS 141 and SFAS 142. The operating results of netNumina will be included in our consolidated statement of operations beginning March 1, 2005.

18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	*(Dollars in thousands, except per share data)*
For the year ended December 31, 2004
Revenues	$	215,824	$	231,712	$	234,827	$	229,180
Gross margin (1)		65,834		70,002		68,611		69,856
Income before income taxes		9,207		13,452		13,325		15,524
Net income (4)		5,524		8,071		8,051		10,636
Basic earnings per share		0.09		0.13		0.13		0.17
Diluted earnings per share (2)		0.08		0.12		0.12		0.16
For the year ended December 31, 2003
Revenues	$	204,662	$	203,511	$	200,421	$	196,382
Gross margin (1)		62,231		65,251		63,008		60,111
Income before income taxes (3)		17,601		11,031		9,232		10,832
Net income (3)		10,561		6,620		5,540		6,501
Basic earnings per share		0.15		0.10		0.09		0.10
Diluted earnings per share (2)		0.15		0.10		0.08		0.10

(1): Gross margin (revenues less salaries, wages, and other direct costs)
(2): Reflects the adoption of EITF 04-8, which requires contingently convertible debt be included in the calculation of diluted earnings per share using the if-converted method regardless of whether the market price trigger has been met. See Note 12 "EARNINGS PER SHARE" for further discussion.
(3): First Quarter of 2003 includes a $7.3 million, $4.4 million after tax, favorable judgment in an arbitration award proceeding related to damages for breach of an agreement between Signal Corporation and our Federal Systems subsidiary.
(4): Fourth Quarter of 2004 includes an adjustment to record an additional deferred tax asset totaling approximately $2.2 million and a corresponding decrease to the provision for income taxes. See Note 14 "INCOME TAXES" for further discussion.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. 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 December 31, 2004. 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 December 31, 2004, 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.

Since 2003, we have been in the process of implementing a PeopleSoft Enterprise Resource Planning ("ERP") system for the majority of our processes and operations. We currently plan to implement the following PeopleSoft modules: Resource Management, General Ledger, Accounts Payable, Expense and Time Reporting, Accounts Receivable, Contracts Management, Project Accounting, Billing and Enterprise Planning Management. The implementation of the ERP system is being phased in over time throughout Keane and we currently plan to complete the implementation for the majority of our processes and operations in 2005. During the year ended December 31, 2004, we implemented the General Ledger, Accounts Receivable, Resource Management, Accounts Payable, Expense Reporting, and Enterprise Planning Management modules for the majority of our operations. The second phase of the implementation, which is planned for 2005, will include Contracts Management, Time Reporting, Project Accounting and Billing. Implementing an ERP system involves significant changes in business processes and extensive organizational training. We believe the phased-in approach we are taking reduces the risks associated with making these changes. In addition, we are taking the necessary steps to monitor and maintain appropriate internal controls during this period.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Senior Vice President of Finance and Administration and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2004 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2004.

Management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein.

Attestation Report of the Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Keane, Inc.

We have audited management's assessment, included in the accompanying Management's Report of Internal Control Over Financial Reporting that Keane, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Keane, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Keane, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO control criteria. Also, in our opinion, Keane, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on the COSO control criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Keane, Inc. as of December 31, 2004 and 2003 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2004 of Keane, Inc. and our report dated March 11, 2005 expressed an unqualified opinion thereon.

		/s/ Ernst & Young LLP
Boston, Massachusetts March 11, 2005

Changes in Internal Control Over Financial Reporting

During the year ended December 31, 2004, 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, except as relating to the implementation of an ERP system, as described above.

ITEM 9B. OTHER INFORMATION

On March 9, 2005, the Compensation Committee of the Board of Directors of Keane, Inc. approved the 2005 Incentive Compensation Plan for the Company's executive officers. See exhibit 10.17 for further detail.

During the period March 11, 2005 through March 12, 2005, the Company entered into change in control agreements with each member of the executive team. Generally, in the event of involuntary termination in connection with a change in control of Keane, the executive will receive the following benefits: (i) payment by Keane of a multiple of the executive's salary, as well as a multiple of the executive's bonus; (ii) a certain number of months of continued health, dental and financial planning benefit coverage: (iii) outstanding stock options and restricted shares, if any, would become fully vested; and (iv) if the payments provided to the executive exceed the amount that triggers excise tax under section 4999 of the Tax Code, the payments will be grossed-up. The multiples and total number of months for health, dental insurance and financial planning coverage for each executive are as follows, Brian T. Keane and John J. Leahy—three times and 18 months; Robert B. Atwell, Russell Campanello, Raymond Paris, Laurence Shaw, and Georgina Fisk—two times and 12 months.

Also, on March 11, 2005, the Company entered into an employment agreement with Robert B. Atwell. This agreement provides certain benefits for Mr. Atwell should he be involuntarily terminated from Keane before 1/1/2007. In the event that Mr. Atwell is involuntarily terminated he will receive the following benefits; (i) payment by Keane for up to 12 months of salary; (ii) up to 12 months of health, dental and financial planning benefit coverage; and (iii) outstanding stock options and restricted shares, if any, would become fully vested.

Copies of each of these agreements are attached hereto as exhibits 10.21 through 10.28.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The response to this Item is contained in part under the caption "Directors and Executive Officers of the Company" in Item 4 of Part I hereof and the remainder is incorporated herein by reference to our Proxy Statement for our Annual Meeting of Stockholders to be held May 12, 2005 (the "2005 Proxy Statement") under the caption "Election of Directors" and "Code of Business Conduct."

ITEM 11. EXECUTIVE COMPENSATION

The response to this Item is incorporated herein by reference to our 2005 Proxy Statement under the caption "Executive Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The response to this Item is incorporated herein by reference to our 2005 Proxy Statement under the captions "Stock Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The response to this Item is incorporated herein by reference to our 2005 Proxy Statement under the caption "Certain Related Party Transactions."

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The response to this Item is incorporated herein by reference to our 2005 Proxy Statement under the caption "Principal Accountant Fees and Services."

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

(1): Financial Statements

Report of independent registered public accountants		45
Consolidated statements of income for the years ended December 31, 2004, 2003, and 2002		46
Consolidated balance sheets as of December 31, 2004 and 2003		47
Consolidated statements of stockholders' equity for the years ended December 31, 2004, 2003, and 2002		48
Consolidated statements of cash flows for the years ended December 31, 2004, 2003, and 2002		49
Notes to consolidated financial statements		50-89

(2): Financial Statement Schedules

Financial statement schedules are omitted because they are either not required or the required information is provided in the consolidated financial statements or notes hereto.

(3): Exhibits

The Exhibits filed herewith or incorporated herein by reference are set forth in Item 15 (b) below.

(b) Exhibits

See Exhibit Index attached hereto.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)
		/s/ BRIAN T. KEANE Brian T. Keane President and Chief Executive Officer
Date: March 15, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ JOHN F. KEANE

John F. Keane
Chairman

/s/ BRIAN T. KEANE

Brian T. Keane
President, Chief Executive Officer, and
Director

/s/ JOHN J. LEAHY

John J. Leahy
Senior Vice President of Finance and
Administration and Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)

/s/ MARIA A. CIRINO

Maria A. Cirino
Director

/s/ JOHN H. FAIN

John H. Fain
Director

/s/ PHILIP J. HARKINS

Philip J. Harkins
Director

/s/ WINSTON R. HINDLE, JR.

Winston R. Hindle, Jr.
Director

/s/ JOHN F. KEANE, JR.

John F. Keane, Jr.
Director

/s/ JOHN F. ROCKART

John F. Rockart
Director

/s/ STEPHEN D. STEINOUR

Stephen D. Steinour
Director

/s/ JAMES D. WHITE

James D. White
Director

Exhibit Index
2.1		Agreement and Plan of Merger, dated as of August 20, 2001, by and among the Registrant, Veritas Acquisition Corp., and Metro Information Services, Inc. is incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated August 20, 2001, filed on August 21, 2001.
3.1		Articles of Organization of the Registrant, as amended, are incorporated herein by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-3 (File No. 33-85206) (the "Registration Statement").
3.2		Articles of Amendment to Registrant's Articles of Organization, filed on May 29, 1998, are incorporated herein by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K, filed on June 3, 1998 (File No. 1-7516).
3.3		Second Amended and Restated By-Laws of the Registrant are incorporated herein by reference to Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000.
3.4		Amendment to Second Amended and Restated Bylaws of the Registrant is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.
3.5		Amendment No. 2 to Second Amended and Restated Bylaws of the Registrant is incorporated by reference to the Registrant's Quarterly Report on Form 10-K for the quarterly period ended June 30, 2004.
4.1		Registration Rights Agreement, dated as of June 18, 2003, by and among Keane, Inc., Morgan Stanley & Co. Incorporated, Wachovia Securities, LLC and Fleet Securities, Inc. is incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on June 20, 2003.
4.2		Indenture, dated as of June 18, 2003, between Keane, Inc. and Wachovia Bank, National Association, as trustee, for 2% Convertible Subordinated Debentures due 2013 is incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on June 23, 2003.
*10.1		Keane, Inc. 401(k) Deferred Savings and Profit Sharing Plan is incorporated herein by reference to Exhibit 10.2 to the Registration Statement.
*10.2		1992 Stock Option Plan is incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 1-7516).
*10.3		1998 Stock Incentive Plan is incorporated herein by reference to Exhibit 10 to the Company's Registration Statement on Form S-8 (File No. 333-56119), as filed with and declared effective by the Commission on June 5, 1998.
*10.4		Amendment to 1998 Stock Incentive Plan is incorporated herein by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000.
*10.5		Amended and Restated 1992 Employee Stock Purchase Plan, as amended, is incorporated herein by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2001.
10.6		Metro Information Services, Inc. Amended and Restated 1997 Stock Option Plan is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.
10.7		Lease dated February 20, 1985, between the Registrant and Jonathan G. Davis, as Trustee of City Square Development Trust (the "Trust"), is incorporated herein by reference to Exhibit 10.6 to the Registration Statement.
10.8		First Amendment of Lease dated March 19, 1985, between the Registrant and the Trust, is incorporated herein by reference to Exhibit 10.7 to the Registration Statement.
10.9		Second Amendment of Lease dated November 1985, between the Registrant and the Trust, is incorporated herein by reference to Exhibit 10.8 to the Registration Statement.
*10.10		Keane, Inc. 2001 Stock Incentive Plan is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.

*10.11		Keane, Inc. United Kingdom Employee Stock Purchase Plan is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002.
10.12		Revolving Credit Agreement dated February 28, 2003, by and between the Registrant, Fleet National Bank, as Agent, and several lenders party, (the "Lenders") thereto is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002.
10.13		Lease, dated October 25, 2001 between the Registrant and Gateway Developers LLC is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002.
10.14		First Amendment dated June 11, 2003 to the Revolving Credit Agreement dated February 28, 2003, by and between the Registrant and the Lenders thereto is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2003.
10.15		Second Amendment dated October 17, 2003 to the Revolving Credit Agreement dated February 28, 2003, by and between the Registrant and the Lenders thereto is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2003.
10.16		Third Amendment dated February 5, 2004 to the Revolving Credit Agreement dated February 28, 2003, by and between the Registrant and the Lenders thereto is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2003.
*+10.17		Summary of Executive Compensation
*+10.18		Summary of Director Compensation
*+10.19		Keane Ltd. Pension Scheme with all amendments to date
*+10.20		First Amendment and Restatement of the Keane, Inc. Deferred Compensation Plan with all amendments to date
*+10.21		Employment Agreement between Keane, Inc. and Robert B. Atwell
*+10.22		Change in Control Agreement between Keane, Inc. and Robert B. Atwell
*+10.23		Change in Control Agreement between Keane, Inc. and Brian T. Keane
*+10.24		Change in Control Agreement between Keane, Inc. and John J. Leahy
*+10.25		Change in Control Agreement between Keane, Inc. and Laurence D. Shaw
*+10.26		Change in Control Agreement between Keane, Inc. and Raymond Paris
*+10.27		Change in Control Agreement between Keane, Inc. and Russell J. Campanello
*+10.28		Change in Control Agreement between Keane, Inc. and Georgina L. Fisk
10.29		Amended and Restated 1992 Employee Stock Purchase Plan, as amended is incorporated herein by reference to Exhibit 10.17 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2004.
+21.1		Schedule of Subsidiaries of the Registrant.
+23.1		Consent of Independent Registered Public Accounting Firm.
+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.

*: Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15 of the Exchange Act.
+: Filed herewith.

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
KEANE, INC. CONSOLIDATED STATEMENTS OF INCOME
KEANE, INC. CONSOLIDATED BALANCE SHEETS
KEANE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except for share data)
KEANE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
KEANE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

Report of Independent Registered Public Accounting Firm

ITEM 9B. OTHER INFORMATION

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

SIGNATURES
EX-10.17 2 a2153146zex-10_17.txt EXHIBIT 10.17 Exhibit 10.17 Summary of 2005 Executive Compensation On March 9, 2005, the Compensation Committee of the Board of Directors of Keane, Inc. (the "Company") approved the 2005 Incentive Compensation Plan for the Company's executive officers. The incentive awards are based on the Company's pre-established performance objectives, primarily financial measures to be achieved for the year ended December 31, 2005. These financial measures at the Company wide level include cash earnings per share (CEPS)(1), revenues, days sales outstanding (DSO)(2) and at the business unit level, revenues and operating income. The pre-established performance objectives also include non-financial measures that are based upon the executive's individual objectives, such as leadership initiatives, organizational effectiveness, brand development and compliance. Each executive was assigned a pre-established incentive target expressed as a percentage ranging from 50% to 100% of his or her base salary. Current salary of each of the executive officers is as follows:

L -- amount in British Pounds. Each executive is eligible for reimbursement of Financial Planning services up to $12,000 per year. In addition, under the Company's 401(K) deferred profit and sharing plan, after one-year of employment, the Company contributes $.50 for each pre-tax dollar deferred, up to 6.0% of the executive's annual salary contributed. Lastly, each executive is eligible for awards under the Company's stock incentive plans. (1) Keane's management believes that cash performance is the primary driver of long-term per share value and, accordingly, views diluted cash earnings per share (CEPS) as an important indicator of performance. CEPS excludes amortization of intangible assets, stock-based compensation, restructuring charges, net, and in 2003, an arbitration award. CEPS includes the weighted average impact of the shares issuable upon conversion of the debentures. CEPS is not a measurement in accordance with Generally Accepted Accounting Principles (GAAP). (2) DSO is calculated using trailing three months total revenue divided by the number of days in the period to determine daily revenue. The average accounts receivable balance for the three-month period is then divided by daily revenue. EX-10.18 3 a2153146zex-10_18.txt EXHIBIT 10.18 EXHIBIT 10.18 SUMMARY OF DIRECTOR COMPENSATION The compensation of the non-employee members of the Board of Directors is as follows:

The compensation of our non-employee directors is determined on an approximate 52-week period (the "Annual Directors Term") that runs from annual meeting date to annual meeting date rather than on a calendar year. A director may elect to receive his or her annual fee or meeting attendance fees for an Annual Directors Term in the form of shares of common stock in lieu of cash payments. If a director elects to receive shares of common stock in lieu of cash as payment for the annual fee or meeting attendance fees, the number of shares to be received by the director will be determined by dividing the dollar value of the annual fee or the meeting attendance fees owed by the closing price of our common stock as reported on the NYSE on the last day of the Annual Directors Term. Directors generally make their elections as to the form of compensation for his or her annual fee or meeting attendance fees in July of each year and such election is valid for the Annual Directors Term beginning in the calendar year in which the election is made. Non-employee directors are also eligible to receive stock options under our stock incentive plans. Directors who are officers or employees of Keane do not receive any additional compensation for their services as directors. EX-10.19 4 a2153146zex-10_19.txt EXHIBIT 10.19 Exhibit 10.19* DATED JANUARY 5, 1996 --------------------------------------- IMI COMPUTING LIMITED (1) AND I.N. BROWN AND C.G. POWELL (2) --------------------------------------- INTERIM DEED RELATING TO THE ICOM SOLUTIONS PENSION SCHEME --------------------------------------- * L -- amounts in British Pounds THIS INTERIM DEED is made on January 5, 1996 BETWEEN: (1)IMI COMPUTING LIMITED (No. 1641088) whose registered office is at Lion House, PO Box 1240, Birmingham, B6 7UH (the "PRINCIPAL EMPLOYER"); and (2)IRENE NORMA BROWN of 8 Downham Close, Walsall, West Midlands WS5 3BX and CHRISTOPHER GARY POWELL of 43 Birchwood Road, Lichfield, Staffordshire WS14 9UN (the "TRUSTEES"). RECITALS (A)The Principal Employer wishes to establish a retirement benefits scheme (the "SCHEME"). (B)The Trustees have agreed to be the trustees of the Scheme. OPERATIVE PROVISIONS: This deed provides as follows: 2By this deed the Principal Employer establishes the Scheme with effect from the Effective Date for the provision of Relevant Benefits for and in respect of Members. 3Until the execution of the Definitive Rules, and subject to them, the Trustees hold the Fund on trust to apply it in accordance with the Rules and the schedules to this deed. 4The Scheme shall be called the "Icom Solutions Pension Scheme". 1 CONTENTS RULES

2 SCHEDULE ~~1Inland Revenue Limits................................................. 19~~

3 THE RULES THE ICOM SOLUTIONS PENSION SCHEME DEFINITIONS AND INTERPRETATION 3DEFINITIONS 4.1In this deed, unless the context otherwise requires: "1988 Act" means the Income and Corporation Taxes Act 1988. "1993 Act" means the Pension Schemes Act 1993. "Actuary" means an actuary for the time being appointed under Rule 15 being a Fellow of the Institute or Faculty of Actuaries. "Adviser" means an actuary, auditor, fund manager, legal adviser, surveyor or any other adviser. "Announcement" means the document annexed to this deed briefly describing the benefits of the Scheme. "Approval" means approval of the Scheme as an exempt approved scheme under Part I Chapter XIV 1988 Act. "Beneficiary" means any person absolutely or contingently entitled to a benefit from the Scheme. "Contracting-out Requirements" means the requirements to be met for the purpose of obtaining and maintaining a contracting-out certificate under Chapter I Part III 1993 Act by reference to the Scheme. "Definitive Rules" means the provisions of the Scheme to be decided and executed by the Principal Employer under Rule 3.2. "Disclosure Requirements" means the Occupational Pension Schemes (Disclosure of Information) Regulations 1986. "Effective Date" means the date specified in Rule 3. "Employee" means a person in employment with an Employer. "Employer" means the Principal Employer and any other person admitted to participation under Rule 25.1 or, in relation to any Employee or former Employee or Beneficiary claiming through him, the Principal Employer or such other person by which, at the relevant time, he is or was last employed. "Former Employer" means an Employer which has ceased to participate in the Scheme under Rule 26 or 29. 4 "Fund" means the investments, cash and other assets for the time being held by or on behalf of the Trustees on the trusts of the Scheme. "Insolvency Event" means in relation to an Employer a circumstance in which, if the Employer were the employer in relation to the Scheme for the purpose of section 22(1) Pensions Act 1995, that section would apply to the Scheme as if that section was in force at the date of this deed. "Insurance Company" means any institution which is authorised by or under the Insurance Companies Act 1982 to carry on ordinary long-term insurance business as defined in that Act. "Member" means an Employee who has been admitted to participate in the Scheme under Rule 4.1 and who has neither reached Normal Pension Age nor before that age retired on pension, ceased to be an Employee or withdrawn from the Scheme. "Membership" means the status of being a Member. "Normal Pension Age" means the normal pension age described in the Announcement or such other age as the Principal Employer decides. "Other Scheme" means the trustees or administrator of an occupational pension scheme, a Personal Pension Scheme or a Policy which is approved by the Revenue for the purpose of Rule 27 or Rule 28 under Chapter XIV 1988 Act. "Personal Pension Scheme" means a personal pension scheme approved by the Revenue under Part IV Chapter XIV 1988 Act. "Policy" means any policy or other contract with any Insurance Company which (a)provides an annuity (deferred, immediate or contingent), and (b)meets any requirements for Approval or of the Preservation Requirements or of the Contracting-out Requirements, and (c)subject to paragraph (b) of this definition, may contain such terms and conditions as the Trustees decide "Preservation Requirements" means the provisions of Chapter I Part IV 1993 Act relating to the rights of a former Member on termination of his Membership. "Principal Employer" means IMI Computing Limited. "Relevant Benefits " has the meaning set out in section 612 1988 Act. "Revenue" means the Commissioners of Inland Revenue. 5 "Rule" means any of these Rules. "Scheme" means the "Icom Solutions Pension Scheme". "Trustees" means the trustees for the time being of the Scheme. 5INTERPRETATION AND OVERRIDING PROVISIONS 6.1Subject to Rule 4.3, the provisions listed in Rule 2.2(a) - (e) apply to the Scheme and this deed takes effect subject to them. 6.2Each of the Principal Employer, the Employers and the Trustees in making any decision or in giving or withholding its agreement or consent or in exercising or not exercising any power under this deed shall comply with: (a)any requirements of the Revenue to obtain and maintain Approval; (b)the Contracting-out Requirements; (c)the Preservation Requirements; (d)the Disclosure Requirements; (e)the equal access requirements of section 118 1993 Act. 6.3Subject to Rule 2.2, each of the Principal Employer and the Employers in making any decision or in giving or withholding its agreement or consent or in exercising or not exercising any power under this deed shall do so at its absolute and uncontrolled discretion and for its own benefit and shall owe no duty to any Employer, Employee, Beneficiary or any other person. 6.4Subject to Rule 2.2, the Trustees in making any decision or in giving or withholding their agreement or consent or in exercising or not exercising any power under this deed shall do so at their absolute and uncontrolled discretion. 6.5The decision of the Trustees shall be final on all questions which are left to their determination or decision under this deed and on all matters relating to the management and administration of the Scheme on which this deed is silent. 6.6Words importing the singular include the plural and vice versa. The plural form of words and expressions defined in Rule 1 shall be construed according to the meaning given to the singular form and vice versa. 6.7Words importing one gender (except the words, "male" and "female") or the neuter include the other gender and the neuter as the case may be. 6.8The table of contents and the headings to the provisions of this deed are for reference purposes only and shall not affect the meaning or construction of this deed. 6 6.9References to this deed include the Rules and the schedules. 6.10Any reference to a statute (or to a particular chapter, part of, section of, or schedule to, a statute) includes any statutory modification on re-enactment of it and any regulations made under it. 6.11Unless otherwise defined in Rule 1, words and expressions which have defined meanings in the 1988 Act or the 1993 Act have the same meanings in this deed. 7 EFFECTIVE DATE AND PERSONS AFFECTED BY THESE RULES 7EFFECTIVE DATE AND DEFINITIVE RULES 8.1This deed has effect from January 5, 1996 which is the Effective Date. 8.2The Principal Employer shall decide the provisions of the Definitive Rules and shall execute the Definitive Rules within two years from the Effective Date. The Definitive Rules will have effect from the Effective Date. The Trustees shall hold the Fund on the trusts of the Definitive Rules, but the Definitive Rules shall not operate to invalidate or affect any decision or the exercise of any power before the execution of the Definitive Rules. 9PERSONS AFFECTED AND BENEFITS 10.1The Principal Employer shall decide which Employees shall be admitted to participation in the Scheme and when they shall be admitted. 10.2Subject to the provisions of this deed and the Definitive Rules, the benefits of the Scheme shall be as described in the Announcement. 10.3In relation to a Member whose employment becomes contracted-out by reference to the Scheme, the Contracting-out Requirements apply to the Scheme. 8 MODIFICATION AND AUGMENTATION 11MODIFICATION 12.1The Principal Employer may by deed change all or any of the provisions of this deed including this Rule 5 in any way. Any change shall take effect from the date specified in the deed making the change, which date may be earlier or later than the date of that deed. 13AUGMENTATION 14.1The Trustees may with the consent of the Principal Employer: (a)augment or vary the benefits payable under this deed either generally or in any particular case; (b)provide benefits for any Employee or former Employee or any spouse, child or dependant of a former Employee or Employee. 15REVIEWS OF BENEFITS 16.1The Principal Employer and the Trustees shall at least once each calendar year review the pensions currently payable as at that date and shall review the increases (if any) which form part of the benefits of the Scheme for the purpose of considering an increase or additional increase under Rule 6.1(a). 9 CONSTITUTION OF TRUSTEES 17APPOINTMENT AND REMOVAL OF TRUSTEES 18.1The Principal Employer shall have power by deed to appoint a new or additional trustee and to remove a trustee provided that, unless a body corporate is the sole trustee, the number of Trustees shall not be less than two. 18.2A body corporate (whether or not a trust corporation) may remain or be appointed sole Trustee. 18.3Subject to Rule 8.4, if after the resignation the continuing Trustees shall be at least either a body corporate or two individuals, any trustee may resign as a trustee by serving written notice on the Principal Employer and the other trustees to that effect. 18.4Every trustee shall on ceasing to be a trustee execute such documents and do all such things as may be necessary to give effect to such cessation and to vest the Fund in the continuing Trustees. 19EXPENSES AND REMUNERATION OF TRUSTEES 20.1The Trustees shall be entitled to pay out of the Fund any expenses incurred by them in connection with the Scheme, to be paid in priority to all other claims falling to be met out of the Fund. 20.2The Trustees may, with the consent of the Principal Employer, pay to any trustee out of the Fund reasonable remuneration for acting in that capacity or in any other capacity authorised by the Rules, to be so paid in priority to all other claims (other than under Rule 9.1) payable out of the Fund. 20.3A trustee paid or intended to be paid under Rule 9.2 may participate in taking a decision under Rule 9.2 notwithstanding his personal interest in it and may retain for himself any reasonable remuneration which the Trustees decide to pay to him. 21TRUSTEES BENEFITING FROM THE SCHEME 22.1The decision of, or the exercise of a power by, the Trustees shall not be invalidated or questioned on the ground that any of the Trustees had an interest in the result of the decision or the exercise of the power. 22.2A Beneficiary who is or has been a trustee (or a director or officer of a corporate trustee or a delegate of the Trustees) may retain for himself any benefit to which he is entitled by virtue of his Membership, including any benefit as augmented or provided under Rule 6, whether or not the Beneficiary participated in the exercise of the power in Rule 6 in relation to him. 22.3Subject to the consent of the Principal Employer and of the Trustees, a trustee who is or becomes a director or employee of any company in which the Trustees hold shares or 10 any other interest may retain for himself any resulting fees or remuneration notwithstanding that his retention of, or appointment to, that office or employment may be directly or indirectly due to the exercise or non-exercise of any votes by the Trustees. 23TRUSTEE INDEMNITIES AND INSURANCE 24.1No Trustee shall as trustee of the Scheme or in respect of the exercise of his rights or powers under this deed incur any personal responsibility or be liable for anything whatsoever except for breach of trust knowingly and intentionally committed or condoned by him. 24.2The Principal Employer shall indemnify each of the Trustees against all or any claims costs losses damages and expenses which he may pay or incur or which may be made or awarded against him as a trustee of the Scheme except for breach of trust knowingly and intentionally committed or condoned by him. 24.3The Trustees may effect any insurance or policy of indemnity in relation to acts or omissions of themselves, their servants, agents or other persons (including employees of the Principal Employer) in connection with the Scheme and may pay the premiums for the insurance or policy and any related expenses from the Fund. POWERS AND DUTIES OF TRUSTEES 25ADMINISTRATION AND MANAGEMENT 26.1The Trustees shall be the administrator of the Scheme for the purposes of Chapter 1 Part XIV 1988 Act. 27TRUSTEES MEETINGS AND PROCEDURES 28.1The Trustees, or the officers of a corporate body which is sole Trustee, shall meet for the purpose of considering the affairs of the Scheme at least once a year. Subject to that, the meetings and procedures of a corporate body which is sole Trustee will be regulated by its governing document. In any other case Rules 13.2 to 13.4 apply. 28.2The decisions of the Trustees and of any committee of the Trustees may be taken by agreement of a majority of the Trustees. 28.3A decision recorded in writing and signed by all of the Trustees shall be effective as if it were a decision of a meeting of the Trustees. 28.4Subject to Rules 13.1 - 13.3, the Trustees may make such regulations for the conduct of their business as they decide. 11 29DELEGATION 30.1The Trustees may with the consent of the Principal Employer delegate all or any of their powers, duties, trusts and discretions (including the power to delegate in this Rule 14.1) to any person on such terms, for such periods and at such remuneration (if any) as they think fit, but any remuneration for a trustee must be authorised under Rule 9. 31ADVISERS 32.1The Trustees may appoint or remove any Adviser on such terms as to remuneration and otherwise as they think fit. 32.2The Trustees shall not seek or act upon the advice of any Adviser unless he is appointed by the Trustees, but the Trustees may appoint an Adviser who also advises the Principal Employer or any Employer provided they instruct the Adviser to notify the Trustees as soon as the Adviser becomes aware of any conflict of interest. 32.3Subject to Rule 15.2 the Trustees may act in accordance with advice given by an Adviser and shall not be liable for any resulting loss. 33EMPLOYMENT OF AGENTS AND STAFF 34.1The Trustees may, with the consent of the Principal Employer, employ or engage such persons and on such terms as to remuneration and otherwise as they think fit to transact any business of the Scheme or to administer the Scheme. Except in the case of a trustee, such person may, if he is acting in good faith, comply with the directions of the Trustees without being obliged to ascertain that those directions comply with this deed. 34.2Any remuneration for a trustee under Rule 16.1 must be authorised under Rule 9. 35EXPENSES AND DEBTS 36.1Unless the Principal Employer decides otherwise, all costs, charges, expenses incurred by the Trustees in connection with the Scheme and any remuneration of the Trustees shall be payable out of the Fund. 37INVESTMENT 38.1The Trustees may invest the Fund, and may retain or transpose and vary any such investment, in any form of investment which they could make if they were a sole and absolute, beneficial owner of the Fund. The Trustees may with the consent of the Principal Employer appoint an investment manager who is authorised under the Financial Services Act 1986 to exercise their powers of investment. 38.2An investment authorised by Rule 18.1 may involve a liability on the Fund, need not produce income or be authorised by law for the investment of trust moneys, and may be of a wasting or reversionary nature. 12 38.3The Trustees may improve, repair or develop land or other property. 38.4The Trustees may underwrite, sub-underwrite or guarantee the subscription of any stocks, shares, debentures, debenture stock, bearers securities or other investments and may deal in commodities, commodity futures, financial futures and traded options. 38.5The Trustees may invest all or any part of the Fund in a common investment fund or in a unit trust, mutual fund or managed fund of an insurance company or in the purchase of shares in an investment trust which in the opinion of the Trustees, in any of these cases, diversifies its investments in a manner appropriate to the circumstances of the Scheme and whose policy as to choice of investment is, in the opinion of the Trustees, suitable to the Scheme. 38.6Section 112 1993 Act and the Occupational Pension Schemes (Investment of Scheme's Resources) Regulations 1992 (not more than 5% of the Fund to be invested in employer-related investments) apply. 38.7The Trustees may hold assets either in the name of the Trustees or any of them or jointly with some other person or in the name of a nominee or custodian or sub-custodian. The Trustees may appoint a custodian of Fund assets on any terms including power to appoint sub-custodians and nominees without the approval of the Trustees. 39INSURANCE OF BENEFITS 40.1The Trustees may effect and deal with any Policy for the provision of any benefit payable under the Scheme. 40.2The Trustees may appropriate any Policy in the Fund to the provision of any benefit payable under the Scheme to any Beneficiary without his consent. 40.3The Trustees may purchase in the name of or assign to any Beneficiary any Policy for the provision of any benefit payable to that Beneficiary. 40.4The consent of the Beneficiary to a purchase or assignment under Rule 19.3 shall not be required except in so far as his consent is required in order to comply with the Preservation Requirements, the Contracting-out Requirements or the requirements for Approval. 40.5If a Policy is appropriated under Rule 19.2 (a)the Beneficiary in question shall not be entitled to any benefit except for the benefits payable out of the Policy, (b)no person shall have any right to resort to the Policy in priority to or equally with the Beneficiary, and (c)the provisions of this deed relating to the closure or winding-up, in whole or in part, of the Scheme shall have effect subject to this Rule 19.5. 13 40.6If a policy is purchased or assigned under Rule 19.3 the Beneficiary in question shall immediately cease to have any rights under the Scheme to any benefit. 41BANK ACCOUNTS 42.1The Trustees may keep any money received by them in a separate bank account kept by them at an institution authorised under the Banking Act 1987. 42.2The Trustees may authorise any person to open and operate an account authorised by Rule 20.1 (including the drawing and endorsing of cheques). 43BORROWING 44.1The Trustees may borrow money on any terms and conditions (including as to security). 45ACCOUNTS AND AUDIT 46.1The Trustees shall obtain at such intervals as they decide accounts audited by the auditor of the Scheme and a statement of the auditor about contributions under the Scheme. 47ACTUARIAL INVESTIGATIONS 48.1The Trustees shall obtain at such intervals as they decide being not more than 3 1/2 years a valuation by the Actuary of the assets and liabilities of the Scheme. 49INSURANCE OF FUND ASSETS 50.1The Trustees may insure any assets against any risks and for any amounts. 14 PARTICIPATION OF EMPLOYERS, TRANSFERS AND WINDING-UP 51ADMISSION OF EMPLOYERS 52.1Subject to Rule 25.2, the Principal Employer may admit to participation in the Scheme as an Employer any person either (a)which is associated in business by shareholding or otherwise with the Principal Employer, or (b)which is not so associated but whose participation is approved by the Revenue. 52.2A person to be admitted under Rule 25.1 shall by deed in favour of the Trustees (whose agreement shall not be required) covenant to observe and perform the provisions of the Scheme applicable to it as an Employer. 53WITHDRAWAL OF EMPLOYER 54.1An Employer shall cease to participate in the Scheme forthwith upon the happening of any of the following: (a)the effective date of a notice given by the Principal Employer to the Trustees terminating the participation of an Employer in the Scheme, or (b)an Insolvency Event in relation to an Employer, or (c)subject to Rule 25.1(b) an Employer ceasing to be associated in business with the Principal Employer. 54.2A Member who is an employee of the Former Employer shall cease to accrue benefits under the Scheme and shall cease to be a Member on the date on which the Employer became a Former Employer. The Member shall be entitled to such benefits in respect of his Membership to that date as the Trustees are required to provide in accordance with the Preservation Requirements. 55TRANSFERS TO THE SCHEME 56.1The Trustees may, with the consent of the Principal Employer, accept a transfer payment relating to any Beneficiary or other person from an Other Scheme on terms that the Beneficiary shall be entitled to such benefits under the Scheme as the Trustees after consulting the Actuary decide. 56.2If the Trustees accept a liability to pay a guaranteed minimum pension under Rule 27.1, the Trustees may revalue the accrued rights to the guaranteed minimum pension by a method different from that used by the Other Scheme. 15 57TRANSFERS FROM THE SCHEME 58.1In respect of a Beneficiary the Trustees may with the consent of the Principal Employer transfer to an Other Scheme part of the assets of the Fund. The amount of that part shall: (a)be determined by the Trustees after consulting the Actuary; and (b)be equal in value to the benefits which the Trustees are required to provide to the Beneficiary in accordance with the Preservation Requirements in respect of the period of Membership to which the benefits relate. 58.2A transfer made under Rule 28.1 shall be made on the basis that the Beneficiary shall become entitled under the Other Scheme to such benefits (contingent or otherwise) as the Trustees agree with the Other Scheme. 58.3When a transfer is made under Rule 28.1: (a)the Beneficiary shall immediately cease to be entitled to any of the benefits under the Scheme in respect of which the transfer was made; and (b)the Trustees shall not be responsible for or required to enquire into the application of the assets so transferred. 58.4The consent of the Beneficiary to a transfer under Rule 28.1 shall not be required except insofar as his consent is required to comply with the Preservation Requirements, the Contracting-out Requirements or the requirements for Approval. 58.5Where a Beneficiary has a statutory right to a transfer of a cash equivalent under section 95 1993 Act in respect of part of his benefits and exercises that right, the Trustees may treat the exercise of that right as extending to the remainder of his benefits. 59CLOSING THE SCHEME 60.1If the Principal Employer ceases to participate in the Scheme in consequence of a notice under Rule 26.1(a) or an Insolvency Event then: (a)all the Employers shall immediately cease to participate in the Scheme; (b)Rule 26.2 shall apply to all the Members; (c)the Scheme will be continued as a closed fund or wound up in accordance with the Definitive Rules which may in these circumstances consist of only such provisions as are necessary to give effect to the winding-up; and (d)until such time as the Scheme has been completely wound up all the powers exercisable under the Scheme shall continue to be available. 16 60.2If the Principal Employer ceases to participate in the Scheme in consequence of an Insolvency Event before the adoption of Definitive Rules, all the powers of the Principal Employer under this deed shall be exercisable by the Trustees in the place of the Principal Employer. 61DISCRETIONARY TRUST OF LUMP SUMS 62.1Any lump sum benefit payable under the Scheme in respect of the death of a Beneficiary shall be held by the Trustees on trust to pay it within two years from the date of death to or for the benefit of such one or more of: (a)the spouse of the Beneficiary, (b)any ancestor or descendant, (c)any dependant, (d)any brother or sister, (e)the descendant of any brother or sister, (f)any person notified by the Beneficiary to the Trustees of the purpose of this Rule 30, and (g)any person beneficially interested under any testamentary disposition of the Beneficiary, and in such shares as the Trustees decide. 63ADDITIONAL VOLUNTARY CONTRIBUTIONS 64.1A Member may pay additional voluntary contributions to the Scheme to secure additional benefits under arrangements to be made by the Trustees with the consent of the Principal Employer. 64.2The Trustees shall comply with the requirements of Regulation 5 of the Retirement Benefit Schemes (Restriction on Discretion to Approve) ( Additional Voluntary Contributions) Regulations 1993 and, where the Scheme is the "leading scheme" in relation to a Beneficiary, with the requirements of Regulation 6 of those Regulations so far as they concern main schemes. IN WITNESS whereof this deed has been executed by or on behalf of the parties and delivered the day and year first above written 17 EXECUTED as a DEED by IMI COMPUTING LIMITED by means of these signatures: Director /s/ Irene Brown --------------- Irene Brown Director/Secretary /s/ Ray Davies -------------- Ray Davies EXECUTED as a DEED by IRENE NORMA BROWN in the /s/ Irene Norma Brown --------------------- presence of: /s/ S. Braithwaite ------------------ S. Braithwaite EXECUTED as a DEED by CHRISTOPHER GARY POWELL in the /s/ Christopher Gary Powell --------------------------- presence of: /s/ S. Braithwaite ------------------ S. Braithwaite 18 SCHEDULE 1 INLAND REVENUE LIMITS INDEX 1.Definitions 2.Class A Member (FA 1989 regime) 3.Class B or C Member (pre 1.6.89 Members) 4.Special Conditions: All Members 1.DEFINITIONS In this Schedule the following expressions shall have the meanings ascribed to them. Expressions not otherwise specifically defined in this Schedule shall have the meanings ascribed to them in the Rules. 1.1"AGGREGATE RETIREMENT BENEFIT" shall mean the aggregate of (i)the Member's pension under the Scheme and any Associated Scheme, and (ii)the pension equivalent of the Member's Lump Sum Retirement Benefit. 1.2"ASSOCIATED EMPLOYMENT" shall mean two or more concurrent employments held by the Member where (i)the relevant period counts under the Scheme in the case of each of them as a period in respect of which benefits are payable, and (ii)during the relevant period the employers in question are associated. and "ASSOCIATED" has the meaning set out in 1.7 below. 1.3"ASSOCIATED SCHEME" shall mean either (i) or (ii) below as appropriate:- (i)In respect of a Class A Member any Relevant Scheme which is a Connected Scheme or which provides benefits in respect of Service. (ii)In respect of a Class B or C Member any Relevant Scheme providing benefits in respect of Service. 1.4"CLASS A MEMBER" shall mean: (i)in the case of a scheme established before 14th March 1989 a Member who joined the Scheme on or after 1st June 1989 and any other Member deemed to have become a Member of the Scheme on or after 1st June 1989 pursuant to 4.3. 19 (ii)in the case of a scheme established on or after 14th March 1989 any Member other than a Class B or Class C Member and any other Member deemed to have become a Member of the Scheme on or after 1st June 1989 pursuant to 4.3. 1.5"CLASS B MEMBER" shall mean any Member who joined the Scheme on or after 17th March 1987 and before 1st June 1989 or who is treated as having joined the Scheme between those dates by virtue of the Retirement Benefits Schemes (Continuation of Rights of Members of Approved Schemes) Regulations 1990 (S.I. 1990 No. 2101) (Subject to 4.3). 1.6"CLASS C MEMBER" shall mean any Member who joined the Scheme before 17th March 1987 or any Member who is treated as having joined the Scheme before 17th March 1987 by virtue of the Occupational Pension Schemes (Transitional Provisions) Regulations 1988 (S.I. 1988 No. 1436) (Subject to 4.3). 1.7"CONNECTED SCHEME" shall mean any Relevant Scheme which is connected with the Scheme in relation to the Member, that is, if:- (i)there is a period during which the Member has been the employee of two Employers (ii)that period counts under both schemes as a period in respect of which benefits are payable (iii)the period counts under one scheme for service with one Employer and under the other for service with the other Employer. For purposes of definitions 1.2 and 1.7 employers are associated if one is controlled directly or indirectly by the other, or both are controlled by a third party. Control has the meaning in section 840 of the Taxes Act, or in the case of a close company, section 416 of the Taxes Act. 1.8"CONTROLLING DIRECTOR" shall mean a director of an Employer who is within paragraph (b) of section 417(5) of the Taxes Act in relation to that company. 1.9"FINAL REMUNERATION" shall mean A.in relation to a Class A Member the greater of (a)the highest Remuneration for any one of the 5 years preceding the Relevant Date being the aggregate of (i)the basic pay for the year in question, and (ii)the yearly average over 3 or more consecutive years ending with the expiry of the corresponding basic pay year, of any fluctuating emoluments, and (b)the yearly average of the total taxable emoluments for any 3 or more consecutive years ending not earlier than 10 years before the Relevant Date. 20 Provided that:- (i)Remuneration and total emoluments do not include any amounts which arise from the acquisition or disposal of shares or an interest in shares or from a right to acquire shares (except where the shares or rights etc which give rise to such an amount liable to tax under Schedule E had been acquired before 17 March 1987) or anything in respect of which tax is chargeable by virtue of section 148 of the Taxes Act; (ii)in relation to a Controlling Director, Final Remuneration shall be the amount ascertained in accordance with (b) above and (a) above shall not apply; (iii)where Final Remuneration is computed by reference to any year other than the last complete year ending on the Relevant Date, the Member's Remuneration or total taxable emoluments of any year may be increased in proportion to any increase in the Retail Index from the last day of that year up to the Relevant Date but this proviso shall not apply to the calculation of the maximum Lump Sum Retirement Benefit in accordance with 2.2.2 below unless (and subject to proviso (iv) below) the Member's Aggregate Retirement Benefit is similarly increased beyond the maximum amount which could have been paid but for this proviso and then only to the same proportionate extent; (iv)Final Remuneration and the annual rate of the Member's Remuneration for the purpose of the calculation of the maximum benefits in accordance with paragraphs 2.2.3 and 2.2.4 below shall not exceed the permitted maximum as defined in section 590C(2) of the Taxes Act. B.in relation to a Class B Member the greater of:- (a)the highest Remuneration for any one of the 5 years preceding the Relevant Date being the aggregate of:- (i)the basic pay for the year in question, and (ii)the yearly average over 3 or more consecutive years ending with the expiry of the corresponding basic pay year, of any fluctuating emoluments, and (b)the yearly average of the total taxable emoluments for any 3 or more consecutive years ending not earlier than 10 years before the Relevant Date. Provided that:- (i)Remuneration and total emoluments do not include any amounts which arise from the acquisition or disposal of shares (except where the shares or rights etc which give rise to such an amount liable to tax under Schedule E had been acquired before 17 March 1987) or an interest in shares or from a 21 right to acquire shares or anything in respect of which tax is chargeable by virtue of section 148 of the Taxes Act; (ii)in relation to a Controlling Director or any other Member whose Remuneration in any year beginning on or after 6 April 1987 used for the purpose of calculating benefits has exceeded L 100,000 (or such other figure as may be prescribed by the Treasury) Final Remuneration shall (subject to proviso (iv) below) be the amount ascertained in accordance with (b) above and (a) above shall not apply; (iii)where Final Remuneration is computed by reference to any year other than the last complete year ending on the Relevant Date, the Member's Remuneration or total taxable emoluments of any year may be increased in proportion to any increase in the Retail Index from the last day of that year up to the Relevant Date but this proviso shall not apply to the calculation of the maximum Lump Sum Retirement Benefit in accordance with paragraph 3.2.2 below unless (and subject to proviso (iv) below) the Member's Aggregate Retirement Benefit is similarly increased beyond the maximum amount which could have been paid but for this proviso and then only to the same proportionate extent; (iv)for the purpose of the calculation of the maximum Lump Sum Retirement Benefit in accordance with paragraph 3.2.2 below Final Remuneration shall not in any event exceed L 100,000 (or such other sum as may be prescribed by the Treasury). C.in relation to a Class C Member 1.where the Relevant Date is on or before 16 March 1987 the greater of (a)the highest Remuneration for any one of the 5 years preceding the Relevant Date being the aggregate of (i)the basic pay for the year in question, and (ii)the yearly average over 3 or more consecutive years ending with the expiry of the corresponding basic pay year, of any fluctuating emoluments, and (b)the yearly average of the total taxable emoluments for any 3 or more consecutive years ending not earlier than 10 years before the Relevant Date. 22 Provided that:- (i)in relation to a Controlling Director Final Remuneration shall be the amount ascertained in accordance with (b) above and (a) above shall not apply. (ii)where Final Remuneration is computed by reference to any year other than the last complete year ending on the Relevant Date, the Member's Remuneration or total taxable emoluments of any year may be increased in proportion to any increase in the Retail Index from the last day of that year up to the Relevant Date but this proviso shall not apply to the calculation of the maximum Lump Sum Retirement Benefit in accordance with paragraph 3.3.2 below unless the Member's Aggregate Retirement Benefit is similarly increased beyond the maximum amount which could have been paid but for this proviso and then only to the same proportionate extent. 2.Where the Relevant Date is on or after 17th March 1987 the greater of (a)the highest Remuneration for any one of the 5 years preceding the Relevant Date being the aggregate of:- (i)the basic pay for the year in question, and (ii)the yearly average over 3 or more consecutive years ending with the expiry of the corresponding basic pay year of any fluctuating emoluments, and (b)the yearly average of the total emoluments for any 3 or more consecutive years ending not earlier than 10 years before the Relevant Date. Provided that:- (i)Remuneration and total emoluments do not include any amounts which arise from the acquisition or disposal of shares or an interest in shares or from a right to acquire shares (except where the shares or rights etc which give rise to such an amount liable to tax under Schedule E had been acquired before 17 March 1987) or anything in respect of which tax is chargeable by virtue of section 148 of the Taxes Act; (ii)in relation to a Controlling Director or any other Member whose Remuneration in any year beginning on or after 6 April 1987 used for the purpose of calculating benefits has exceeded L 100,000 (or such other figure as may be prescribed by the Treasury) Final Remuneration shall be the amount ascertained in accordance with (b) above and (a) above shall not apply; (iii)where Final Remuneration is computed by reference to any year other than the last complete year ending on the Relevant Date, the Member's Remuneration or 23 total taxable emoluments of any year may be increased in proportion to any increase in the Retail Index from the last day of that year up to the Relevant Date but this proviso shall not apply to the calculation of the maximum Lump Sum Retirement Benefit in accordance with paragraph 3.3.2 below unless the Member's Aggregate Retirement Benefit is similarly increased beyond the maximum amount which could have been paid but for this proviso and then only to the same proportionate extent. D.in relation to any Member such other sum calculated by reference to the Member's actual or notional emoluments as the Inland Revenue have confirmed will not affect Revenue Approval of the Scheme. 1.10"LUMP SUM RETIREMENT BENEFIT" shall mean the total value of all retirement benefits payable in a form other than non-commutable pension under this and any Associated Scheme otherwise than on death. 1.11"RELEVANT DATE" shall mean the date of the Member's retirement leaving service or death. 1.12"RELEVANT SCHEME" shall mean any other scheme approved or seeking approval under Chapter I. 1.13"RELEVANT SERVICE" shall have the meaning ascribed to "pensionable service" by paragraph 3 of Schedule 16 to the Social Security Act 1973. 1.14"REMUNERATION" in relation to any year shall mean:- (a)as regards a Class A Member the aggregate of the total emoluments for the year in question (i)from the Employer; and (ii)in respect of any Associated Employment or any Connected Scheme; which are assessable to Income Tax under Schedule E but excluding any amounts which arise from the acquisition or disposal of shares or an interest in shares or a right to acquire shares or anything in respect of which tax is chargeable by virtue of Section 148 of the Taxes Act. Provided that in arriving at such emoluments there shall be disregarded any emoluments in excess of the permitted maximum as defined in Section 590C(2) of the Taxes Act; (b)as regards a Class B Member and a Class C Member whose Relevant Date is on or after 17th March 1987 total emoluments from the Employer in the year in question which are assessable to Income Tax under Schedule E but excluding any amounts which arise from the acquisition or disposal of shares or an interest in shares or a right to acquire shares or anything in respect of which tax is chargeable by virtue of Section 148 of the Taxes Act; 24 (c)as regards a Class C Member whose Relevant Date is on or before 16th March 1987 total emoluments from the Employer in the year in question which are assessable to Income Tax under Schedule E. 1.15"RETAINED BENEFITS" shall mean generally retained rights to relevant benefits as defined in section 612(1) of the Taxes Act (other than refunds of contributions) including:- (a)pensions from any Relevant Scheme whether deferred or already in payment including any part of a deferred pension which is commutable and whether from a United Kingdom or an overseas source but excluding pension benefits from any Associated Scheme and any pension from any State scheme; and (b)the annuity equivalent of lump sums received or receivable including any already received in commutation of pension; (c)retirement annuities under contracts and trust schemes approved under Chapter I or annuities and the annuity equivalent of lump sums from personal pension schemes approved under Chapter IV of Part XIV of the Taxes Act related to non-pensionable service with the current or an earlier employer or to previous periods of self-employment (either alone or in partnership) but excluding those related to a concurrent occupation; (d)all pension benefits from free-standing additional voluntary contribution schemes relating to previous occupations provided that:- (i)in the context of total benefits the benefits at (a), (b), (c) and (d) may be ignored if their annuity equivalent does not exceed L 260 in total; and (ii)in the context of lump sum retirement benefits the amount of lump sum benefits received or receivable may be ignored if they do not exceed L 2,500 in total; and (iii)no account shall be taken of Retained Benefits for a Member who enters membership of the Scheme on or after 1st October 1991 and whose Remuneration in the first year of Pensionable Service did not exceed one quarter of the permitted maximum as defined in Section 590C(2) of the Taxes Act and who is not and has not been a Controlling Director. 1.16"SERVICE" shall in this Schedule only mean (i)in respect of a Class A Member the aggregate of:- (a)service with the Employer, and (b)any period which counts in respect of any Associated Employment or any Connected Scheme (ii)in respect of a Class B or C Member service with the Employer 25 2.CLASS A MEMBER 2.1MEMBER'S CONTRIBUTIONS (CONTRIBUTORY SCHEME) (a)Each Member is required to contribute to the Scheme in accordance with the Rules. (b)In addition the Member may make voluntary contributions to the Scheme to secure additional benefits for himself and his dependants. Any retirement benefits so secured must be in the form of non-commutable pension except to the extent to which the provisions of the Scheme allow commutation of trivial pensions or on the grounds of serious ill health. (c)The total contributions paid by the Member in a year of assessment to this and any other Relevant Scheme providing benefits by virtue of Service shall not exceed 15% of his Remuneration for that year in respect of that Service. 2.2INLAND REVENUE LIMITS RULE Notwithstanding anything to the contrary in the Scheme provisions, the benefits payable to a Class A Member or to his widow, dependants or other beneficiaries in respect of him shall not when aggregated with all benefits of a like nature provided under all Relevant Schemes providing benefits in respect of Service exceed the limits set out below. 2.2.1The Member's Aggregate Retirement Benefit shall not exceed:- (a)on retirement at any time between attaining age 50 and attaining age 75, except before Normal Retirement Date on grounds of incapacity (in accordance with the Rules), a pension of 1/60th of Final Remuneration for each year of Service (not exceeding 40 years) or such greater amount as will not prejudice Revenue Approval; (b)on retirement at any time before Normal Retirement Date on grounds of incapacity (in accordance with the Rules) a pension of the amount which could have been provided at Normal Retirement Date in accordance with paragraph 2.2.1 (a) with Final Remuneration being computed as at the actual date of retirement; (c)on leaving Relevant Service before attaining age 75, a pension of 1/60th of Final Remuneration for each year of that service (not exceeding 40 years) or such greater amount as will not prejudice Revenue Approval. The amount computed as aforesaid may be increased by 5% for each complete year or in proportion to any increase in the Retail Index which has occurred between the date of termination of Relevant Service and the date on which the pension begins to be payable whichever is the greater. Any further increase necessary to comply with Department of Social Security requirements is also allowable. 2.2.2The Member's Lump Sum Retirement Benefit shall not subject to the Rules relating to circumstances of exceptional ill-health exceed:- 26 (a)on retirement at any time between attaining age 50 and attaining age 75, except before Normal Retirement Date on grounds of incapacity (in accordance with the Rules), 3/80ths of Final Remuneration for each year of Service (not exceeding 40 years) or such greater amount as will not prejudice Revenue Approval; (b)on retirement at any time on grounds of incapacity (in accordance with the Rules) the amount which could have been provided at Normal Retirement Date in accordance with paragraph 2.2.2 (a) above with Final Remuneration being computed as at the actual date of retirement; (c)on leaving Relevant Service before attaining age 75, a lump sum of 3/80ths of Final Remuneration for each year of Service (not exceeding 40 years) or such greater amount as will not prejudice Revenue Approval. The amount computed as aforesaid may be increased in proportion to any increase in the Retail Index which has occurred between the date of termination of Pensionable Service and the date on which the pension begins to be payable. 2.2.3The lump sum benefit (exclusive of any refund of the Member's own contributions and any interest thereon) payable on the death of a Member while in Service or (having left Service with a deferred pension) before the commencement of his pension shall not, when aggregated with all like benefits under Associated Schemes, exceed the greater of:- (a)L 5,000, and (b)Four times the rate of the Member's Final Remuneration less any Retained Benefits 2.2.4Any pension for a Dependant, when aggregated with the pensions, other than those provided by surrender of the Member's own pension, payable to that Dependant under all Associated Schemes, shall not exceed an amount equal to 2/3rds of the Aggregate Retirement Benefit:- (a)being paid to the Member at the date of his death (including any pension increases) or (b)being a deferred benefit payable to the Member at any time between attaining age 50 and attaining age 75, or (c)prospectively payable to the Member who dies in Service (whether before or after Normal Retirement Date) had he remained in Service up to the Normal Retirement Date (or date of his death if later) at the rate of pay in force immediately before his death, or (d)prospectively payable to the Member who dies in Service after attaining age 75 on the basis that he had retired on the day before he died, or such greater amount as will not prejudice Revenue Approval. 27 If pensions are payable to more than one Dependant of a Member, the aggregate of all such pensions payable in respect of him under this and all Associated Schemes shall not exceed the full amount of whichever is the appropriate Aggregate Retirement Benefit under (a), (b), (c), or (d) above or such greater sum as will not prejudice Revenue Approval. 2.2.5The maximum amount of a pension ascertained in accordance with this Schedule less any pension which has been commuted for a lump sum (if the Commissioners of Inland Revenue require this to be taken into account) or surrendered to provide a Dependant's pension may be increased by 3% for each complete year or in proportion to the increase in the Retail Index which has occurred since the pension commenced to be paid. 2.2.6The preceding provisions of this Schedule shall be modified in their application to a Member who is a Controlling Director as follows:- the amount of the maximum Aggregate Retirement Benefit in paragraph 2.2.1 and of the maximum Lump Sum Retirement Benefit in paragraph 2.2.2 shall be reduced, where necessary for approval of the Scheme, so as to take account of any benefits provided under either a retirement annuity contract or trust scheme approved under Chapter III Part XIV of the Taxes Act or a personal pension scheme approved under Chapter IV Part XIV of the Taxes Act to the extent that such benefits derive from premiums or contributions paid out of relevant earnings from the Employers. 2.3PAYMENT OF BENEFITS The Scheme provisions shall have effect (notwithstanding anything in them to the contrary) as if they provided:- (a)that a Member's retirement benefit shall be paid no later than the date on which he attains age 75, and (b)subject to (a) above that no part of a Member's retirement benefit shall be paid in advance of actual retirement or leaving Service except to the extent necessary to comply with Department of Social Security requirements. 3.CLASS B OR C MEMBER 3.1MEMBER'S CONTRIBUTIONS (CONTRIBUTORY SCHEME) (a)Each Member is required to contribute to the Scheme in accordance with the Rules. (b)In addition the Member may make voluntary contributions to the Scheme to secure additional benefits for himself and/or his dependants. Where such contributions commence on or after 8th April 1987 any retirement benefits so secured must be in the form of non-commutable pension except to the extent to which the provisions of the Scheme allow commutation of trivial pensions or on the grounds of serious ill health 28 (c)The total contributions paid by the Member in a year of assessment to this and any Relevant Scheme providing benefits in respect of Service shall not exceed 15% of his Remuneration for that year. 3.2INLAND REVENUE LIMITS RULE - CLASS B MEMBER Notwithstanding anything to the contrary in the Scheme provisions, the benefits payable to a Class B Member or to his widow, dependants or other beneficiaries in respect of him shall not when aggregated with all benefits of a like nature provided under all Relevant Schemes providing benefits in respect of Service exceed the limits set out below. 3.2.1The Member's Aggregate Retirement Benefit shall not exceed:- (a)on retirement at or before Normal Retirement Date, a pension of 1/60th of Final Remuneration for each year of Service (not exceeding 40 years) or such greater amount as will not prejudice Revenue Approval; (b)on retirement after Normal Retirement Date, a pension of the greatest of:- (i)the amount calculated in accordance with paragraph 3.2.1(a) above on the basis that the actual date of retirement was the Member's Normal Retirement Date; (ii)the amount which could have been provided at Normal Retirement Date in accordance with paragraph 3.2.1(a) increased either actuarially in respect of the period of deferment or in proportion to any increase in the Retail Index during that period, and (iii)where the Member's total Service has exceeded 40 years, the aggregate of 1/60th of Final Remuneration for each year of Service before Normal Retirement Date (not exceeding 40 such years) and of a further 1/60th of Final Remuneration for each year of Service after Normal Retirement Date, with an overall maximum of 45 reckonable years Final Remuneration being computed in each instance as at the actual date of retirement, but subject always to paragraph 3.4.3 below; (c)on leaving Relevant Service before Normal Retirement Date, a pension of 1/60th of Final Remuneration for each year of actual Service (not exceeding 40 years) or of such greater amount as will not prejudice Revenue Approval. The amount computed as aforesaid may be increased by 5% for each complete year or in proportion to any increase in the Retail Index which has occurred between the date of termination of Relevant Service and the date on which the pension begins to be payable whichever is the greater. Any further increase necessary to comply with Department of Social Security requirements is also allowable. 3.2.2The Member's Lump Sum Retirement Benefit shall not, subject to the Rules relating to circumstances of exceptional ill-health exceed:- 29 (a)on retirement at or before Normal Retirement Date, 3/80ths of Final Remuneration for each year of Service (not exceeding 40 years) or such greater amount as will not prejudice Revenue Approval of the Scheme; (b)on retirement after Normal Retirement Date the greatest of:- (i)the amount calculated in accordance with paragraph 3.2.2(a) above on the basis that the actual date of retirement was the Normal Retirement Date, (ii)the amount which could have been provided at Normal Retirement Date in accordance with paragraph 3.2.2(a) above together with an amount representing interest thereon, and (iii)where the Member's total Service exceeded 40 years, the aggregate of 3/80ths of Final Remuneration for each year of Service before Normal Retirement Date (not exceeding 40 such years) and of a further 3/80ths of Final Remuneration for each year of Service after Normal Retirement Date, with an overall maximum of 45 reckonable years, Final Remuneration being computed in each instance as at the actual date of retirement, but subject always to paragraph 3.4.3 below; (c)on leaving Relevant Service before Normal Retirement Date, a lump sum of 3/80ths of Final Remuneration for each year of actual Service (not exceeding 40 years) or such greater amount as will not prejudice Revenue Approval. 3.2.3The lump sum benefit (exclusive of any refund of the Member's own contributions) payable on the death of a Member while in Service or (having left Service with a deferred pension) before the commencement of his pension shall not when aggregated with all like benefits under Associated Schemes, exceed the greater of:- (a)L 5,000, and (b)Four times the rate of the Member's Final Remuneration less any Retained Benefits. 3.3INLAND REVENUE LIMITS RULE - CLASS C MEMBER Notwithstanding anything to the contrary in the Scheme provisions, the benefits payable to a Class C Member or to his widow, dependants or other beneficiaries in respect of him shall not when aggregated with all benefits of a like nature provided under all Relevant Schemes providing benefits in respect of Service exceed the limits set out below. 3.3.1The Member's Aggregate Retirement Benefit shall not exceed:- (a)on retirement at or before Normal Retirement Date, a pension of 1/60th of Final Remuneration for each year of Service (not exceeding 40 years) or such greater amount as will not prejudice Approval by the Revenue; 30 (b)on retirement after Normal Retirement Date, a pension of the greatest of:- (i)the amount calculated in accordance with paragraph 3.3.1(a) above on the basis that the actual date of retirement was the Member's Normal Retirement Date; (ii)the amount which could have been provided at Normal Retirement Date in accordance with paragraph 3.3.1(a) increased either actuarially in respect of the period of deferment or in proportion to any increase in the Retail Index during that period, and (iii)where the Member's total Service has exceeded 40 years, the aggregate of 1/60th of Final Remuneration for each year of Service before Normal Retirement Date (not exceeding 40 such years) and of a further 1/60th of Final Remuneration for each year of Service after Normal Retirement Date, with an overall maximum of 45 reckonable years Final Remuneration being computed in each instance as at the actual date of retirement, but subject always to paragraph 3.4.3 below; (c)on leaving Service before Normal Retirement Date, a pension of 1/60th of Final Remuneration for each year of actual Service (not exceeding 40 years) or of such greater amount as will not prejudice Revenue Approval. The amount computed as aforesaid may be increased by 5% for each complete year or in proportion to any increase in the Retail Index which has occurred between the date of termination of Relevant Service and the date on which the pension begins to be payable whichever is the greater. Any further increase necessary to comply with Department of Social Security requirements is also allowable 3.3.2The Member's Lump Sum Retirement Benefit shall not, subject to the Rules relating to circumstances of exceptional ill-health, exceed:- (a)(i)on retirement at or before Normal Retirement Date an amount calculated by reference to the number of years of Service and Credited Pensionable Service of the Member shown in the following table provided that the aggregate of the value of non-pension retirement benefits in respect of Service with the current Employer of any Retained Benefit does not exceed 1.5 times Final Remuneration:-
Years of Service and Credited Pensionable Service 80ths of Final Remuneration ----------------------------------------------------------------------- 1 to 8 years 3 for each year 9 30 10 36 11 42
31 12 48 13 54 14 63 15 72 16 81 17 90 18 99 19 108 20 120

Fractions of a year may be interpolated in the above table (b)on retirement after Normal Retirement Date, the greatest of:- (i)the amount calculated in accordance with paragraph 3.3.2(a) as the case may be on the basis that the actual date of retirement was the Normal Retirement Date (ii)the amount which could have been provided at Normal Retirement Date in accordance with paragraph 3.3.2(a) as the case may be together with an amount representing interest thereon, and (iii)where the Member's total Service exceeded 40 years, the aggregate of 3/80ths of Final Remuneration for each year of Service before Normal Retirement Date (not exceeding 40 such years) and of a further 3/80ths of Final Remuneration for each year of Service after Normal Retirement Date, with an overall maximum of 45 reckonable years, Final Remuneration being computed in each instance as at the actual date of retirement, but subject always to paragraph 3.4.3 below; (c)on leaving Service before Normal Retirement Date, a lump sum of 3/80ths of Final Remuneration for each year of actual Service (not exceeding 40 years) or such greater amount as will not prejudice Revenue Approval. The amount computed as aforesaid may be increased in proportion to any increase in the Retail Index which has occurred between the date of termination of Relevant Service and the date on which the pension begins to be payable but only if and to the same extent as the total benefits have been increased under paragraph 3.3.1(c) above. 3.3.3The lump sum benefit (exclusive of any refund of the Member's own contributions) payable on the death of a Member while in Service or (having left Service with a deferred pension) before the commencement of his pension shall not when aggregated with all like benefits under Associated Schemes, exceed the greater of:- 32 (a)L5,000, and (b)Four times the rate of the Member's Final Remuneration less any Retained Benefits. 3.4LIMITS APPLYING TO CLASS B AND CLASS C MEMBERS 3.4.1Any pension for a Dependant, when aggregated with the pensions, other than those provided by surrender of the Member's own pension, payable to that Dependant under all Associated Schemes, shall not exceed an amount equal to 2/3rds of the Aggregate Retirement Benefit:- (a)being paid to the Member at the date of his death (including any pension increases), or (b)being a deferred benefit payable to the Member at Normal Retirement Date, or (c)prospectively payable to the Member who dies in Service (whether before or after Normal Retirement Date) had he (or date of his death if later) remained in Service up to the Normal Retirement Date at the rate of pay in force immediately before his death, or (d)prospectively payable to the Member who dies in Service after Normal Retirement Date on the basis that he had retired on the day before he died if this amount is greater than the amount prospectively payable under (c), or such greater amount as will not prejudice Revenue Approval If pensions are payable to more than one Dependant of a Member, the aggregate of all such pensions payable in respect of him under this and all Associated Schemes shall not exceed the full amount of whichever is the appropriate Aggregate Retirement Benefit under (a), (b), (c) or (d), above or such greater sum as will not prejudice Revenue Approval. 3.4.2The maximum amount of a pension ascertained in accordance with this Schedule less any pension which has been commuted for a lump sum (if the Commissioners of Inland Revenue require this to be taken into account) or surrendered to provide a Dependant's pension may be increased by not less than 3% for each complete year or in proportion to the increase in the Retail Index which has occurred since the pension commenced to be paid 3.4.3If a Member by notice given to the Trustee elects to take any part of his benefits under the Scheme at Normal Retirement Date and in advance of actual retirement, the limits set out in 3.2.1 and 3.3.1 shall apply as if he had retired at the effective date of the election as aforesaid, no account being taken of subsequent Service, save that the maximum amount of any uncommuted pension not commencing immediately may be increased either actuarially in respect of the period of deferment or in proportion to any increase in the Retail Index during that period 33 3.4.4The preceding provisions of this Schedule shall be modified in their application to a Member who is a Controlling Director as follows:- the amount of the maximum Aggregate Retirement Benefit in 3.2.1 and 3.3.1 and of the maximum Lump Sum Retirement Benefit in 3.2.2 and 3.3.2 shall be reduced, where necessary for Revenue Approval, so as to take account of any benefits provided under either a retirement annuity contract or trust scheme approved under Chapter III of Part XIV of the Taxes Act or a personal pension approved under Chapter IV of Part XIV of the Taxes Act and in relation to a Member who is a Controlling Director at his Normal Retirement Date, as follows:- (a)where retirement takes place after Normal Retirement Date but not later than the Member's 70th birthday, 3.2.1 (b)(ii) and (iii) and 3.2.2 (b)(ii) and (iii) (if he is a Class B Member) or 3.3.1 (b)(ii) and (iii) and 3.3.2 (b)(ii) and (iii) (if he is a Class C Member) shall not apply, and if retirement is later than the attainment of the age, the said paragraphs shall apply as if the Member's 70th birthday had been specified in the Rules as his Normal Retirement Date, so as not to treat as Service after Normal Retirement Date any Service before the Member reaches the age of 70; (b)where paragraph 3.4.3 applies to him, the rate of the actuarial increase referred to therein in relation to any period of deferment prior to his attaining the age of 70, shall not exceed the percentage increase in the Retail Index during that period 4.SPECIAL CONDITIONS : ALL MEMBERS 4.1AUGMENTATION OF BENEFITS Where in addition to being a member of the Scheme the Member is also a member of an approved scheme (the voluntary scheme) which provides additional benefits to supplement those provided by the Scheme and to which no contributions are made by any employer of his, the provisions of the paragraph that follows shall apply in relation to any augmentation of the benefits provided for him by the Scheme after he has ceased to participate in it. Any provisions in the Scheme imposing a limit on the amount of a benefit provided for the Member shall have effect (notwithstanding anything in them to the contrary) as if they provided for the limit to be reduced by the amount of any like benefit provided for the Member by the voluntary scheme. 4.2RETURN OF SURPLUS FUNDS Any provisions in the Scheme permitting the Member to make voluntary contributions to secure additional benefits for himself and/or his dependants shall (notwithstanding anything in them to the contrary) be subject to the provisions of Part III Schedule 6, Finance Act 1989 concerning the return of surplus funds. 34 4.3ELECTION TO BE TREATED AS A CLASS A MEMBER Any Member who joined the Scheme before 1st June 1989 may elect at any time before the Relevant Date in a form approved by the Trustee for the purposes of this Schedule to be treated as if he had joined the Scheme on 1st June 1989. 35 DATED APRIL 1, 1996 -------------------------------------- ICOM SOLUTIONS LIMITED (1) ICOM SYSTEMS LIMITED (2) AND P.J. WHEBLE (3) -------------------------------------- SUPPLEMENTAL DEED RELATING TO THE ICOM SOLUTIONS PENSION SCHEME -------------------------------------- THIS SUPPLEMENTAL DEED is made on April 1, 1996 BETWEEN: (1)ICOM SOLUTIONS LIMITED (formerly IMI Computing Limited) (No. 1641088) whose registered office is at Lion House, P.O. Box 1240, Birmingham B6 7UH (the "PRINCIPAL EMPLOYER"); (2)ICOM SYSTEMS LIMITED (No. 3056544) whose registered office is at Lion House, P.O. Box 1240, Birmingham B6 7UH (the "NEW PARTICIPATING EMPLOYER"); and (3)PETER JOHN WHEBLE of 62 Kingshayes Road, Aldridge, Walsall WS9 8RZ (the "NEW TRUSTEE") RECITAL (A)This deed is supplemental to an Interim Trust Deed dated 5th January 1996 (the "INTERIM DEED") made between the Principal Employer (1) and I.N. Brown and C.G. Powell (2) by which the Icom Solutions Pension Scheme (the "SCHEME") was established. (B)Rule 5 of the Interim Deed provides in effect that the Principal Employer may by deed change any provision of the Interim Deed and such change can take effect from the date set out in the deed. (C)Rule 8 of the Interim Deed provides in effect that the Principal Employer shall have power by deed to appoint a new trustee as an additional trustee of the Scheme. (D)Rule 25 of the Interim Deed provides in effect that the Principal Employer may admit a company to participation in the Scheme subject to such company covenanting by deed in favour of the trustees to observe and perform the provisions of the Scheme which are applicable to it as a participating employer of the Scheme. (E)The Principal Employer wishes to amend the Interim Deed as set out below. (F)The Principal Employer wishes to appoint the New Trustee with effect from the date of this deed and the New Trustee consents to be a trustee with effect from such date. (G)The Principal Employer wishes to admit the New Participating Employer to participate in the Scheme with effect from 5th January 1996 and the New Participating Employer agrees to its participation in the Scheme on the terms set out below. NOW THIS DEED WITNESSES as follows: 1In exercise of the power in Rule 5 of the Interim Deed and any and every other enabling power the Principal Employer hereby changes the provisions of the Interim Deed as follows: 1.1With effect from 1st April 1996: 1 1.1.1by adding a definition of "Second Announcement" to Rule 1.1 immediately after the definition of "Scheme" and immediately before the definition of "Trustees" as follows: "Second Announcement" means the document marked "A" annexed to the Supplemental Deed for the Scheme dated and signed for the purposes of identification by I.N. Brown; "Third Announcement" means the document marked "B" annexed to the Supplemental Deed for the Scheme dated and signed for the purpose of identification by I.N. Brown; and 1.1.2by adding the words "the Second Announcement and the Third Announcement" to the end of rule 4.2 immediately after the word "Announcement". 1.2With effect from 5th January 1996: 1.2.1by adding the following words to the end of Rule 4.3 immediately after the word "Scheme": "and the contracting-out model rules in Schedule 2 apply to the Scheme in relation to that Member and override the other provisions of this deed except to the extent specified in the model rules." 1.2.2by including as Schedule 2 to the Interim Deed the contracting-out model rules set out in the schedule to this deed. 2In exercise of the power in Rule 8 of the Interim Deed and any and every other enabling power with effect from the date of this deed the Principal Employer HEREBY APPOINTS the New Trustee to be an additional trustee of the Scheme and the New Trustee HEREBY AGREES to act as a trustee of the Scheme from such date. 3In exercise of the power in Rule 25 of the Interim Deed and any and every other enabling power with effect from 5th January 1996: 3.1The Principal Employer HEREBY ADMITS the New Participating Employer to participate in the Scheme; and 3.2The New Participating Employer HEREBY COVENANTS to the trustees of the Scheme that it will observe and perform such of the provisions of the Scheme as are applicable to it as a participating employer under the Scheme. IN WITNESS whereof this deed has been executed by or on behalf of the parties and delivered the day and year first above written. SCHEDULE SCHEDULE 2 2 CONTRACTING-OUT MODEL RULES APPENDIX 1. INTERPRETATION 1.1 DEFINITIONS In this Appendix the following words have the following meanings: "THE ACT" means the Pension Schemes Act 1993 "ACTUARY" means a Fellow of the Institute of Actuaries or a Fellow of the Faculty of Actuaries or a person with other actuarial qualifications who is approved by the Secretary of State for Social Security, at the request of the Trustees as being a proper person to act in this capacity "CONTRACTED-OUT EMPLOYMENT" of a Member means his contracted-out employment by reference to the Scheme (as in section 8(1)(a)(i) and 8(1)(b) of the Act) "FIXED RATE REVALUATION" means the method of revaluing a GMP before State Pension Age described in (C) in Rule 7.1 "GMP" means the guaranteed minimum pension of a Member, Widow or Widower as defined in the Act "INSURER" means an insurance company, an EC company or a friendly society as defined in regulation 30 of the Occupational Pension Schemes (Contracting-out) Regulations 1984 as amended by regulation 2 of SI 1995/35 "LIMITED REVALUATION" means the method of revaluing a GMP before State Pension Age described in (B) in Rule 7.1 "MEMBER" means a member of the Scheme (including a person who is no longer in the pensionable service of any employer participating in the Scheme but to whom, or in respect of whom benefits are still immediately or prospectively payable under the Scheme in respect of previous membership of the Scheme or another Scheme) "NORMAL RETIRING DATE" means the day on which a Member attains his normal pension age (within the meaning of the Act) under the Scheme "PROTECTED RIGHTS" has the same meaning as in Section 10 of the Act "QUALIFYING SERVICE" has the same meaning as in Section 71(7) of the Act "RULE" followed by a number means the Rule with that number in this Appendix "SCHEME" means this occupational pension scheme 3 "SECTION 148 REVALUATION" means the method of revaluing a GMP before State Pension Age described in (A) in Rule 7.1 "SECTION 53 MONEY PURCHASE SCHEME" means a scheme which was a contracted-out scheme providing protected rights and satisfying section 9(3) of the Act and which the Occupational Pensions Board are under a duty to supervise under section 53 of the Act "SECTION 53 SALARY RELATED SCHEME" means a scheme which was a contracted-out scheme providing guaranteed minimum pensions and satisfying section 9(2) of the Act and which the Occupational Pensions Board are under a duty to supervise under Section 53 of the Act "SHORT SERVICE BENEFIT" means the benefit to which an early leaver who satisfies the qualifying conditions must be entitled under the preservation requirements "STATE PENSION AGE" means a man's 65th birthday and a woman's 60th birthday "TRUSTEES" means the trustees or administrators of the Scheme "WIDOW" and "WIDOWER" means respectively the widow and widower of a Member. If a Member has married under a law which allows polygamy and, on the day of a Member's death has more than one spouse, the Trustees must decide which, if any, survivor is the widow or widower. In reaching that decision the Trustees must have regard to the practice of the Department of Social Security and any relevant provisions of existing Social Security legislation, in particular section 17(5) of the Act and regulation 2 of the Social Security and Family Allowance (Polygamous Marriages) Regulations 1975 (SI 1975/561) 1.2 LEGISLATION References to any piece of legislation include any legislative modification or re-enactment of it, any regulations made under it and any equivalent Northern Ireland legislation 2. APPLICATION OF APPENDIX 2.1 APPLICATION OF APPENDIX This Appendix shall apply if any Member's employment becomes Contracted-Out Employment by reference to the Scheme and the Scheme is not contracted-out on a money purchase basis The Appendix will only apply so long as anyone has a GMP or a prospective right to receive a GMP under the Scheme which subjects the Scheme to the continuing supervision of the Occupational Pensions Board 2.2 OVERRIDING EFFECT OF APPENDIX 4 This Appendix overrides any inconsistent provisions elsewhere in the Scheme except provisions which are necessary in order that Inland Revenue approval for the purposes of Chapter I of Part XIV of the Income and Corporation Taxes Act 1988 is not prejudiced 3. AMENDMENT OF APPENDIX 3.1 POWER TO ALTER APPENDIX The persons or bodies having the power of alteration in relation to the rest of the Scheme may at any time make in writing any alteration to this Appendix necessary to comply with the contracting-out requirements of the Act applicable to salary related contracted-out schemes and Section 53 Salary Related Schemes. This power of alteration may be exercised by them without any condition except the one in Rule 3.2. It is additional to, and independent of, any other power of alteration in relation to the Scheme. 3.2 OPB'S CONSENT No alteration to this Appendix may be made without the consent of the Occupational Pensions Board. This applies whether the alteration is made under Rule 3.1 or under any other power of alteration in the Scheme 4. MEMBERSHIP OF THE SCHEME 4.1 UPPER AGE LIMIT FOR ENTRY Membership of the Scheme must be open to persons who enter employment to which the Scheme relates more than 6 years before Normal Retiring Date. If the Scheme has an annual entry date, this 6 year period may be increased to a period of 6 years plus the part of a year until the next entry date. 4.2 SINGLE SCHEME OF AN EMPLOYER Where the Scheme and one or more other contracted-out schemes relate to employment with the same employer, those schemes may be treated as if they were a single scheme in deciding whether the requirements of this Rule are satisfied 5 5. ENTITLEMENT TO GMP 5.1 GUARANTEED MINIMUM Rule 5 applies to a Member, Widow or Widower where the Member has a guaranteed minimum in relation to the pension provided for the Member under the Scheme in accordance with section 14 of the Act 5.2 MEMBER'S GMP The Member shall be entitled to a pension for life paid at a rate equivalent to a weekly rate of not less than that guaranteed minimum. The pension will be paid from State Pension Age but commencement of the pension may be postponed for any period during which the Member remains in employment after State Pension Age: (1)if the employment is employment to which the Scheme relates and the postponement is not for more than 5 years after State Pension Age, or (2)if the Member consents to the postponement 5.3WIDOW'S GMP (a)where the Member is a man and dies at any time leaving a Widow, she shall be entitled, subject to Rule 5.4, to receive a pension from the Scheme paid at a rate equivalent to a weekly rate of not less than half that guaranteed minimum (b)The pension shall be payable to any Widow who is eligible for payment of a State benefit as described in Section 17(5) of the Act. It shall cease when the Widow ceases to be entitled to receive payment of those State benefits. 5.4WIDOWER'S GMP (a)where the Member is a woman and dies on or after 6th April 1989 leaving a Widower, he shall be entitled, subject to Rule 5.6, to receive a pension from the Scheme paid at a rate equivalent to a weekly rate of not less than half of that part of that guaranteed minimum which is attributable to earnings for the tax year 1988/89 and subsequent tax years (b)the pension shall be payable to any Widower who is eligible for payment of a GMP under Regulation 33B of the Occupational Pension Schemes (Contracting-out) Regulations 1984. It shall cease when the Widower ceases to be entitled to receive payment of that GMP under Regulation 33C of those Regulations. 5.5OFFSETTING PENSION AGAINST GMP 6 Any pension payable to the Member, Widow or Widower under any other provision of the Scheme may be offset against his or her pension entitlement under Rule 5 except to the extent that: (1)any part of the other pension is an equivalent pension benefit within the meaning of the National Insurance Act 1965, or (2)any part of the pension is an increase, calculated in accordance with Schedule 3 of the Act and added to the amount that would be payable but for Chapter II of Part IV of the Act or regulations made under it, or (3)offsetting would contravene Rule 8 6.INCREASE OF GMP 6.1INCREASING A MEMBER'S GMP AFTER STATE PENSION AGE OR A WIDOW'S OR WIDOWER'S GMP Any GMP to which a Member, Widow or Widower is entitled under Rule 5 shall, insofar as it is attributable to earnings in the tax years from and including 1988/89, be increased in accordance with the requirements of section 109 of the Act 6.2INCREASE AFTER STATE PENSION AGE If the commencement of any Member's GMP is postponed for any period after State Pension Age, that GMP shall be increased to the extent, if any, specified in section 15 of the Act. 7.REVALUATION OF GMP 7.1BEFORE STATE PENSION AGE Where a Member ceases to be in Contracted-Out Employment before State Pension Age, the Member's GMP at State Pension Age or at the Member's earlier death will be calculated by increasing the accrued rights to GMP at cessation of Contracted-Out Employment under (A) or (B) or (C) below (A)SECTION 148 REVALUATION The increase will be by the percentage by which earnings factors for the tax year in which Contracted-Out Employment ceases are increased by the last order under section 148 of the Social Security Administration Act 1992 to come into force before the tax year in which the Member reaches State Pension Age or dies (if earlier) 7 (B)LIMITED REVALUATION The increase will be by the lesser of: (1)5% compound for each tax year after that in which Contracted-Out Employment ceases up to and including the last complete tax year before the Member reaches State Pension Age or dies (if earlier), and (2)the percentage by which earnings factors for the tax year in which Contracted-Out Employment ceases are increased by the last order under section 148 of the Social Security Administration Act 1992 to come into force before the tax year in which the Member reaches State Pension Age or dies (if earlier) The Trustees must pay a limited revaluation premium in respect of the Member to the Secretary of State for Social Security (C)FIXED RATE REVALUATION The increase will be by such rate as regulations made under section 55(5) of the Act specify as being relevant at the date Contracted-Out Employment ceases, for each tax year after the tax year containing that date up to and including the last complete tax year before the Member reaches State Pension Age or dies (if earlier) The Trustee and the Principal Employer shall decide whether (A) or (B) or (C) applies to the Scheme. They may at any time decide that one of the other two methods shall be used, instead of the method currently being used, for all Members ceasing to be in Contracted-Out Employment after a specified date. They must notify the Occupational Pensions Board whenever the method of revaluation for the Scheme is changed 7.2TRANSFERS IN Where a transfer payment is received in respect of a Member from another scheme ("the transferring scheme") which includes accrued rights of the Member to a GMP (or includes protected rights in respect of which the receiving scheme will provide a GMP), the earnings factors used in calculating that GMP will normally be revalued using Section 148 Revaluation during the Member's Contracted-Out Employment and Rule 7.1 will apply if that Contracted-Out Employment ceases before State Pension Age. The Trustees may, however, decide, if the provisions of the transferring scheme so allow, to use either Fixed Rate Revaluation or Limited Revaluation from the date on which the Member ceased to be in contracted-out employment by reference to the transferring scheme until the Member attains State Pension Age or dies (if earlier) but: 8 (1)Fixed Rate Revaluation may not be used as regards any part of the GMP being transferred which arose from contracted-out employment in relation to a previous scheme and which the transferring scheme is already revaluing by Limited Revaluation (or vice versa), and (2)the Trustees may not make that decision in respect of any Member if, when he becomes a Member, his contracted-out employment before he became a Member is treated as continuing for the purposes of the Act Where under Rule 7.2 Limited Revaluation is to be used, the Trustees shall have power to pay out of the transfer payment in respect of that Member any limited revaluation premium payable as a result of the Member ceasing to be in contracted-out employment by reference to the transferring scheme Where the Scheme accepts the proceeds of or the assignment of an insurance policy which consists of or includes accrued rights to GMP condition (1) above applies unless the Trustees use Section 148 Revaluation 7.3TRANSFERS OUT Where a Member's accrued rights to GMPs are transferred to another contracted-out salary related scheme or to a section 53 salary related scheme, the Trustees' may agree with the administrator of that scheme that the Member's GMP shall, instead of being revalued using the method currently being adopted under Rule 7.1, be revalued using another method which would be permitted if that scheme contained a rule in the same terms as Rule 7.2 but, where Limited Revaluation is to be used, that administrator must make arrangements for the payment of any limited revaluation premium (unless it has already been paid by the Trustees) 8.ANTI-FRANKING Except as provided in sections 87-92 and 110 of the Act, no part of a Member's, Widow's or Widower's pension under the Scheme may be used to frank an increase in the Member's, Widow's or Widower's GMP under Rule 6 or Rule 7 9.TRANSFERS INTO THE SCHEME 9.1ACCEPTANCE OF TRANSFERS The Trustees may accept: (1)a transfer payment in respect of the Member's accrued rights to GMPs under a contracted-out salary related scheme, a section 53 salary related scheme or a policy of insurance or an annuity contract of the type described in section 19 of the Act, or (2)a transfer of the liability for the payment of GMPs to or in respect of any person who has become entitled to them, or 9 (3)a transfer of Protected Rights in respect of the Member from another scheme which is, or was, an appropriate personal pension scheme, a scheme contracted-out on a money purchase basis or a section 53 money purchase scheme Transfers may be accepted only as provided in the appropriate regulations 9.2EFFECT OF TRANSFERS Where a transfer is accepted under Rule 9.1(1), the Member's accrued rights to GMPs under the Scheme will be increased accordingly Where a transfer is accepted under Rule 9.1(3), the Member's, Widow's and Widower's GMPs under the Scheme will be increased by amounts equal to the GMPs to which they would have been treated as entitled by reason of the Member's membership of the transferring scheme if the transfer payment had not been made 10.TRANSFERS OF GMP'S OUT OF THE SCHEME 10.1CONDITIONS FOR TRANSFER OF GMPS A transfer payment made out of the Scheme may include a Member's accrued rights to GMPs or the liability for the payment of GMPs to or in respect of any person who has become entitled to them only if the following conditions are fulfilled. These conditions depend on the type of scheme or policy to which the transfer is being made: (1)ALL TRANSFERS The Member must consent to the transfer unless: (a)it is made to another contracted-out salary related scheme or section 53 salary related scheme where either the scheme is a scheme of the same employer or the transfer involves all of or a group of the Members of the Scheme and either the transfer results from a financial transaction between the Member's old and new employers, or the receiving scheme is a scheme of an employer connected with the Member's old employer for the purposes of section 35 of the Act. The transfer must be made in accordance with the appropriate regulations (SI 1991/167) which may involve an actuarial certificate; or (b)it is to allow benefits to be bought out where the Member has less than 5 years Qualifying Service, or to allow the Trustees to buy out the benefits of the Widow or Widower of such a Member The transfer will be subject to any requirements of the Inland Revenue 10 The receiving scheme or policy must be an appropriate personal pension scheme, a contracted-out occupational pension scheme, a section 53 money purchase or section 53 salary related scheme, an overseas occupational pension scheme to which the Occupational Pensions Board approve the transfer or an insurance policy or annuity contract of the type described in section 19 of the Act (2)CONTRACTED-OUT SALARY RELATED SCHEMES AND SECTION 19 INSURANCE POLICIES OR ANNUITY CONTRACTS The receiving scheme policy or contract must provide the Member and the Member's Widow or Widower with GMPs equal to their accrued GMPs under the Scheme up to the date of transfer, together with revaluation until the Member reaches State Pension Age or dies (if earlier). In the case of GMPs already in payment the receiving scheme must provide for the pensions to commence from the date from which liability for payment has been assumed by it, and for the conditions of payment relating to its own GMPs to apply equally to such pensions (3)ALL OCCUPATIONAL PENSION SCHEMES (EXCEPT OVERSEAS SCHEMES COVERED BY (6)) In the case of transfer of accrued rights to GMPs (other than transfer in accordance with regulations 2(4) and 2A(4) of SI 1985/1323) the member must have entered employment with an employer which is (or, in the case of a section 53 scheme, is or was) a contributor to the receiving scheme (4)APPROPRIATE PERSONAL PENSION SCHEMES AND OCCUPATIONAL PENSION SCHEMES WHICH ARE OR WERE CONTRACTED-OUT BY THE MONEY PURCHASE TEST That part of the transfer payment which relates to the Member's accrued rights to GMPs must be of an amount at least equal to the cash value of those accrued rights and applied by the receiving scheme in providing money purchase benefits for or in respect of the Member (5)SECTION 53 MONEY PURCHASE OR SECTION 53 SALARY RELATED SCHEMES No transfer payment may be made to such a scheme without the approval of the Occupational Pensions Board, who may impose any conditions they consider appropriate (6)OVERSEAS OCCUPATIONAL PENSION SCHEMES NOT COVERED BY (2), (4) OR (5) ABOVE The Member must have entered employment outside the United Kingdom to which the receiving scheme applies No transfer payments may be made to such a scheme without the approval of the Occupational Pensions Board, who may impose any conditions they consider appropriate 10.2EFFECT OF SUCH TRANSFERS 11 Where the Member's accrued rights to GMPs or liability for GMPs already in payment are transferred in accordance with Rule 10.1, the Member and the Member's Widow or Widower will cease to have any entitlement to a GMP under the Scheme. If the transfer does not relate to the whole of the Member's rights to benefits under the Scheme, the Member's remaining benefits under the Scheme may be reduced to allow for the fact that the Member's accrued rights to GMPs have been transferred 11.TRANSFER PREMIUMS Where a Member ceases to be in Contracted-Out Employment before Normal Retiring Date and the Member's accrued rights to benefits (other than GMPs) are transferred to another occupational pension scheme which is neither a contracted-out scheme nor one which was formerly contracted-out and which remains under the supervision of the Occupational Pensions Board in accordance with Section 53 of the Act or to a non-appropriate personal pension scheme, the Trustees may elect to pay a transfer premium to the Secretary of State for Social Security. No such election may be made where the Member has completed less than 2 years' Qualifying Service or where an accrued rights premium is payable in respect of the Member Where a transfer premium is paid, the Member's accrued rights to GMPs under the Scheme shall be extinguished 12.COMMUTATION OF GMP 12.1COMMUTATION CONDITION The Commutation Condition is that the aggregate of the pensions and the pension equivalent of any lump sum benefits to which the person is entitled under the Scheme and under all other retirement benefit schemes relating to employment with the same employer as the employment in respect of which the benefits are payable does not exceed L 260 per annum (or such greater amount as may be prescribed by regulations made under section 21 and section 77 of the Act and is permitted by the Inland Revenue). In determining whether the Commutation Condition is satisfied: (a)Where the commutation is taking place before State Pension Age, other than on the death of the Member, Fixed Rate Revaluation or Limited Revaluation must be applied to any GMP included in the aggregate pension and such GMP must be revalued to State Pension Age for the purposes of calculating that aggregate. For this purpose, Limited Revaluation is to be taken as 5% per annum compound (b)Where the Member's pension, being an alternative to short service benefit, becomes payable before or after Normal Retiring Date, the value of that pension must, to the reasonable satisfaction of the Trustees be at least equal to the value of the Short Service Benefit plus the revaluation to Normal Retiring Date that the deferred pension would have attracted in accordance with Chapter II of Part 12 IV of the Act had it been provided by the Scheme at Normal Retiring Date and the revaluation of GMP referred to in (a) above (c)Where Commutation of the whole of a Member's deferred pension is taking place at Normal Retiring Date (or on the winding-up of the Scheme if earlier) the Member's pension in excess of GMP must be revalued up to Normal Retiring Date in accordance with Chapter II of Part IV of the Act and the GMP revalued in accordance with (a) above (d)In any event the Trustees must be satisfied that the basis of commutation is reasonable. The basis of commutation must be certified as reasonable by an Actuary or be in accordance with commutation factors agreed with the PSO as suitable for the Scheme 12.2CIRCUMSTANCES IN WHICH GMP MAY BE COMMUTED (1)MEMBER'S GMP The Member's GMP may be commuted if the Commutation Condition is satisfied and all his/her other benefits under the Scheme are being commuted and (a)his/her benefits have become payable; or (b)the Scheme is being wound up (2)WIDOW OR WIDOWER'S GMP The Widow or Widower's GMP may be commuted if the Commutation Condition is satisfied and all her/his other benefits under the Scheme are being commuted, and (a)her/his benefits have become payable; or (b)the Member's benefits are being commuted on grounds of trivialities (3)If the Member is a member of more than one retirement benefit scheme relating to the same employment the requirements of this rule must be satisfied by each of the schemes 13.SECURING GMPS GMPs may be secured through the Scheme provided it has been established under an irrevocable trust subject to the laws of any part of the United Kingdom. Otherwise, a GMP must be secured by means of an insurance policy or annuity contract with an Insurer 13 14.WINDING-UP OF THE SCHEME 14.1PRIORITIES ON WINDING-UP On a winding-up of the Scheme for any reason, priority must be given over any other liability to provide benefits to any benefit which falls within any one or more of the following: (1)Pensions and other benefits in respect of which entitlement to payment has already arisen (2)GMPs and accrued rights to GMPs (3)State scheme premiums (4)Equivalent pension benefits within the meaning of the National Insurance Act 1965 14.2ORDER OF PRIORITIES The Trustee and the Principal Employer may elsewhere in the provisions of the Scheme specify an order of priorities amongst the items listed in Rule 14.1 but the order of priorities shall not give any liability to provide benefits which are not listed in Rule 14.1 priority equal to or exceeding the priority given to any item which is listed there 14.3VOLUNTARY CONTRIBUTIONS Where Members' voluntary contributions to the Scheme are being used to provide benefits equivalent on a money purchase basis to the voluntary contributions paid, and where there are separately identifiable assets attributable to those voluntary contributions within the Scheme, 14.1 above shall not apply to those separately identifiable assets. That part of those assets which is attributable to the voluntary contributions of a Member shall be used to provide benefits for, or in respect of, that Member of the types specified in the other provisions of the Scheme. No regular payments may be made by the employer to those separately identified assets unless they are used solely for the purpose of meeting administrative expenses. 15.SCHEME CEASING TO BE A CONTRACTED-OUT SALARY RELATED SCHEME If the Scheme ceases to be a contracted-out salary related scheme, the Trustees must seek the Occupational Pensions Board's approval to any proposed arrangements for securing GMPs. If it is decided to buy Members back into the State Earnings Related Pension Scheme, then accrued rights premiums or pensioner's rights premiums must be paid to the Secretary of State for Social Security in the manner required by regulations made under the Act. Once these premiums have been paid, the GMPs will be extinguished. The other benefits of the Members, Widows or Widowers concerned 14 under the Scheme shall be reduced by the amount of the GMP accrued at the date the Scheme ceased to be contracted-out increased to State Pension Age or the Member's death (if earlier) by Fixed Rate Revaluation or Section 148 Revaluation 16.SUSPENSION OF GMP Payment of a GMP may be suspended during any period when either: 16.1The person receiving the GMP is unable to act (by reason of mental disorder or otherwise) but the amount of the GMP must either be paid or applied for the maintenance of the recipient or his dependants, or paid to the recipient when that recipient is again able to act, or paid to the recipient's estate after that recipient's death; or 16.2The recipient of the GMP is in prison or detained in legal custody but the amount of the GMP must then be paid or applied for the maintenance of such one or more of the recipient's dependants as the Trustees shall determine; or 16.3The Member is receiving the GMP but is then re-employed in an employment to which the Scheme relates. The GMP must then be increased under Rule 7.1 above during the period of suspension. 17.FORFEITURE OF GMP 17.1Any instalment of a GMP may be forfeited if it is not paid within 6 years of the date on which the instalment became due and the Trustees do not know the whereabouts of the recipient. 17.2A GMP may be forfeited if the person entitled to the GMP has been convicted of one or more offences under the Official Secrets Acts 1911 to 1989, for which the recipient has been sentenced to a term or consecutive terms of imprisonment totalling at least 10 years, or of an offence of treason. 18.CONTRIBUTIONS EQUIVALENT PREMIUMS 18.1A contributions equivalent premium shall be paid, subject to 18.2 below, in respect of a Member who ceases to be in Contracted-out Employment before whichever is the earlier of the Member's Normal Retiring Date and the end of the tax year preceding that in which the member will reach State Pensionable Age with less than 2 years' Qualifying Service and less than 2 years' Contracted-out Employment. A contributions equivalent premium shall not be paid where the Member's accrued rights include rights transferred from a personal pension, nor where the Member is a woman who dies in contracted-out employment in respect of Widower's GMP. Payment of the contributions equivalent premium extinguishes the Member's accrued rights to GMPs under the Scheme. Therefore, where the premium is paid, any refund of contributions to the Member or any transfer payment from the Scheme in respect of a Member shall be reduced by the certified amount (as defined in the Act) in relation to 15 that premium and any pension benefit under the Scheme for the Member or the Member's Widow or Widower shall be reduced so as to allow for the fact that their accrued rights to GMPs have been extinguished. 18.2The premium shall not be payable if: (a)its amount is less than L 17 (or such greater amount as is specified in regulations made under the Act); or (b)the Member's accrued rights to GMPs are transferred to another scheme, policy or contract in accordance with Rule 10 above; or (c)the Member has become entitled to an immediate or a deferred pension under the Scheme on ceasing to be in Contracted-out Employment. EXECUTED as a DEED by ICOM SOLUTIONS LIMITED by means of these signatures: Director /s/ Irene Brown --------------- Irene Brown Director/Secretary /s/ Chris Powell ---------------- Chris Powell EXECUTED as a DEED by ICOM SYSTEMS LIMITED by means of these signatures: Director /s/ Irene Brown --------------- Irene Brown Director/Secretary /s/ Chris Powell ---------------- Chris Powell SIGNED as a DEED by the said PETER JOHN WHEBLE in /s/ Peter John Wheble --------------------- the presence of: /s/ Irene Brown --------------- Irene Brown 16 DATED JULY 29, 1996 ----------------------------- ICOM SOLUTIONS LIMITED (1) AND S.M. SMITH (2) ----------------------------- DEED OF APPOINTMENT RELATING TO THE ICOM SOLUTIONS PENSION SCHEME ----------------------------- THIS DEED OF APPOINTMENT is made on July 29, 1996 BETWEEN: (1)ICOM SOLUTIONS LIMITED (No. 1641088) whose registered office is at Lion House, P.O. Box 1240, Birmingham B6 7UH (the "PRINCIPAL EMPLOYER"); and (2)STEPHEN MICHAEL SMITH of 17 Petworth Close, Stevenage, Hertfordshire S92 8UP (the "NEW TRUSTEE"). RECITALS (A)This deed is supplemental to an Interim Trust Deed dated 5th January 1996 (the "INTERIM DEED") made between the Principal Employer (1) and I.N. Brown and C.G. Powell (2) by which the Icom Solutions Pension Scheme (the "SCHEME") was established and a Supplemental Deed dated 1st April 1996 made between the Principal Employer (1) ICOM Systems Limited (2) and P.J. Wheble (3). (B)Rule 8 of the Interim Deed provides that in effect the Principal Employer has the power by deed to appoint a new trustee as an additional trustee to the Scheme. (C)The Principal Employer wishes to appoint the New Trustee with effect from the date of this deed and the New Trustee consents to be a trustee with effect from such date. NOW THIS DEED WITNESSES that in exercise of the power in Rule 8 of the Interim Deed and any and every other enabling power with effect from the date of this deed the Principal Employer HEREBY APPOINTS the New Trustee to be an additional trustee of the Scheme and the New Trustee HEREBY AGREES to act as a trustee of the Scheme from such date. IN WITNESS of the above this deed has been executed by or on behalf of the parties and delivered the day and year first above written. EXECUTED as a DEED by ICOM SOLUTIONS LIMITED by means of these signatures: Director /s/ Irene Brown --------------- Irene Brown Director/Secretary /s/ Chris Powell ---------------- Chris Powell 1 SIGNED as a DEED by the said STEPHEN MICHAEL SMITH /s/ Stephen Michael Smith ------------------------- in the presence of: /s/ P. J. Bush -------------- P. J. Bush DATED JANUARY 5, 1998 ----------------------------------- ICOM SOLUTIONS LIMITED (1) AND IRENE NORMA BROWN (2) CHRISTOPHER GARY POWELL PETER JOHN WHEBLE AND STEPHEN MICHAEL SMITH ---------- DEFINITIVE DEED AND RULES RELATING TO THE ICOM SOLUTIONS PENSION SCHEME ---------- Wragge & Co Birmingham THIS DEFINITIVE DEED AND RULES is made on January 5, 1998 BETWEEN: (1) ICOM SOLUTIONS LIMITED (No.1641088) whose registered office is at Lion House, PO Box 1240, Birmingham B6 7UH; and (2) IRENE NORMA BROWN of 8 Downham Close, Walsall, West Midlands WS5 3BX, CHRISTOPHER GARY POWELL of 25 Heritage Court, Lichfield, Staffordshire WS14 9ST, PETER JOHN WHEBLE of 62 Kingshayes Road, Aldridge, Walsall WS9 8RZ and STEPHEN MICHAEL SMITH of 17 Petworth Close, Stevenage, Hertfordshire SG2 8UP RECITALS (A) The Icom Solutions Pension Scheme was established by the Interim Trust Deed dated 5 January 1996 mentioned in schedule 3. (B) This deed is supplemental to the deeds and documents listed in schedule 3 (C) In the 1996 Deed, the Principal Employer undertook that it would decide the provisions of and execute within two years from the Effective Date a definitive trust deed adopting rules to govern the Scheme with effect from the Effective Date. (D) This Deed is the definitive trust deed contemplated by the 1996 Deed. (E) The Employers who participate in the Scheme as at the date of this deed are listed in schedule 4. OPERATIVE PROVISIONS: This deed provides as follows: 1 The Principal Employer with the consent of the Trustees declares that the provisions of the Rules contained in this deed and schedules 1 to 4 shall take effect in relation to the Scheme with effect from the Effective Date but shall not operate to invalidate or affect any decision or the exercise of any power before the execution of this deed. 2 The Trustees hold the Fund on trust to apply it in accordance with the provisions of the Scheme as amended by this deed. IN WITNESS whereof this deed has been executed by or on behalf of the parties and delivered the day and year first above written (1) CONTENTS RULES
RULE HEADING PAGE DEFINITIONS AND INTERPRETATION.............................................................................. 1 1 Definitions............................................................................... 1 2 Interpretation and Overriding Provisions.................................................. 8 EFFECTIVE DATE.............................................................................................. 10 3 Effective Date............................................................................ 10 MODIFICATION AND AUGMENTATION............................................................................... 10 4 Modification.............................................................................. 10 5 Augmentation.............................................................................. 10 6 Reviews and Reduction of Surplus.......................................................... 11 CONSTITUTION OF TRUSTEES.................................................................................... 11 7 Appointment and Removal of Trustees....................................................... 11 8 Expenses and Remuneration of Trustees..................................................... 12 9 Trustees Benefiting from the Scheme....................................................... 13 10 Trustee Indemnities and Insurance......................................................... 13 POWERS AND DUTIES OF TRUSTEES............................................................................... 15 11 Administration and Management............................................................. 15 12 Trustees Meetings and Procedures.......................................................... 15 13 Delegation................................................................................ 15 14 Advisers.................................................................................. 15 15 Employment of Agents and Staff............................................................ 16 16 Expenses and Debts........................................................................ 16 17 Investment................................................................................ 16 18 Insurance of Benefits..................................................................... 17 19 Bank Accounts............................................................................. 18 20 Borrowing................................................................................. 18 21 Accounts and Audit........................................................................ 18 22 Actuarial Investigations.................................................................. 18 23 Insurance of Fund Assets.................................................................. 18 DISCRETIONARY TRUST OF LUMP SUMS............................................................................ 19 24 Discretionary Trust of Lump Sums.......................................................... 19 ADDITIONAL VOLUNTARY CONTRIBUTIONS.......................................................................... 20 25 Additional Voluntary Contributions........................................................ 20 PARTICIPATION OF EMPLOYERS, TRANSFERS AND WINDING-UP........................................................ 21 26 Admission of Employers.................................................................... 21
(2) 27 Withdrawal of Employer.................................................................... 22 28 Transfers to the Scheme................................................................... 22 29 Transfers from the Scheme................................................................. 23 30 Closing the Scheme........................................................................ 24 31 Substitution of Principal Employer........................................................ 25 32 Perpetuities.............................................................................. 26 33 Transfer of Powers........................................................................ 26 34 Winding-up................................................................................ 26 GENERAL..................................................................................................... 27 35 Notices................................................................................... 27 36 Production of Evidence.................................................................... 27 37 Assignment, Forfeiture and Bankruptcy..................................................... 28 38 Incapacity and Minority................................................................... 28 39 Disclosure................................................................................ 29 40 Resolution of Disputes.................................................................... 29 41 Information from Participating Employers.................................................. 29 42 Unclaimed Money........................................................................... 29 43 Taxation.................................................................................. 29 ELIGIBILITY AND ADMISSION................................................................................... 30 44 Eligibility and Admission................................................................. 30 CONTRIBUTIONS................................................................................................31 45 Employers' Contributions.................................................................. 31 46 Member Contributions...................................................................... 31 TERMINATION OF MEMBERSHIP AND BROKEN SERVICE................................................................ 33 47 Termination of Membership................................................................. 33 48 Absence................................................................................... 33 49 Resumption of Membership.................................................................. 34 WITHDRAWAL FROM PENSIONABLE SERVICE AND PRESERVATION OF BENEFITS............................................ 36 50 Entitlement to Short Service Benefit...................................................... 36 51 Calculation of Short Service Benefit...................................................... 36 52 Members with less than 2 years' Qualifying Service........................................ 37 BENEFITS ON RETIREMENT...................................................................................... 37 53 Normal Retirement Pension................................................................. 37 54 {No text in Rule 54}...................................................................... 37 55 Early Retirement.......................................................................... 37 56 Late Retirement........................................................................... 40 57 Lump Sum on Retirement.................................................................... 40 PAYMENT OF PENSIONS......................................................................................... 41 58 Timing.................................................................................... 41 59 Duration.................................................................................. 41

(3) 60 Method and Increases...................................................................... 41 BENEFITS ON DEATH........................................................................................... 42 61 Death of Member........................................................................... 42 62 Death of Pensioner........................................................................ 43 63 Death of Deferred Pensioner or Postponed.................................................. 43 64 Reduction of Spouse's Pension............................................................. 44 65 Benefits for Children..................................................................... 44 NON-PARTICIPATING EMPLOYMENT................................................................................ 46 66 Non-Participating Employment.............................................................. 46 SCHEDULE 1 Revenue Limits..................................................................................... 47 2 Contracting-out.................................................................................... 62 3 Scheme Deeds and Documents......................................................................... 75 4 Participating Employers............................................................................ 75

(4) THE RULES THE ICOM SOLUTIONS PENSION SCHEME DEFINITIONS AND INTERPRETATIONDEFINITIONS AND INTERPRETATION 1 DEFINITIONS DEFINITIONS 1.1 In this deed, unless the context otherwise requires: "1965 ACT" means the National Insurance Act 1965 "1988 ACT" means the Income and Corporation Taxes Act 1988 "1993 ACT" means the Pension Schemes Act 1993 "1995 ACT" means the Pensions Act 1995 "1996 ACT" means the Employment Rights Act 1996 "1996 DEED" means the interim trust deed dated 5 January 1996 numbered 1 in schedule 3. "2 YEARS' QUALIFYING SERVICE" has the meaning in section 71(7) 1993 Act. "ACTUARY" means a Fellow of the Institute or Faculty of Actuaries (or a firm making available the services of such a person) appointed under Rule 14. "ADDITIONAL VOLUNTARY CONTRIBUTIONS" has the meaning which the expression "voluntary contributions" has in section 111 1993 Act. "ADVISER" means an actuary, auditor, fund manager, legal adviser, surveyor or any other adviser. "APPROVAL" means approval of the Scheme as an exempt approved scheme under Chapter I Part XIV 1988 Act. "BASIC SALARY" means: (a) in relation to a Member who does not receive Profit-related Pay, the Member's basic annual salary; and (b) in relation to a Member who receives Profit-related Pay, the Member's basic annual salary he would have received had he not elected to receive Profit-related Pay. "BASIC STATE PENSION" means the single person's basic state pension from time to time. 1 "BENEFICIARY" means any person absolutely or contingently entitled to a benefit from the Scheme. "CASH EQUIVALENT" has the meaning in section 94 1993 Act. "CHILD" in relation to a deceased person includes his step-child, illegitimate child, a child whom he has legally adopted, a child conceived but not yet born and any other person whom in the opinion of the Trustees the deceased treated as a child of his family. "CHILD'S ALLOWANCE" means a pension payable under Rule 65. "CONTRIBUTIONS EQUIVALENT PREMIUM" has the meaning in section 55 1993 Act. "CONTRACTING-OUT REQUIREMENTS" means (a) the requirements to be met for the purpose of obtaining and maintaining a contracting-out certificate under Chapter I Part III 1993 Act by reference to the Scheme in respect of any period of Membership before 6th April 1997; and (b) the requirements to be met for the purpose of obtaining and maintaining a contracting-out certificate contained and referred to in Part III 1995 Act by reference to the Scheme in respect of any period of Membership on or after 6th April 1997. "DEFERRED PENSIONER" means a Former Member who: (a) ceased Membership before his Normal Retirement Date; (b) is not in receipt of a pension under the Scheme; and (c) is entitled to a deferred pension under the Scheme. (or who is treated as such a Former Member by reason of a transfer payment received under Rule 28). "DEPENDANT", in relation to any individual, means the spouse, Nominated Dependant, or Eligible Child of that individual or any one whose standard of living will in the opinion of the Trustees be materially affected as a result of the death of the individual. "DISCLOSURE REQUIREMENTS" means the requirements for the obtaining and disclosure of information in relation to the Scheme under the 1995 Act. "DIVORCE REQUIREMENTS" means the requirement for the disclosure of information in relation to the Scheme and the provision of benefits under the Scheme in respect of 2 the former Spouse of a Member or Former Member under the 1995 Act. "EFFECTIVE DATE" means the date specified in Rule 3. "ELIGIBLE CHILD" means a Child who: (a) is age 18 or under; or (b) is age 21 or under and undergoing full-time education; or (c) is suffering from some mental or physical disability rendering him unable to support himself financially (irrespective of age). "EMPLOYEE" means a person in employment with an Employer. "EMPLOYER" means the Principal Employer, each of the companies listed in schedule 4 and any other person admitted to participation under Rule 26.1 or, in relation to any Employee or former Employee or Beneficiary claiming through him, the Principal Employer or such other person by which, at the relevant time, he is or was last employed. "EQUAL TREATMENT REQUIREMENTS" means the requirements of sections 62-66 1995 Act. "EQUIVALENT PENSION BENEFITS" means a pension equal to the minimum rate of equivalent pension benefits applicable under the 1965 Act in respect of any period during which a Member has been in Non-Participating Employment (as defined in the 1965 Act). "FINAL PENSIONABLE PAY" means: (a) in relation to a Member who is not a Supplementary Member, the annual average of his Pensionable Pay received over the 36 months immediately prior to his retirement, leaving Pensionable Service or death (whichever occurs first) less the annual average of the Basic State Pension in respect of such period; or (b) in relation to a Supplementary Member (1) the greater of: (i) his Basic Salary received in the 12 months immediately prior to his retirement, leaving Pensionable Service or death (whichever occurs first); and (ii) his highest Basic Salary in the 5 years immediately prior to retirement, leaving Pensionable Service or death (whichever 3 occurs first); and (2) the annual average of his bonuses received in the 3 years immediately prior to his retirement, leaving Pensionable Service or death (whichever occurs first). "FORMER EMPLOYER" means an Employer which has ceased to participate in the Scheme under Rules 27 or 30. "FORMER IMI MEMBER" means either a Member who is admitted to Membership with effect from 1st April 1996 and who was immediately before such date contributing to the IMI Section of the IMI Pension Fund or such other Member as the Trustees and the Principal Employer shall agree. "FORMER MEMBER" means a Beneficiary who has a benefit under the Scheme by virtue of his Membership but whose Membership has ceased. "FUND" means the assets for the time being held by or on behalf of the Trustees on the trusts of the Scheme. "GUARANTEED MINIMUM PENSION" has the meaning in section 8 1993 Act. "IMI PENSION FUND" means the retirement benefits scheme known as the IMI Pension Fund established by a deed dated 30 September 1970. "IMI TRANSFEREES" means those Former IMI Members and Supplementary Members who consented to the transfer of an amount from the IMI Pension Fund to the Scheme in respect of all benefits payable for and in respect of their Membership of the IMI Pension Fund and in relation to whom a transfer payment has been received by the Scheme from the IMI Pension Fund. "INDEX" means the index of retail prices for all items published by the Central Statistical Office or any other suitable index adopted by the Trustees for the purposes of the Scheme. "INSOLVENCY EVENT" means in relation to an Employer a circumstance in which, if the Employer were the employer in relation to the Scheme for the purpose of section 22(1) 1995 Act, that section would apply to the Scheme. "INSURANCE COMPANY" has the meaning in section 659B(1) 1988 Act. "LIFE ASSURANCE MEMBER" means an Employee specified in Rule 44.11 or any other Employee whom the Principal Employer directs shall be entitled only to benefits under Rule 61.7. "MEMBER" means, subject to Rules 27.2, 30.1 and 47, an Employee who has been admitted to participate in the Scheme under Rule 44. 4 "MEMBER CONTRIBUTIONS" means contributions payable under Rule 46.1(a). "MEMBERSHIP" means the status of being a Member. "MINIMUM FUNDING REQUIREMENT" has the meaning in section 56 1995 Act. "NEW PRINCIPAL EMPLOYER" has the meaning in Rule 31.1. "NOMINATED DEPENDANT" in relation to a deceased individual having no Spouse means a person who has been nominated in writing to the Trustees as someone who is financially dependant on him and who, in the opinion of the Trustees, is (or was at the date of his death) wholly or partly financially dependant on him. "NORMAL RETIREMENT DATE" means in relation to a Member or Former Member who is not a Supplementary Member his 65th birthday and in relation to a Supplementary Member his 62nd birthday. "OLD PRINCIPAL EMPLOYER" has the meaning in Rule 31.1 "OTHER SCHEME" means the trustees or administrators of an occupational pension scheme, a Personal Pension Scheme, annuity contract or policy or other pension arrangement which meets the requirements of section 95 1993 Act {arrangements to which cash equivalents may be taken} or any other scheme or arrangement specifically approved by the Revenue for the purpose of Rule 28 or Rule 29. "PART-TIME PENSIONABLE SERVICE" means in relation to a Member any Pensionable Service during which his normal contractual weekly hours of work are less than 30. "PENSIONABLE PAY" means: (a) in relation to a Member who is not a Supplementary Member at any date, his Basic Salary provided that in relation to a Member who is in Part-time Pensionable Service his Pensionable Pay shall be an amount calculated as: BS X SWW --- NWW Where: BS means at any date his Basic Salary; SWW means the full-time standard number of weekly hours of work, determined by the Principal Employer applicable to the Member as at that date; and NWW means the number of his average contractual weekly hours of work for the period of Part-time Pensionable Service in question as at that date; or 5 (b) in relation to a Supplementary Member at any date, his Basic Salary and his taxable bonuses accrued during the financial year of the Principal Employer immediately preceding such date. "PENSIONABLE SERVICE" in relation to a Member means the completed years and months of his Membership during which either the Member is making Member Contributions or Member Contributions are made in respect of him and any additional period awarded to him by reason of a transfer payment received under Rule 28 provided that in relation to a Member who is or has been in Part-time Pensionable Service it shall be calculated in accordance with the following formula for each period of Part-time Pensionable Service: NWW X 12 --- SWW Where: NWW is the number of the Member's average contractual weekly hours of work for the period of Part-time Pensionable Service in question; and SWW is the standard number of weekly hours of work, determined by the Principal Employer applicable to the Member. "PENSIONER" (except in the expressions "Deferred Pensioner" and "Postponed Pensioner") means a person who is a Former Member entitled to be receiving a pension under the Scheme (or who is treated as such a person by reason of a transfer payment received under Rule 28). "PERSONAL PENSION SCHEME" means a personal pension scheme approved by the Revenue under Chapter IV Part XIV 1988 Act. "PHI SCHEME" means the permanent health insurance scheme which is insured in the name of the Principal Employer from time to time for the benefit of the Members. "POLICY" means any contract or policy with an Insurance Company which is an Other Scheme or which provides death or other contingent benefits. "POSTPONED PENSIONER" means a Former Member still in Service with the consent of the Employer after his Normal Retirement Date. "PRESERVATION REQUIREMENTS" means the provisions of Chapters I, II and IV Part IV 1993 Act relating to the rights of a Former Member on termination of his Membership. "PRINCIPAL EMPLOYER" means Icom Solutions Limited or any person who becomes the Principal Employer under Rule 31.2. 6 "PROFIT-RELATED PAY" has the meaning in section 169 1988 Act. "PRO-RATED BASIC STATE PENSION" means in relation to a Member who is or has been in Part-time Pensionable Service for each period of Part-time Pensionable Service the amount calculated in accordance with the following formula: NWW X BSP --- SWW Where NWW is the number of the Member's average contractual weekly hours of work for the period of Part-time Pensionable Service in question; SWW is the standard number of weekly hours of work determined by the Principal Employer applicable to the Member; and BSP is the Basic State Pension. "RELEVANT BENEFITS" has the meaning in section 612 1988 Act. "REVENUE" means the Commissioners of Inland Revenue. "RULE" means any of these Rules. "SCHEDULE OF CONTRIBUTIONS" has the meaning in section 58 1995 Act. "SCHEME" means the Icom Solutions Pension Scheme governed by this deed. "SERVICE" means such continuous employment with an Employer as the Employer decides is permanent employment. "SHORT SERVICE BENEFIT" has the meaning in section 71(2) 1993 Act. "SPOUSE" in relation to a deceased individual means either a person who was married to him at the date of his death or, if there is no such person, at the discretion of the Trustees such other person (if any) with whom he was co-habiting at the date of his death, and who in the opinion of the Trustees is or was financially dependant on him at the date of his death. "SUPPLEMENTARY MEMBER" means a Member who is admitted to Membership with effect from 5 January 1996 and who was immediately before such date contributing to either the Supplementary Fund or Facsimile Section of the IMI Pension Fund. "IMI TRANSFER AMOUNT" means the value of assets transferred to the Scheme from the IMI Pension Fund in respect of the IMI Transferees. 7 "TRIVIAL PENSION" means in relation to an individual a pension which when added to all pensions payable in respect of employment with the Employers and the pension equivalent of any lump sum and including any pension arising from the payment of additional voluntary contributions is not more than L 260 per annum (or such higher amount as may be prescribed from time to time by regulations made under sections 21(1) and 77(5) 1993 Act). "TRUSTEES" means Irene Norma Brown, Christopher Gary Powell, Peter John Wheble and Stephen Michael Smith or the trustee or trustees for the time being of the Scheme and includes, where the context requires, the directors for the time being of a corporate trustee. 2 INTERPRETATION AND OVERRIDING PROVISIONS INTERPRETATION AND OVERRIDING PROVISIONS 2.1 The contracting-out model rules in schedule 2 apply to the Scheme in relation to: (a) a Member or Former Member whose employment before 6th April 1997 was contracted-out by reference to the Scheme; and (b) his Pensionable Service during the period of employment specified in Rule 2.1(a). To that extent the model rules override the other provisions of this deed except to the extent specified in the model rules. Subject to that the provisions listed in Rule 2.2(a) - (e) apply to the Scheme and this deed takes effect subject to them. 2.2 Each of the Principal Employer, the Employers and the Trustees in making any decision or in giving or withholding its agreement or consent or in exercising or not exercising any power in relation to the Scheme shall comply with: (a) the Revenue limits rules in schedule 1 (which may require benefits to be restricted) and any requirements of the Revenue to obtain and maintain Approval; (b) the Preservation Requirements; (c) the Disclosure Requirements; (d) the Equal Treatment Requirements; (e) the Contracting-out Requirements; 2.3 Subject to Rule 2.2, each of the Principal Employer and the Employers in making any decision or in giving or withholding its agreement or consent or in exercising or not exercising any power in relation to the Scheme shall do so at its absolute and uncontrolled discretion and for its own benefit and shall owe no duty to any Employer, Employee, Beneficiary or any other person. 8 2.4 Subject to the performance of their duties and Rule 2.2, the Trustees in making any decision or in giving or withholding their agreement or consent or in exercising or not exercising any power in relation to the Scheme shall do so at their absolute and uncontrolled discretion. 2.5 The decision of the Trustees shall be final on all questions which are left to their determination or decision in relation to the Scheme and on all matters relating to the management and administration of the Scheme on which this deed and any other provisions of the Scheme are silent. 2.6 Words importing the singular include the plural and vice versa. The plural form of words and expressions defined in Rule 1 shall be construed according to the meaning given to the singular form and vice versa. 2.7 Words importing one gender (except the words "male" and "female") or the neuter include the other gender and the neuter as the case may be. 2.8 The table of contents, the headings to the provisions of this deed and words between the symbols { } are for reference purposes only and shall not affect the meaning or construction of this deed. 2.9 References to this deed include the Rules and the schedules. 2.10 Any reference to a statute (or to a particular chapter, part of, section of, or schedule to, a statute) includes any modification or re-enactment of it and any regulations made under it. 2.11 Nothing in this deed or other provisions of the Scheme shall: (a) restrict the right of an Employer to terminate the employment of an Employee with the Employer; or (b) be used in aggravation of damages in any proceedings brought by the Employee against any Employer in respect of the termination of his employment. 2.12 Nothing in this deed shall in any way be construed as imposing upon an Employer a contractual obligation as between the Employer and an Employee to contribute or to continue to contribute to the Fund. 2.13 No person shall have any claim, right or interest under the Scheme or any claim upon or against the Trustees or an Employer except under or in accordance with this deed. 2.14 If the Trustees reduce or vary the benefits under the Scheme relating to a Beneficiary with his agreement, the agreement of the Beneficiary shall bind any other Beneficiary affected by the variation. 9 EFFECTIVE DATEEFFECTIVE DATE 3 EFFECTIVE DATE EFFECTIVE DATE 3.1 This deed has effect from 5 January 1996. Any provision of the 1995 Act referred to in this deed is effective from the later of the Effective Date or the date on which it comes into force. MODIFICATION AND AUGMENTATIONMODIFICATION AND AUGMENTATION 4 MODIFICATION MODIFICATION 4.1 Subject to Rule 4.2, the Principal Employer may by deed change all or any of the provisions of this deed or other provisions of the Scheme including this Rule 4 in any way. Any change shall take effect from the date specified in the deed making the change, which date may be earlier or later than the date of that deed. 4.2 The provisions of: (a) section 65 1995 Act {equal treatment rule: alteration of schemes by trustees}; (b) section 67 1995 Act {protection of accrued rights}; and (c) section 68 1995 Act {limited powers of trustees to modify schemes}, apply. 4.3 The Principal Employer shall provide to the Trustees any deed made under Rule 4.1 as soon as practicable. 5 AUGMENTATION AUGMENTATION 5.1 Subject to Rule 29.4(c) and Rule 34.2, the Trustees may with the consent of the Principal Employer: (a) augment or vary benefits payable under the Scheme either generally or in any particular case; or (b) provide benefits for any Employee or former Employee or any Spouse, Child or Dependant of a former Employee. 5.2 If the Trustees exercise any of the powers in Rule 5.1, Rule 29.4(b) Rule 29.4(c) or Rule 34.2 the Trustees shall, having considered the advice of the Actuary, agree with the Principal Employer and the Employer the amount and timing of additional contributions required to be paid to the Scheme taking into account the cost of the additional benefits and such revisions (if any) to the Schedule of Contributions will be made as are then necessary to meet the Minimum Funding Requirement taking into account the cost of the additional benefits. 10 6 REVIEWS AND REDUCTION OF SURPLUS REVIEWS AND REDUCTION OF SURPLUS 6.1 The Principal Employer and the Trustees shall at least once each calendar year review: (a) the pensions currently payable at the time of each review; and (b) the increases (if any) which form part of the benefits of the Scheme for the purpose of considering an increase or additional increase under Rule 5.1(a). 6.2 If an actuarial valuation under Rule 22 discloses a surplus in excess of the prescribed maximum described in paragraphs 1 and 2 Schedule 22 1988 Act the Trustees shall apply such surplus in such one or more of the ways described in paragraph 3 schedule 22 1988 Act as the Principal Employer decides. 6.3 Section 37 1995 Act {payment of surplus to employer} applies. CONSTITUTION OF TRUSTEESCONSTITUTION OF TRUSTEES 7 APPOINTMENT AND REMOVAL OF TRUSTEES APPOINTMENT AND REMOVAL OF TRUSTEES 7.1 Subject to Rules 7.5 to 7.7, the Principal Employer shall have power by deed to appoint a new or additional Trustee and to remove a Trustee provided that, unless a body corporate is the sole Trustee, the number of Trustees shall not be less than two. 7.2 Subject to Rules 7.5 to 7.7, a body corporate (whether or not a trust corporation) may remain or be appointed sole Trustee. 7.3 Subject to Rule 7.4, if, after the resignation, the continuing Trustees shall be at least either a body corporate or two individuals, any Trustee may resign as a Trustee by serving written notice on the Principal Employer and the other Trustees to that effect. 7.4 Every Trustee shall on ceasing to be a Trustee execute such documents and do all such things as may be necessary to give effect to such cessation and to vest the Fund in the continuing Trustees. 7.5 If section 16 or section 18 1995 Act {Requirement for member-nominated trustees or directors} applies to the Scheme, it applies on the footing that: (a) unless the Principal Employer otherwise agrees, neither the Principal Employer nor any Employer has given its approval for a greater number of member-nominated trustees or member-nominated directors than that required to satisfy the minimum under section 16(6) or section 18(6) 1995 Act; (b) unless the Principal Employer otherwise agrees, under any appropriate rules 11 which are approved or prescribed under section 20 1995 Act, each of the Principal Employer and the Employers requires that to qualify for nomination as a member-nominated trustee or member-nominated director, a person who is not a Member, a Postponed Pensioner, a Deferred Pensioner or a Pensioner must be approved in writing by the Principal Employer; and (c) any person who is nominated and selected in accordance with appropriate rules under section 16 1995 Act shall become a Trustee at the beginning of the period applying to that person as specified in the arrangements made under section 16 1995 Act and shall cease to be a Trustee at the end of that period or when those arrangements or the 1995 Act provide for him to cease to be Trustee. 7.6 If arrangements for selecting a Trustee or Trustees are made and implemented under section 17 1995 Act {exceptions to requirements for member-nominated trustees} then any person who is selected as a Trustee in accordance with those arrangements while they continue to have effect shall: (a) become a Trustee at the beginning of the period applying to that person as specified in those arrangements; and (b) shall cease to be a Trustee at the end of that period or when those arrangements or the 1995 Act provide for him to cease to be a Trustee whichever is the earlier. 7.7 The Principal Employer and the Trustees shall record in writing any arrangements which are made under sections 16-21 1995 Act. The Trustees shall notify the Principal Employer as soon as practicable after any person becomes or ceases to be Trustee under Rule 7.5(c), Rule 7.6(a) and Rule 7.6(b). 7.8 If a person is purportedly appointed as a new or additional Trustee under Rule 7.1 or pursuant to section 16 or 17 1995 Act but who is at the time of the appointment disqualified under section 29 1995 Act, the appointment shall be void from the time of the appointment provided that: (a) subsections (5) and (6) of section 30 1995 Act apply both to things done by that person and to him; and (b) such person shall execute such documents and do all such things as may be necessary to give effect to his ceasing to act purportedly as a Trustee and to vest the Fund in the continuing Trustees. 8 EXPENSES AND REMUNERATION OF TRUSTEES EXPENSES AND REMUNERATION OF TRUSTEES 8.1 The Trustees shall be entitled to pay out of the Fund any expenses incurred in connection with the Scheme, to be paid in priority to all other claims falling to be met out of the Fund. 12 8.2 The Trustees may, with the consent of the Principal Employer, pay to any Trustee, or director of a corporate Trustee, out of the Fund reasonable remuneration for acting in that capacity or in any other capacity authorised by the Rules, to be so paid in priority to all other claims (other than under Rule 8.1) payable out of the Fund. 8.3 A Trustee or director of a corporate Trustee paid or intended to be paid under Rule 8.2 may participate in taking a decision under Rule 8.2 notwithstanding his personal interest in it and may retain for himself any reasonable remuneration which the Trustees decide to pay to him. 9 TRUSTEES BENEFITING FROM THE SCHEME TRUSTEES BENEFITING FROM THE SCHEME 9.1 The decision of, or the exercise of a power by, the Trustees shall not be invalidated or questioned on the ground that any of the Trustees or directors of a corporate Trustee had an interest in the result of the decision or the exercise of the power. 9.2 A Beneficiary who is or has been a Trustee (or a director or officer of a corporate Trustee or a delegate of the Trustees) may retain for himself any benefit to which he is entitled by virtue of his Membership, including any benefit as augmented or provided under Rules 5, 29 and 34, whether or not the Beneficiary participated in the exercise of the power in Rules 5, 29 and 34 in relation to him. 9.3 Subject to the consent of the Principal Employer and of the Trustees, a Trustee who is or becomes a director or employee of any company in which the Trustees hold shares or any other interest may retain for himself any resulting fees or remuneration notwithstanding that his retention of, or appointment to, that office or employment may be directly or indirectly due to the exercise or non-exercise of any votes by the Trustees. 10 TRUSTEE INDEMNITIES AND INSURANCE TRUSTEE INDEMNITIES AND INSURANCE 10.1 Subject to section 31 {trustees not to be indemnified for fines and civil penalties} and section 33 {investment powers: duty of care} 1995 Act, no Trustee or director of a corporate trustee shall as trustee of the Scheme or in respect of the exercise or purported exercise of or the omission of the exercise of his rights or powers in relation to the Scheme incur any personal responsibility or be liable for anything whatsoever except for breach of trust knowingly and intentionally committed or condoned by him which at the time of his commission or condonation is known by the Trustee to be a breach of trust. 10.2 The Principal Employer shall both before and after the winding-up of the Scheme indemnify each of the Trustees or director of a corporate trustee against all or any claims, costs, losses, damages, awards and expenses which he may pay or incur or which may be made or awarded against him as a trustee of the Scheme except for breach of trust knowingly and intentionally committed or condoned by the Trustee which at the time of his commission or condonation is known by the Trustee to be a 13 breach of trust to the extent that such claims, costs, losses, damages, awards and expenses cannot for any reason be met out of the Fund or a policy effected under Rule 10.3. 10.3 Subject to Rule 10.4 and section 31 1995 Act, the Trustees may effect any insurance or policy of indemnity in relation to acts or omissions or liabilities of themselves, their servants, agents or other persons (including employees of the Principal Employer) in connection with the Scheme and may pay the premiums for the insurance or policy and any related expenses from the Fund. 10.4 Such insurance or policy shall not require the Trustees or allow the insurer to claim under any indemnity from the Principal Employer to the Trustees in respect of the insured risk. 14 POWERS AND DUTIES OF TRUSTEESPOWERS AND DUTIES OF TRUSTEES 11 ADMINISTRATION AND MANAGEMENT ADMINISTRATION AND MANAGEMENT 11.1 The Trustees shall be the administrator of the Scheme for the purposes of Chapter I Part XIV 1988 Act. 12 TRUSTEES MEETINGS AND PROCEDURES TRUSTEES MEETINGS AND PROCEDURES 12.1 This Rule 12 is subject to section 32 1995 Act {decision of trustees and notices of meetings}. 12.2 The Trustees, or the officers of a corporate body which is sole Trustee, shall meet for the purpose of considering the affairs of the Scheme at least once a year. Subject to that, the meetings and procedures of a corporate body which is sole Trustee will be regulated by its governing document. In any other case Rules 12.3 to 12.6 apply. 12.3 The decisions of the Trustees and of any committee of the Trustees (established under Rule 13) are required to be taken by agreement of a majority of all of the Trustees or a majority of all of the committee of the Trustees. 12.4 A simple majority of the Trustees, or a simple majority of the members of a committee of the Trustees, must be present when any decision is so taken, but a Trustee who is not so present may subsequently make a decision of the other Trustees effective by signing a written record of it. 12.5 A decision recorded in writing and signed by all of the Trustees shall be effective as if it were a decision of a meeting of the Trustees. 12.6 Subject to Rules 12.1 - 12.5, the Trustees may make such regulations for the conduct of their business as they decide. 13 DELEGATION DELEGATION 13.1 Subject to Rule 13.2, the Trustees may with the consent of the Principal Employer delegate all or any of their powers, duties, trusts and discretions (including the power to delegate in this Rule 13.1) to any person on such terms, for such periods and at such remuneration (if any) as they think fit, but any remuneration for a Trustee must be authorised under Rule 8. 13.2 Section 34 1995 Act {power of investment and delegation} applies. 14 ADVISERS ADVISERS 14.1 The Trustees shall appoint Advisers so far as they are required to do so by section 47 1995 Act. The Trustees may appoint any Adviser when they are not required to do so by the 1995 Act. 15 14.2 Subject to sections 47 and 48 1995 Act, the Trustees may appoint or remove any Adviser on such terms as to remuneration and otherwise as they think fit. 14.3 The Trustees shall not seek or rely upon the advice of any Adviser unless he is appointed by the Trustees, but the Trustees may appoint an Adviser who also advises the Principal Employer or any Employer, provided they instruct the Adviser to notify the Trustees as soon as the Adviser becomes aware of any conflict of interest between the Trustees and the Principal Employer or any Employer. 14.4 The Trustees shall only seek or rely upon the advice of the Adviser who has been appointed as actuary under Rule 14.1 and in accordance with section 47(1)(b) 1995 Act in relation to those functions which are required to be exercised by such person under the 1995 Act. 14.5 Subject to Rules 14.3 and 14.4 and section 33 and section 34(4) 1995 Act {duty of care in relation to investment}, the Trustees may act in accordance with advice given by an Adviser and shall not be liable for any resulting loss. 15 EMPLOYMENT OF AGENTS AND STAFF EMPLOYMENT OF AGENTS AND STAFF 15.1 The Trustees may, with the consent of the Principal Employer, employ or engage such persons and on such terms as to remuneration and otherwise as they think fit to transact any business of the Scheme or to administer the Scheme. Except in the case of a Trustee, such person may, if he is acting in good faith, comply with the directions of the Trustees without being obliged to ascertain that those directions comply with this deed. 15.2 Any remuneration for a Trustee under Rule 15.1 must be authorised under Rule 8. 16 EXPENSES AND DEBTS16EXPENSES AND DEBTS 16.1 Unless the Principal Employer decides otherwise, all costs, charges and expenses incurred by the Trustees in connection with the Scheme and any remuneration of the Trustees shall be payable out of the Fund. 17 INVESTMENT INVESTMENT 17.1 The Trustees may invest the Fund, and may retain or transpose and vary any such investment, in any form of investment which they could make if they were a sole, absolute and beneficial owner of the Fund. The Trustees may appoint an investment manager who is authorised under the Financial Services Act 1986 to exercise their powers of investment. 17.2 An investment authorised by Rule 17.1 may involve a liability on the Fund, need not produce income or be authorised by law for the investment of trust moneys, and may be of a wasting or reversionary nature. 16 17.3 The Trustees may improve, repair or develop land or other property. 17.4 The Trustees may underwrite, sub-underwrite or guarantee the subscription of any stocks, shares, debentures, debenture stock, bearer securities or other investments and may deal in commodities, commodity futures, financial futures, traded options and derivatives of all kinds. 17.5 The following sections of the 1995 Act apply: (a) section 33 {investment powers: duty of care}; (b) section 34 {power of investment and delegation}; (c) section 35 {preparation and maintenance of a written statement of investment principles}; (d) section 36 {choosing investments}. 17.6 The Trustees may invest all or any part of the Fund in a common investment fund or in a unit trust, mutual fund or managed fund of an insurance company or in the purchase of shares in an investment trust which, in any of these cases, meets the requirements of sections 34-36 1995 Act in relation to the Scheme. 17.7 The Occupational Pension Schemes (Investment) Regulations 1996 {not more than 5% of the Fund to be invested in employer-related investments} apply. 17.8 The Trustees may hold assets either in the name of the Trustees or any of them or jointly with some other person or in the name of a nominee or custodian or sub-custodian. The Trustees may appoint a custodian of Fund assets on any terms including power to appoint sub-custodians and nominees without the approval of the Trustees. 17.9 At any time when the Trustees are a sole corporate Trustee and not a trust corporation, the Trustee may appoint another person to hold any real property in the Fund jointly with it. 18 INSURANCE OF BENEFITS INSURANCE OF BENEFITS 18.1 The Trustees may effect and deal with any Policy for the provision of any benefit payable under the Scheme. 18.2 The Trustees may appropriate any Policy in the Fund, except for a Policy representing additional voluntary contributions, to the provision of any benefit payable under the Scheme to any Beneficiary without his consent. 18.3 If a Policy is appropriated under Rule 18.2 then, so far as is consistent with section 67 1995 Act {restrictions on powers to alter schemes} 73 1995 Act {preferential 17 liabilities on winding-up} and the Preservation Requirements: (a) the Beneficiary in question shall not be entitled to any benefit except for the benefits payable out of the Policy; (b) no person shall have any right to resort to the Policy in priority to or equally with the Beneficiary; and (c) the provisions of this deed relating to the closure or winding-up, in whole or in part, of the Scheme shall have effect subject to this Rule 18.3. 18.4 The Trustees may purchase in the name of or assign to any Beneficiary any Policy for the provision of any benefit payable to that Beneficiary. 18.5 The consent of the Beneficiary to a purchase or assignment under Rule 18.4 shall not be required except in so far as his consent is required in order to comply with the Preservation Requirements, the Contracting-out Requirements or the requirements for Approval. 18.6 If a Policy is purchased or assigned under Rule 18.4 the Beneficiary in question shall immediately cease to have any rights under the Scheme to any benefit. 19 BANK ACCOUNTS BANK ACCOUNTS 19.1 The Trustees may keep any money received by them in a separate bank account kept by them at an institution authorised under the Banking Act 1987. 19.2 The Trustees may authorise any person to open and operate an account authorised by Rule 19.1 (including the drawing and endorsing of cheques). 20 BORROWING BORROWING 20.1 The Trustees may borrow money on any terms and conditions (including as to security). 21 ACCOUNTS AND AUDIT21 ACCOUNTS AND AUDIT 21.1 The Trustees shall obtain at such intervals as they decide (being intervals of not more than twelve months) accounts audited by the auditor of the Scheme and a statement from the auditor about contributions under the Scheme. 22 ACTUARIAL INVESTIGATIONS ACTUARIAL INVESTIGATIONS 22.1 The Trustees shall obtain at such intervals as they decide (being intervals of not more than three years) a valuation by the Actuary of the assets and liabilities of the Scheme. 23 INSURANCE OF FUND ASSETS INSURANCE OF FUND ASSETS 18 23.1 The Trustees may insure any assets against any risks and for any amounts. 19 DISCRETIONARY TRUST OF LUMP SUMSDISCRETIONARY TRUST OF LUMP SUMS 24 DISCRETIONARY TRUST OF LUMP SUMS DISCRETIONARY TRUST OF LUMP SUMS 24.1 Any lump sum benefit payable under the Scheme in respect of the death of a Beneficiary shall be held by the Trustees on trust to pay it within two years from the date of death to or for the benefit of such one or more of: (a) the Spouse of the Beneficiary; (b) any parent or grandparent of the Beneficiary; (c) any Dependant of the Beneficiary; (d) any brother or sister of the Beneficiary; (e) any descendant of any brother or sister of the Beneficiary; (f) any person or unincorporated body notified by the Beneficiary to the Trustees for the purpose of this Rule 24; (g) any person or unincorporated body beneficially interested under the intestacy or any testamentary disposition of the Beneficiary; and (h) the personal representatives of the Beneficiary and in such shares as the Trustees decide. 24.2 In the event of there being no person or unincorporated body known to the Trustees within the provisions of Rule 24.1 the benefit shall be retained by the Trustees for better securing the solvency of the Scheme. 24.3 The perpetuity period applicable to Rule 24.1 shall be 21 years from the death of the Beneficiary who has died or such longer period as is permitted by law. 20 ADDITIONAL VOLUNTARY CONTRIBUTIONSADDITIONAL VOLUNTARY CONTRIBUTIONS 25 ADDITIONAL VOLUNTARY CONTRIBUTIONS ADDITIONAL VOLUNTARY CONTRIBUTIONS 25.1 A Member may pay Additional Voluntary Contributions to the Scheme to secure additional benefits under arrangements to be made by the Trustees with the consent of the Principal Employer provided that he has given the Employer at least one month's notice in writing. 25.2 The benefits payable under Rule 25.1 shall be determined by the Trustees having regard to the advice of the Actuary and the amount representing the Additional Voluntary Contributions paid to the Scheme by the Member. 25.3 The Trustees shall comply with section 111 1993 Act, the requirements of Regulation 5 of the Retirement Benefit Schemes (Restriction on Discretion to Approve) (Additional Voluntary Contributions) Regulations 1993 and, where the Scheme is the "leading scheme" in relation to a Beneficiary, with the requirements of Regulation 6 of those Regulations so far as they concern main schemes. 21 PARTICIPATION OF EMPLOYERS, TRANSFERS AND WINDING-UPPARTICIPATION OF EMPLOYERS, TRANSFERS AND WINDING-UP 26 ADMISSION OF EMPLOYERS ADMISSION OF EMPLOYERS 26.1 Subject to Rule 26.2, the Principal Employer may admit to participation in the Scheme as an Employer any person either: (a) which is associated in business by shareholding or otherwise with the Principal Employer; or (b) which is not so associated but whose participation is acceptable to the Revenue for the purpose of Approval. 26.2 A person to be admitted under Rule 26.1 shall by deed in favour of the Trustees (whose agreement shall not be required): (a) covenant to observe and perform the provisions of the Scheme applicable to it as an Employer; (b) agree that the Principal Employer may make all decisions and exercise all discretions in relation to the Scheme under the 1995 Act on that person's behalf as though the Principal Employer were the sole employer participating in the Scheme; (c) agree that it will in relation to the Scheme: (i) exercise no right or discretion conferred on it by or under the 1995 Act without the prior written consent of the Principal Employer; (ii) exercise each right or discretion conferred on it by or under the 1995 Act as directed from time to time in writing by the Principal Employer; (iii) from time to time execute all such deeds, documents, agreements, consents or approvals for the purpose of complying with its obligations under Rule 26.2(c)(i) or (ii) as may be considered necessary or desirable by the Principal Employer; (iv) co-operate with the Principal Employer and the Trustees in providing information about, and access to, its employees from time to time; (v) if requested by the Principal Employer execute a deed irrevocably appointing the Principal Employer as its attorney to execute (in the name of that person or otherwise) from time to time any of the deeds, documents, agreements, consents or approvals specified in Rule 26.2(iii); 22 (vi) nominate the Principal Employer as the "appropriate person" to act for it for the purposes of section 21(9) 1995 Act {member-nominated trustees}; (vii) agree that the Trustees may consult the Principal Employer under section 35(5)(b) 1995 Act {statement of investment principles} to the exclusion of that person; (viii) nominate the Principal Employer as the representative of that person for the purposes of section 58(4)(a) 1995 Act. 26.3 The Principal Employer shall notify the Trustees of the admission of a new Employer as soon as practicable. 27 WITHDRAWAL OF EMPLOYER WITHDRAWAL OF EMPLOYER 27.1 An Employer shall cease to participate in the Scheme forthwith upon the happening of any of the following: (a) the effective date of a notice given by the Principal Employer to the Trustees terminating the participation of that Employer in the Scheme; (b) an Insolvency Event in relation to that Employer: (c) subject to Rule 26.1(b), that Employer ceasing to be associated in business with the Principal Employer for the purpose of Approval. 27.2 A Member who is an employee of the Former Employer shall cease to accrue benefits under the Scheme and shall cease to be a Member on the date on which the Former Employer becomes a Former Employer. The Member shall be entitled to such benefits in respect of his Membership to that date as the Trustees are required to provide in accordance with Rules 50 and 51 and the Preservation Requirements. 28 TRANSFERS TO THE SCHEME TRANSFERS TO THE SCHEME 28.1 Subject to Rules 28.2 and 28.3 the Trustees may, with the consent of the Principal Employer, accept a transfer payment from an Other Scheme relating to any Beneficiary or other person on terms that the Beneficiary (or other person) shall be entitled to such benefits under the Scheme as the Trustees after consulting the Actuary decide. 28.2 The Trustees will obtain a certificate from the Other Scheme showing any restriction of the lump sum benefits that the transfer payment may be used to provide and will comply with any such restrictions. 28.3 The Trustees will treat as contributions paid by a Beneficiary only that part of the 23 transfer payment certified as such by the Other Scheme. The Trustees will comply with any restrictions on refunds of a Beneficiary's contributions notified to them by the Other Scheme. 28.4 The Trustees may accept gifts and other transfers of assets to the Scheme and apply them in such manner as they decide within the purposes of the Scheme. 28.5 If the Trustees accept a liability to pay a Guaranteed Minimum Pension under Rule 28.1, the Trustees may revalue the accrued rights to the Guaranteed Minimum Pension by a method different from that used by the Other Scheme. 29 TRANSFERS FROM THE SCHEME TRANSFERS FROM THE SCHEME 29.1 In respect of a Beneficiary or a group of Beneficiaries the Trustees may with the consent of the Principal Employer transfer to an Other Scheme part of the Fund. The amount of that part shall: (a) be determined by the Trustees after consulting the Actuary; (b) subject to Rules 29.1(c) and 29.4, be equal in value to the benefits which the Trustees are required to provide to the Beneficiary or group of Beneficiaries under the Scheme in respect of the period of Membership to which the benefits relate; and (c) where the accrued rights of the Beneficiary or group of Beneficiaries to Guaranteed Minimum Pensions are not transferred, exclude the value of those Guaranteed Minimum Pensions. 29.2 A transfer made under Rule 29.1 shall be made on the basis that the Beneficiary or group of Beneficiaries shall become entitled under the Other Scheme to such benefits (contingent or otherwise) as the Trustees agree with the Other Scheme. 29.3 When a transfer is made under Rule 29.1: (a) except for Guaranteed Minimum Pensions where Rule 29.1(c) applies, the Beneficiary shall immediately cease to be entitled to any benefits under the Scheme; and (b) the Trustees shall not be responsible for or required to enquire into the application of the assets so transferred. 29.4 (a) Subject to Rule 29.4(b) and Rule 29.4(c), the value of the benefits to be valued under Rule 29.1(b) shall not exceed the amount calculated by the Actuary in the manner prescribed by regulations for the purpose of section 56(3) 1995 Act {minimum funding requirement}. (b) Subject to Rule 5.2 the Principal Employer may increase the value attributable 24 to the benefits described in Rule 29.1 or increase those benefits for the purpose of determining the amount to be transferred under Rule 29.1. (c) Subject to Rule 5.2 if on or before 31 March 2000 there is a transfer to an Other Scheme of part of the Fund as a result of the sale or re-organisation of the business of Icom Solutions Limited (Company Number 1641088) then the Trustees shall increase the value attributable to the benefits described in Rule 29.1 in respect of those IMI Transferees who transfer having regard to the size of the IMI Transfer Amount and the basis on which it was calculated. 29.5 The consent of the Beneficiary to a transfer under Rule 29.1 shall not be required except insofar as his consent is required to comply with the Preservation Requirements, the Contracting-out Requirements or the requirements for Approval. 29.6 Sections 93 to 101 1993 Act {right to a cash equivalent} apply to the Scheme. 29.7 The amount of any Cash Equivalent payable out of the Fund shall be calculated using the same methods and assumptions: (a) as are used for the purpose of applying the Minimum Funding Requirement to the Scheme, and (b) as they apply to the Beneficiary in question provided that with the consent of the Principal Employer other methods and assumptions may be used on the advice of the Actuary from time to time 29.8 Where a Beneficiary has a right to take a Cash Equivalent under section 95 1993 Act in respect of part of his benefits and exercises that right, the Trustees may treat the exercise of that right as extending to the remainder of his benefits. 29.9 When giving effect to Rule 29, the Trustees shall: (a) ascertain from the trustees or administrator of the Other Scheme the Section and Act under which it is approved; (b) provide a certificate if necessary showing any restriction on the lump sum benefits that the transfer payment be used to provide; (c) provide a certificate showing the part of the transfer payment which should be treated as the Beneficiary's contributions in the Other Scheme and any restrictions on refunds of such contributions; and (d) provide to the Other Scheme a copy of any court order made in respect of the Beneficiary under the Divorce requirements; and (e) provide the Other Scheme with any further relevant information they may 25 request. 30 CLOSING THE SCHEME30CLOSING THE SCHEME 30.1 On the first of the dates specified in Rule 30.2: (a) all the Members shall cease to accrue benefits and shall cease to be Members; and (b) the Scheme will be continued as a closed fund; 30.2 The dates are: (a) the date on which the Principal Employer ceases to participate in the Scheme in consequence of Rule 27.1(b); (b) the date on which the Principal Employer gives notice to the Trustees to terminate the Scheme; and (c) if the perpetuity rules apply, the date two years before the expiry of the perpetuity period specified in Rule 32. 30.3 At any time while the Scheme is being continued as a closed fund under Rule 30.1(b), the Trustees may wind-up the Scheme in accordance with Rule 34 and, if the perpetuity rules apply, shall do so on such date as is two years before the expiry of the perpetuity period specified in Rule 32; and 30.4 Until the Scheme is completely wound up all the provisions of the Scheme and powers exercisable under the Scheme, including Rule 4.1, shall continue to operate. 31 SUBSTITUTION OF PRINCIPAL EMPLOYER SUBSTITUTION OF PRINCIPAL EMPLOYER 31.1 If a person (the "New Principal Employer"): (a) executes a deed in favour of the Trustees (whose agreement shall not, subject to any operation of Rule 33, be required) under which: (i) he undertakes the liabilities of the Principal Employer under the Scheme; and (ii) covenants to observe and perform the provisions of the Scheme applicable to him as an Employer; and (b) obtains the consent of the person (the "Old Principal Employer") who is the Principal Employer immediately before the operation of Rule 31.2; and (c) in respect of whom the Revenue approves the operation of Rule 31.2 or the 26 operation of Rule 31.2 will not prejudice Approval then Rule 31.2 applies. 31.2 If the requirements of Rule 31.1 are met, then with effect from such date as the Old Principal Employer and the New Principal Employer agree: (a) the Old Principal Employer shall be released from all obligations in relation to the Scheme which apply to it other than as an Employer; and (b) the Rules and all other provisions of the Scheme shall take effect as if the New Principal Employer had been and is the Principal Employer. 32 PERPETUITIES PERPETUITIES 32.1 If the perpetuity rules apply the perpetuity period applicable to the Scheme shall be 80 years from the date of commencement of the Scheme or such longer period as may be permitted by law. 33 TRANSFER OF POWERS33 TRANSFER OF POWERS 33.1 If the Principal Employer ceases to participate in the Scheme following an Insolvency Event in relation to the Principal Employer then all the powers of the Principal Employer (including the Old Principal Employer) in relation to the Scheme shall be exercisable by the Trustees in the place of the Principal Employer. In that event Rule 2.4 shall apply to those powers in the place of Rule 2.3. 34 WINDING-UP WINDING-UP 34.1 Subject to the payment of expenses and remuneration authorised by Rules 8 and 16 and to schedule 2, on the winding-up of the Scheme the Trustees shall apply such part of the Fund in accordance with section 73 and section 74 1995 Act as is necessary to satisfy the liabilities of the Scheme described in section 73(3) 1995 Act. 34.2 If the Scheme is wound-up on or before 31 March 2000 the Trustees shall augment the benefits for and in respect of the IMI Transferees who are Beneficiaries at the date of the commencement of the winding-up having regard to the size of the IMI Transfer Amount and the basis on which it was calculated. 34.3 To the extent that any liabilities have not been satisfied under Rules 34.1 and 34.2, the Principal Employer may in its absolute discretion secure increases to the benefits provided under the Scheme to the extent permitted by the assets remaining and Schedule 1. 34.4 Subject to section 76 1995 Act, the Trustees shall pay all of the Fund remaining after the application of Rules 34.1, 34.2 and 34.3 to the Employers in such proportions as the Trustees decide. 27 GENERALGENERAL 35 NOTICES NOTICES 35.1 Subject to Rules 35.2, 35.3 and 35.4, any notice to be given to a person under the Rules may be given by delivering it to him or by leaving it at his proper address or by sending it to him by post. 35.2 For the purposes of Rule 35.1 the proper address of any Beneficiary is his latest address known to the Trustees. 35.3 Any notice given to any person under Rule 35.1 shall be deemed to have been received by him on the day on which it is so given or, in the case of sending it by post, on the day after it is sent. 35.4 Any notice to be given to a Beneficiary under the Rules shall be deemed to have been received by the Beneficiary if any procedure has been followed which appears to the Trustees to be adequate to draw his attention to it. 36 PRODUCTION OF EVIDENCE PRODUCTION OF EVIDENCE 36.1 Rule 36.3 applies to an Employee, Member or other Beneficiary if he: (a) fails to undergo such medical examination as the Trustees request; (b) fails to provide such of the information described in Rule 36.2 as is requested by the Trustees; or (c) provides information purporting to be information described in Rule 36.2 but which is incorrect; (d) is shown by any medical examination to be suffering from any ill health. 36.2 The information is: (a) evidence as to the Employee's, Member's or other Beneficiary's age, health and marital status; (b) such other information as the Trustees request for the purpose of admission to Membership or the provision of benefits under the Scheme; (c) the results of any medical examination requested by the Trustees. 36.3 In respect of an Employee, Member, or other Beneficiary to whom this Rule 36.3 applies the Trustees may: (a) refuse to admit the Employee to Membership; or 28 (b) modify or restrict the benefits provided for or in respect of the Employee, Member, or other Beneficiary. 36.4 The Trustees may rely on: (a) any information supplied by or on behalf of an Employee, Member, or other Beneficiary to any of the Employers; or (b) the results of a medical examination undergone by an Employee, Member, or other Beneficiary for any of the Employers or for any Insurance Company. 37 ASSIGNMENT, FORFEITURE AND BANKRUPTCY ASSIGNMENT, FORFEITURE AND BANKRUPTCY 37.1 Section 91 1995 Act {inalienability of pensions} applies. 37.2 Section 92 1995 Act {forfeiture and discretionary trust of pension} applies. 37.3 If a Beneficiary is convicted of one or more offenses within the terms of sections 92(4)(a) and (b) 1995 Act, the pension of that Beneficiary shall, if the Principal Employer so decides, be forfeited. 37.4 Subject to sections 93(2)-(5) 1995 Act, if a Beneficiary incurs a monetary obligation to any of the Employers arising out of a criminal, negligent or fraudulent act or omission by him, then that Beneficiary's entitlement, or accrued right, to a pension under the Scheme shall be reduced by an amount equal to the monetary obligation which shall be paid to the Employer. 38 INCAPACITY AND MINORITY INCAPACITY AND MINORITY 38.1 Subject to section 92 1995 Act if, in the opinion of the Trustees, a Beneficiary is incapable of acting by reason of illness, mental disorder, minority or otherwise: (a) the Trustees may retain any money due to the Beneficiary for any period and then apply or pay it under Rule 38.1 (b) - (e); (b) the Trustees may apply the money for the benefit of the Beneficiary or his estate or may pay it to some other person who is or appears to the Trustees to be responsible for his care; (c) the receipt of the person to whom the Trustees pay the money will be a discharge to the Trustees for it; (d) the Trustees will not be responsible for or obliged to supervise the way in which money paid under this Rule 38 is used; and (e) the Trustees may make for the Beneficiary any choice which he has under the 29 Scheme in respect of the money. 39 DISCLOSURE DISCLOSURE 39.1 The Disclosure Requirements apply to the Scheme. 39.2 The Divorce Requirements apply to the Scheme. 40 RESOLUTION OF DISPUTES RESOLUTION OF DISPUTES 40.1 The Trustees must comply with section 50 1995 Act, but, subject to that, Rule 2.5 applies. 41 INFORMATION FROM PARTICIPATING EMPLOYERS INFORMATION FROM PARTICIPATING EMPLOYERS 41.1 Each Employer shall supply to the Principal Employer and the Trustees any information either of them may request in respect of itself or its Employees who are Members or prospective Members. 42 UNCLAIMED MONEY UNCLAIMED MONEY 42.1 If a Beneficiary fails to claim his benefit within the shortest of the periods referred to or mentioned in section 92(5) 1995 Act it shall be forfeited but the Trustees may at their discretion pay all or any part of such benefit not withstanding the forfeiture. 43 TAXATION TAXATION 43.1 The Trustees may deduct from any payment under the Scheme any tax for which they may be liable in respect of it. 30 ELIGIBILITY AND ADMISSIONELIGIBILITY AND ADMISSION 44 ELIGIBILITY AND ADMISSION ELIGIBILITY AND ADMISSION 44.1 Subject to Rules 44.1(b) and 44.1(c) the eligibility requirements for an Employee are that: (a) he is less than 60 years old; (b) he is not contributing to a Personal Pension Scheme which is inconsistent with Membership for the purpose of Approval; (c) he is a permanent Employee; (d) he undergoes such medical examination and medical investigation of the Beneficiaries who would be entitled to benefits under the Scheme as a result of his Membership as the Principal Employer or the Trustees require; and (e) the person requiring the medical examination or medical investigation under Rule 44.1(d) decides that the results are satisfactory. 44.2 An Employee who first becomes eligible for Membership under Rule 44.1 shall be admitted to participation in the Scheme with effect from the date specified in Rule 44.3 if: (a) he satisfies all the eligibility requirements in Rule 44.1; and (b) he properly completes and gives to the Trustees an application in the form required by the Trustees and supplies to the Trustees such information as they require. 44.3 The date is the first day of the Employee's employment with this Employer or such later date as the Trustees shall decide in their discretion and notify to the Employee. 44.4 An Employee who does not join the Scheme when he first becomes eligible may not join the Scheme at a later date, unless the Principal Employer so permits and the Trustees give their consent. 44.5 An Employee who becomes eligible for Membership under Rule 44.4 may join the Scheme with effect from the date specified by the Principal Employer, subject to him satisfying the requirements in Rule 44.6. 44.6 The requirements mentioned in Rule 44.5 are: (a) he is not contributing to a Personal Pension Scheme which is inconsistent with Membership for the purpose of Approval; 31 (b) he undergoes such medical examination as the Principal Employer or the Trustees require; and (c) the person requiring the medical examination under Rule 44.6(b) decides that the result of it is satisfactory. 44.7 The Principal Employer may deem an Employee who is not eligible for Membership under Rule 44.1 to be eligible under Rule 44.1 and the Employee who is deemed to be eligible shall be admitted to participation in the Scheme on such terms as the Principal Employer and the Trustees shall agree. 44.8 The Principal Employer may by notice in writing direct that with effect from the date specified in the notice, any person or class of person shall not be eligible for Membership. 44.9 The Principal Employer may by notice in writing to the Trustees direct that, with effect from the date specified in the notice, no Employees shall become Members. 44.10 In case of any doubt or dispute as to whether or not any person is or is not eligible for Membership the decision of the Principal Employer shall be final and binding on all parties. 44.11 An Employee shall be a Life Assurance Member from the first day of his employment with his Employer to the date specified in Rule 44.12. He will pay no contributions and will be entitled only to benefits under Rule 61.7. For the purposes of only Rule 61.7, he will be treated as a Member. 44.12 The date is the day on which the Employee satisfies both of the conditions in Rule 44.2 or such earlier date as the Trustees and Principal Employer shall agree. CONTRIBUTIONSCONTRIBUTIONS 45 EMPLOYERS' CONTRIBUTIONS EMPLOYERS' CONTRIBUTIONS 45.1 Subject to Rules 45.2, 45.3 and 45.4, each Employer shall pay such annual or other contributions to the Fund as the Principal Employer shall decide. 45.2 The rates of contribution payable by each Employer shall not be less than the rates shown in the current Schedule of Contributions (if any) applying to it. 45.3 The Employer must pay the contributions shown in the current Schedule of Contributions (if any) applying to it on or before the dates shown in the Schedule of Contributions. 46 MEMBER CONTRIBUTIONS MEMBER CONTRIBUTIONS 46.1 (a) Subject to Rule 46.3, each Member shall pay contributions to the Fund at the 32 rates set out in Rule 46.2 provided that in relation to a Member who is or has been in Part-time Pensionable Service his contributions shall be calculated at such rates but by reference to Pro-rated Basic State Pension, instead of by reference to Basic State Pension, for each period of Part-time Pensionable Service. (b) A Member may elect to pay additional voluntary contributions under Rule 25. 46.2 The rates of contributions mentioned in Rule 46.1(a) are: (a) 2.5% of the amount which is calculated as six times the Basic State Pension or, if less, his Pensionable Pay less the Basic State Pension; and (b) 6.5% of the amount which is calculated as his Pensionable Pay less seven times the Basic State Pension. 46.3 The Principal Employer may increase, reduce or waive the contributions of a Member. 46.4 Contributions under Rule 46.1 shall be deducted from a Member's pay by his Employer unless the Principal Employer decides that they may be paid in some other manner. 33 TERMINATION OF MEMBERSHIP AND BROKEN SERVICETERMINATION OF MEMBERSHIP AND BROKEN SERVICE 47 TERMINATION OF MEMBERSHIP TERMINATION OF MEMBERSHIP 47.1 A Member who: (a) subject to Rule 55.1, reaches his Normal Retirement Date; (b) ceases to be an Employee; (c) withdraws from the Scheme having given his Employer not less than 2 months' notice in writing; (d) contributes to a Personal Pension Scheme which is inconsistent with his continued Membership for the purpose of Approval; or (e) is excluded from Membership by the Principal Employer; shall cease to be a Member. 47.2 As soon as practicable after receiving notice from a Member of his withdrawal from the Scheme, the Employer shall give notice of the withdrawal to the Trustees. 48 ABSENCE ABSENCE 48.1 If a Member is absent from work for his Employer: (a) on paid leave for 3 months or more; or (b) on unpaid leave for more than 20 consecutive days the Employer may terminate the Employee's Membership provided that a Member who is absent on unpaid leave shall continue to be entitled to benefits under Rule 61 and for the purpose of only Rule 61 he will be treated as a Member. 48.2 Subject to Rule 48.3 a Member who is absent from work for his Employer because of illness or injury may continue in Membership in respect of any period during which he is receiving remuneration from his Employer or permanent health insurance benefits from the PHI Scheme but the Trustees and the Principal Employer may change the terms as to contributions and benefits applying to him. 48.3 If a Member is absent from work for his Employer because of illness or injury and the Member does not qualify for benefits under the PHI Scheme his Membership shall terminate with effect from the date that his entitlement to remuneration from his Employer expired but he shall continue to be entitled to benefits under Rule 60 and for the purpose of only Rule 61 he will be treated as a Member. 34 48.4 If a Member who is absent from work for her Employer either: (a) in exercise of her right to maternity leave pursuant to Part VIII 1996 Act; or (b) during any period when she has the right to return to work pursuant to 1996 Act, and has informed her Employer of her intention to exercise her right to return to work pursuant to Part VIII 1996 Act, may continue in Membership for the period defined in Rule 48.5. 48.5 The defined period is the shorter of: (a) the period of absence under Rule 48.4; and (b) the period from the commencement of the absence under Rule 48.4 until the Service of the Member terminates. 48.6 Subject to the provisions of Rule 48.7, the period defined in Rule 48.5 will be Pensionable Service of the Member in question and benefits will continue to accrue on the same basis and subject to the same terms and conditions which would otherwise have applied had she been working normally. 48.7 The provisions are: (a) the Member will be required to contribute at the rate of Member Contributions applicable to her immediately prior to the absence on the basis of the Member's remuneration paid by her Employer for such period; (b) the Member's Employer will be required to contribute at the rate which applied in respect of her immediately prior to the absence; and (c) during any period of the absence when the Member receives no contractual remuneration from her Employer (and has ceased to receive statutory maternity pay (as defined in section 164 Social Security Contributions and Benefits Act 1992) from her Employer) the provisions of Rule 48.7 (a) and (b) above shall not apply and such period will not be Pensionable Service. 49 RESUMPTION OF MEMBERSHIP RESUMPTION OF MEMBERSHIP 49.1 Subject to Rules 49.2, 49.3 and 49.4, a person who has ceased to be a Member under Rule 47 or 48 may be re-admitted under Rule 44.2 if he satisfies all the eligibility requirements in Rules 44.1 and 44.6. 49.2 A person shall be re-admitted only with the Principal Employer's consent. 35 49.3 Re-admission shall be subject to such conditions or special arrangements as the Principal Employer may impose. 49.4 If a person ceases to be a Member and is re-admitted under Rule 49.1 then, except as required by the Preservation Requirements and the Contracting-out Requirements or otherwise stipulated by the Principal Employer: (a) the benefits for each continuous period of Pensionable Service ending before the Member's Normal Retirement Date will be treated and calculated separately under Rules 50-52; and (b) the benefits for the continuous period of Pensionable Service, if any, ending on the Member's Normal Retirement Date will be treated and calculated separately under Rule 53. 36 WITHDRAWAL FROM PENSIONABLE SERVICE AND PRESERVATION OF BENEFITSWITHDRAWAL FROM PENSIONABLE SERVICE AND PRESERVATION OF BENEFITS 50 ENTITLEMENT TO SHORT SERVICE BENEFIT ENTITLEMENT TO SHORT SERVICE BENEFIT 50.1 When a Member ceases to be a Member under Rules 27.2, 30.1, 47.1 or 48.1 his Pensionable Service ceases. 50.2 After his Membership ceases a person will pay no further contributions and will accrue no further benefits. 50.3 If the Member (a) ceases to be a Member before his Normal Retirement Date; and (b) has completed 2 years' Qualifying Service when he ceases to be a Member or a transfer payment in respect of his rights under a Personal Pension Scheme has been received under Rule 28 he will be entitled to Short Service Benefit calculated in accordance with Rule 51 and the Preservation Requirements. 50.4 If a Member: (a) ceases to be a Member before his Normal Retirement Date; and (b) has completed less than 2 years' Qualifying Service when he ceases to be a Member, Rule 52 will apply. 51 CALCULATION OF SHORT SERVICE BENEFIT CALCULATION OF SHORT SERVICE BENEFIT 51.1 Subject to Rule 51.2, unless a Member is entitled to an immediate pension under Rules 53 or 54 or elects to transfer his Cash Equivalent under Rule 29, a deferred pension will be payable from his Normal Retirement Date. The amount will be calculated under Rule 53 but by reference to his Final Pensionable Pay and Pensionable Service at the date his Membership ends. 51.2 A Former IMI Member or a Supplementary Member who is not entitled to an immediate pension under Rules 53 or 54 and who does not elect to transfer his Cash Equivalent under Rule 29 is entitled to a deferred pension at age 60. The amount will be calculated under Rule 51.1. 51.3 A deferred pension calculated under Rules 51.1 and 51.2 will be re-valued during the period between the date Membership ends and the deferred pension begins to be paid. The Guaranteed Minimum Pension will be re-valued in accordance with the 37 Contracting-out Requirements as applied by schedule 2 and the balance will be re-valued in accordance with the Preservation Requirements. 51.4 A deferred pension calculated under Rule 51.1 will be payable before the Normal Retirement Date in the circumstances set out in Rules 55.2 but will be reduced by the amount advised by the Actuary to take account of early payment in accordance with Rule 55.7. 51.5 A deferred pension calculated under Rule 51.2, which is payable before age 60 in the circumstances set out in Rule 55.2(c), will be reduced by the amount advised by the Actuary to take account of early payment in accordance with Rule 55.7. 51.6 A deferred pension may be payable after the Normal Retirement Date in the circumstances set out in Rule 56 and subject to the Preservation Requirements. 52 MEMBERS WITH LESS THAN 2 YEARS' QUALIFYING SERVICE MEMBERS WITH LESS THAN 2 YEARS' QUALIFYING SERVICE 52.1 Subject to Rule 52.2, a Member to whom Rule 50.1 applies before he has completed 2 years' Qualifying Service under the Preservation Requirements will receive a refund of his contributions (including Additional Voluntary Contributions) paid or transferred into the Fund under Rule 28, adjusted under Rule 52.2. 52.2 A refund under Rule 52.1 will be reduced by: (a) the certified amount of any Contributions Equivalent Premium paid by the Trustees to the Secretary of State under the 1993 Act; and (b) the amount of any tax for which the Trustees are liable in respect of the refund. BENEFITS ON RETIREMENTBENEFITS ON RETIREMENT 53 NORMAL RETIREMENT PENSION NORMAL RETIREMENT PENSION 53.1 A Member shall be entitled to receive an annual pension from his Normal Retirement Date at the rates specified in Rule 53.2 or Rule 53.3. 53.2 Subject to Rules 49.4 and 53.3, the rate shall be 1/60th of the Member's Final Pensionable Pay for each completed year and month of Pensionable Service. 53.3 Subject to Rule 49.4, if the Member is a Supplementary Member the rate shall be 1/48th of the Supplementary Member's Final Pensionable Pay for each year and month of Pensionable Service completed on or after 5 January 1996. 54 {NO TEXT IN RULE 54} {NO TEXT IN RULE 54} 38 55 EARLY RETIREMENT EARLY RETIREMENT 55.1 (a) Subject to Rules 55.1(b) and 55.1(c) a Member may with the consent of the Principal Employer retire from Service on immediate pension at any time after he reaches age 50. (b) Subject to Rules 55.1(c) a Former IMI Member or Supplementary Member may retire from Service without the consent of the Principal Employer on an immediate pension at any time after he reaches age 60. (c) A Former IMI Member or a Supplementary Member who joined the IMI Pension Fund before 7 November 1987 may retire from Service without the consent of the Principal Employer on an immediate pension at any time after he reaches age 55. 55.2 (a) Subject to Rules 55.2(b) and Rule 5.2(c) a Deferred Pensioner may with the consent of the Principal Employer elect to start receiving his pension under Rule 51 at any time between his 50th birthday and his Normal Retirement Date. (b) In Rule 55.2(a) the consent of the Principal Employer will not be required in the case of a Deferred Pensioner who was a Former IMI Member or Supplementary Member and who makes his election after he reaches age 60. (c) In Rule 55.2(a) the consent of the Principal Employer will not be required in the case of a Deferred Pensioner who was a Former IMI Member or Supplementary Member, who joined the IMI Pension Fund before 7th November 1987 and who makes his election after he reaches age 55. 55.3 (a) Subject to Rules 55.3(b), 55.3(c) and 55.8 a Former IMI Member or Supplementary Member who retires from Service at the request of his Employer shall receive an immediate pension. (b) A Former IMI Member must have attained a minimum age and completed a minimum period of Pensionable Service as set out in the following table to be entitled to a pension under Rule 55.3(a): AGE 50 51 52 53 54 55 56 57 58 59 60 years - ---------------------------------------------------------------------------------------------------------- PENSIONABLE SERVICE 20 18 16 14 12 10 9 8 7 6 5 years - ----------------------------------------------------------------------------------------------------------

(c) A Supplementary Member must have attained age 50 to be entitled to a pension under Rule 55.3(a). 55.4 Subject to Rule 55.5 the annual rate of the pensions mentioned in Rule 55.1 shall be 39 calculated under Rule 53 but by reference to his Pensionable Pay at the termination of his Pensionable Service and his Pensionable Service. 55.5 (a) Subject to Rules 55.5(b), 55.5(c) and 55.5(d) the pensions mentioned in Rule 55.4 will be reduced as advised by the Actuary to take account of early payment. (b) When a Former IMI Member or Supplementary Member retires from Service under Rule 55.1(a) and has completed more than 2 years' Pensionable Service the reduction under Rule 55.5(a) will be calculated by reference to each year by which the Member's retirement from Service precedes age 60. If he retires at age 60 or more, there will be no reduction. (c) Subject to Rule 55.5(d) when a Former IMI Member or Supplementary Member who joined the IMI Pension Fund before 7th November 1987 retires from Service under Rule 55.1(a) the reduction under Rule 55.5(a) will be calculated by reference to each year by which the Member's retirement from Service precedes age 55. If he retires at age 55 or more, there will be no reduction. (d) In the case of a Former IMI Member or Supplementary Member who joined the IMI Pension Fund before 7th November 1987 and who is male, Rule 55.5(c) will apply only to benefits attributable to his Pensionable Service completed after 17th May 1990. Rule 55.5(b) will apply to benefits attributable to his Pensionable Service completed on or before 17th May 1990. 55.6 Subject to Rule 55.7, the annual rate of pension mentioned in Rule 55.2 shall be calculated under Rule 53 but by reference to the Member's Pensionable Pay at the termination of his Pensionable Service and his Pensionable Service and including revaluation under Rule 51.3. 55.7 (a) Subject to Rules 55.7(b), 55.7(c) and 55.7(d) the pensions mentioned in Rule 55.6 will be reduced as advised by the Actuary to take into account of early payment. (b) When a Deferred Pensioner who was a Former IMI Member or Supplementary Member starts receiving his pension under Rule 55.2(a) and has completed more than 2 years' Pensionable Service the reduction under Rule 55.7(a) will be calculated by reference to each year by which the date of commencement of his pension precedes age 60. If he starts receiving his pension at age 60 or more, there will be no reduction. (c) Subject to Rule 55.7(d) when a Deferred Pension who was a Former IMI Member or Supplementary Member and who joined the IMI Pension Fund before 7th November 1987 starts receiving his pension under Rule 55.2 the reduction under Rule 57.5(a) will be calculated by reference to each year by which the date of commencement of his pension precedes age 55. If he starts 40 receiving his pension at age 55 or more, there will be no reduction. (d) In the case of a Deferred Pensioner who was a Former IMI Member or Supplementary Member, who joined the IMI Pension Fund before 7th November 1987 and who is male, Rule 55.7(c) will apply only to benefits attributable to his Pensionable Service completed after 17th May 1990. Rule 55.7(b) will apply to benefits attributable to his Pensionable Service completed on or before 17th May 1990. 55.8 The annual rate of pension mentioned in Rule 55.3(a) shall be calculated under Rule 53 but by reference to his Pensionable Pay at the termination of his Pensionable Service and his Pensionable Service and there shall be no reduction for early payment. 56 LATE RETIREMENT LATE RETIREMENT 56.1 A Member who with the consent of the Employer remains in employment with an Employer after his Normal Retirement Date shall cease to be a Member under Rule 47.1 and subject to Rule 56.2 shall receive a pension on the date he retires from Service. 56.2 A Member other than a Class A Member (as defined in schedule 1) may choose (a) to receive the pension mentioned in Rule 56.4 and if he so opts a lump sum in accordance with Rule 57 from his Normal Retirement Date or to defer receiving the pension and if he so opts a lump sum in accordance with Rule 57 until a date no later than the date he retires or his 75th birthday whichever is earlier; or (b) to be paid a lump sum in accordance with Rule 57 at any time on or after his Normal Retirement Date and postpone receipt of his residual pension until a date no later than the date he retires or his 75th birthday whichever is earlier. 56.3 A Deferred Pensioner may give notice in writing to the Trustees before his Normal Retirement Date that he elects to start receiving his pension at a date after his Normal Retirement Date and no later than the date on which he ceases to be in employment. 56.4 A pension which is postponed under Rules 56.1 to 56.3 will be calculated under Rule 53 but will be increased as advised by the Actuary to take account of late receipt. 57 LUMP SUM ON RETIREMENT LUMP SUM ON RETIREMENT 57.1 A Member or Deferred Pensioner may elect, by giving the Trustees notice in writing before his pension becomes payable, to be paid a lump sum in place of part of his pension. The maximum amount of the lump sum will be either (a) the initial amount of the pension at the date it is due to be paid multiplied by 41 2.25; or (b) such greater amount as the Trustees permit. 57.2 Subject to Rule 56.2 the lump sum will be payable on the date when the pension begins to be paid. 57.3 The reduction in pension to take account of the lump sum will be calculated by the Trustees on a basis certified as reasonable by the Actuary. 57.4 The Trustees may allow a Member who is in exceptional circumstances of serious ill-health to commute the whole of his pension in excess of his Guaranteed Minimum Pension for a lump sum. 57.5 The Trustees may commute a Trivial Pension for a lump sum. PAYMENT OF PENSIONSPAYMENT OF PENSIONS 58 TIMING TIMING 58.1 A pension will begin to be paid on the day of the event giving rise to the pension, unless the Trustees notify the recipient in advance of some other date. 58.2 The first payment to a Pensioner (but not a Spouse, Dependant, Nominated Dependant or Child) will include a proportionate payment for the month in which the pension became payable. 58.3 Pensions will be paid monthly in advance unless the Trustees notify the recipient in advance that some other interval (not exceeding 12 months) will apply. 59 DURATION DURATION 59.1 Subject to Rule 65.2 relating to Child's Allowance, a pension will be payable from the day stipulated in Rule 58.1 for life. 59.2 The last payment will be that which is payable on or immediately before the date of death or (in the case of a Child's Allowance) earlier termination and will not be apportioned. 60 METHOD AND INCREASES METHOD AND INCREASES 60.1 Every pension and lump sum will be payable from any office nominated by the Trustees to the bank account of the Beneficiary or in any other manner the Trustees decide. 60.2 All Guaranteed Minimum Pensions in course of payment will be increased in accordance with the Contracting-out Requirements. 42 60.3 All pensions in excess of Guaranteed Minimum Pensions in course of payment will be increased at each 1 January at the rate 5% per annum compound or, if less, the annual rate of increase in the Index as determined at 1st September in the preceding year. 43 BENEFITS ON DEATHBENEFITS ON DEATH 61 DEATH OF MEMBER DEATH OF MEMBER 61.1 On the death of a Member benefits will be paid under Rules 61.2-61.4. 61.2 (a) A lump sum will be payable equal to 4 times the Member's Pensionable Pay at the date of his death; (b) Rule 24 {discretionary trust of lump sums} applies. 61.3 (a) If the Member leaves a Spouse, the Spouse will be paid a pension for life (adjusted under Rule 64). The amount will be one-half (or in the case of the death of a Supplementary Member, two-thirds) of the deferred pension which would have accrued to the Member if his Membership had continued up to Normal Retirement Date but less any amount payable under Rule 61.3(b). The pension will be calculated by reference to the Member's Pensionable Pay at the date of his death. (b) The widow's or widower's Guaranteed Minimum Pension will be paid to the person entitled to it under section 17 1993 Act. 61.4 If the Member leaves no Spouse, the Trustees may, at their absolute discretion, pay a pension for life to such Nominated Dependants and in such proportion (if more than one) as they see fit. The amount of pension payable to such Nominated Dependants in total will be one-half (or in the case of the death of a Supplementary Member, two-thirds) of the deferred pension which would have accrued to the Member if his Membership had continued up to his Normal Retirement Date. The pension will be calculated by reference to the Member's Pensionable Pay at the date of his death. 61.5 Subject to Rule 61.6 if the Member leaves an Eligible Child, a Child's Allowance will be payable under Rule 65. 61.6 (a) Subject to Rule 61.6(b), if a Member leaves no Spouse and no pension is payable under Rule 61.4 and there is an Eligible Child, the Child's Allowance payable under Rule 65 will be doubled. (b) If a Supplementary Member leaves no Spouse and no pension is payable under Rule 61.4 and there is an Eligible Child, the Child's Allowance payable under Rule 65 will be increased to the amount of the deferred pension which would have accrued to the Supplementary Member if his Membership had continued up to his Normal Retirement Date. 61.7 (a) On the death of a Life Assurance Member there shall be payable a lump sum of four times the Life Assurance Member's Basic Salary at the date of his death; and 44 (b) Rule 24 applies. 62 DEATH OF PENSIONER DEATH OF PENSIONER 62.1 On the death of a Pensioner benefits will be paid under Rules 62.2-4. 62.2 (a) If the Pensioner dies within five years after his pension began a lump sum will be payable equal to the sum of the pension payments which would have been received during the remainder of the five year period, disregarding prospective increases. (b) Rule 24 {discretionary trust of lump sums} applies. 62.3 (a) If the Pensioner leaves a Spouse, the Spouse will be paid a pension for life (adjusted under Rule 64). The amount will be one-half (or in the case of a Pensioner who was a Supplementary Member, two-thirds) of the Member's pension as it would have been at the date of his death but less any amount payable under Rule 62.3(b). (b) The widow's or widower's Guaranteed Minimum Pension will be paid to the person entitled to it under section 17 1993 Act. 62.4 If the Pensioner leaves no Spouse the Trustees may, at their absolute discretion, pay a pension for life to such Nominated Dependants and in such proportion (if more than one) as they see fit. The amount of pension payable to such Nominated Dependants in total will be one-half (or in the case of a Pensioner who was a Supplementary Member, two-thirds) of the Member's pension as it would have been at the date of his death. 62.5 Subject to Rule 62.6 if the Pensioner leaves an Eligible Child, a Child's Allowance will be payable under Rule 65. 62.6 (a) Subject to Rule 62.6(b), if the Pensioner leaves no Spouse, no pension is payable under Rule 62.4 and there is an Eligible Child, the Child's Allowance payable under Rule 65 will be doubled. (b) If the Pensioner was a Supplementary Member, leaves no Spouse, no pension is payable under Rule 62.4 and there is an Eligible Child, the Child's Allowance payable under Rule 65 will be increased to the amount of the Supplementary Member's pension as it would have been at the date of his death. 63 DEATH OF DEFERRED PENSIONER OR POSTPONED DEATH OF DEFERRED PENSIONER OR POSTPONED PENSIONER 63.1 On the death of a Deferred Pensioner benefits will be paid under Rules 63.2-4. 45 63.2 (a) If the Deferred Pensioner leaves no Spouse and the Trustees choose not to pay a pension under Rule 63.4, a lump sum will be payable equal to the contributions paid or transferred under Rule 28.1 into the Fund by the Member together with any interest the Trustees after consulting the Actuary decide is appropriate, but excluding any contributions refunded to the Member. (b) Rule 24 {discretionary trust of lump sums} applies. 63.3 (a) If the Deferred Pensioner leaves a Spouse, the Spouse will be paid a pension for life (adjusted under Rule 64). The amount will be one-half (or in the case of a Deferred Pensioner who was a Supplementary Member, two-thirds) of the Deferred Pensioner's deferred pension calculated under Rule 51 as if he had retired on the day immediately before his death but less any amount payable under Rule 63.3(b). (b) The widow's or widower's Guaranteed Minimum Pension will be paid to the person entitled to it under section 17 1993 Act. 63.4 If the Deferred Pensioner leaves no Spouse the Trustees may at their absolute discretion pay a pension for life to such Nominated Dependants and in such proportion (if more than one) as they see fit. The amount of pension payable to such Nominated Dependants in total will be one-half (or in the case of a Deferred Pensioner who was a Supplementary Member, two-thirds) of the Deferred Pensioner's deferred pension calculated under Rule 51 as if he had retired on the day immediately before his death. 63.5 On the death of a Postponed Pensioner Rules 63.1-4 will apply on the footing that he had retired immediately before his death. 64 REDUCTION OF SPOUSE'S PENSION REDUCTION OF SPOUSE'S PENSION 64.1 A pension payable to a Spouse under Rules 61.3, 62.3 and 63.3 will be adjusted under Rules 64.2 and 64.3. 64.2 If a Spouse is more than 15 years younger than the Member, Pensioner, Postponed Pensioner or Deferred Pensioner the Spouse's pension shall be reduced by an amount the Trustees having considered the advice of the Actuary decide is appropriate. 64.3 A Spouse's pension will be reduced by the amount of the widow's or widower's Guaranteed Minimum Pension if another person is entitled to it under the Contracting-out Requirements. 65 BENEFITS FOR CHILDREN BENEFITS FOR CHILDREN 65.1 (a) Subject to Rules 61.6, 62.6 and 65.1(b) the total Child's Allowance will be of an amount equal to one-half of the pension which is or would be payable to a 46 Spouse under Rules 61.3(a), 62.3(a) or Rule 63.3(a) and will be paid under Rule 65.3. (b) If there is more than one Eligible Child then the total amount payable under Rule 65.1(a) shall: (i) (unless the pension is payable as a result of the death of a Supplementary Member or Former Member who was a Supplementary Member) be doubled; and (ii) be divided equally among the Eligible Children and paid under Rule 65.3. 65.2 Payment of the Child's Allowance will cease when the recipient ceases to be an Eligible Child but the Trustees may at their discretion re-allocate among any remaining Eligible Children that person's share of the Child's Allowance. 65.3 The Trustees may pay the Child's Allowance: (a) for the benefit of the Eligible Child under Rule 38; or (b) to the Eligible Child. 65.4 The receipt of an Eligible Child for money paid to him under Rule 65.3(b) shall be a good discharge to the Trustees. 47 NON-PARTICIPATING EMPLOYMENTNON-PARTICIPATING EMPLOYMENT 66 NON-PARTICIPATING EMPLOYMENT NON-PARTICIPATING EMPLOYMENT 66.1 Any Member who has been in non-participating employment (as defined in the 1965 Act) in respect of Membership of the Scheme or otherwise and who is entitled under the Scheme to the preservation of Equivalent Pension Benefits, shall be entitled to a pension from Normal Retirement Date equal to the Equivalent Pension Benefits applicable under the provisions of the 1965 Act in respect of the period when the Member was in non-participating employment. 66.2 Such pension shall not be capable of being terminated, reduced, surrendered or assigned (and any such election shall be restricted so that such pension shall not be paid at a lower rate) except for a cause prescribed by the 1965 Act, but may be commuted. 66.3 The entitlement of a Member under this Rule 66 shall be inclusive of any entitlement under any other provision of the Scheme and no benefit shall be payable in respect of the Member which would not have been payable or made in this Rule had not applied to him. 66.4 On such a Member leaving Service and receiving a refund of contributions the Trustees may deduct from such refund a sum equal to one-half of the cost of providing the Equivalent Pension Benefits. 48 SCHEDULE 1SCHEDULE 1 REVENUE LIMITS {WORDS IN ITALICS INDICATE VARIATIONS FROM THE INLAND REVENUE MODEL RULES} DEFINITIONS In these MODEL rules the following expressions shall have the meanings ascribed to them: 1 "ACT" shall mean the Income and Corporation Taxes Act 1988 and any statutory amendment modification or re-enactment thereof. 2 "ACTUARY" HAS THE MEANING IN RULE 1. 3 "ADMINISTRATOR" SHALL MEAN THE ADMINISTRATOR OF THE SCHEME FOR THE PURPOSES OF SECTION 590(2)(c) OF THE ACT. 4 "AGGREGATE RETIREMENT BENEFIT" shall mean the aggregate of: (i) the Member's pension under this Scheme and any Associated Scheme; and (ii) the pension equivalent of the Member's Lump Sum Retirement Benefit. 5 "APPROVAL" shall mean approval of the Scheme by the Board of Inland Revenue under Chapter I Part XIV of the Act. 6 "ASSOCIATED EMPLOYER" an employer is associated with another employer if one is controlled by the other, or both are controlled by a third party. Control has the meaning in section 840 of the Act, or in the case of a close company, section 416 of the Act. 7 "ASSOCIATED SCHEME" shall mean any Relevant Scheme providing benefits in respect of Service. 8 "CLASS A MEMBER" shall be any Member who is not a Class B or Class C Member. 9 "CLASS B MEMBER" shall mean any Member: (a) who, on or after 17 March 1987 and before 1 June 1989, joined the Scheme being a scheme which commenced before 14 March 1989, or 49 (b) who the Board of Inland Revenue have agreed in writing to be a Class B Member by virtue of previous membership of a Relevant Scheme and, in either case, has not opted to become a Class A Member. 10 "CLASS C MEMBER" shall mean any Member who joined the Scheme before 17 March 1987 or who joined subsequently and who the Board of Inland Revenue have agreed in writing to be a Class C Member by virtue of previous membership of a Relevant Scheme and, in either case, has not opted to become a Class A Member. 11 "CONNECTED SCHEME" shall mean any Relevant Scheme which is connected with the Scheme in relation to the Member, i.e. if: (a) there is a period during which the Member has been the employee of 2 Associated Employers; (b) that period counts under both schemes as a period in respect of which benefits are payable; and (c) the period counts under one scheme for service with one employer and under the other for service with the other employer. 12 "CONTROLLING DIRECTOR" shall mean a Member who, at any time on or after 17 March 1987 and in the last 10 years before the Relevant Date has, in relation to the Employer, been both within the definition of a director in section 612(1) of the Act and within paragraph (b) of section 417(5) of that Act. 13 "DEPENDANT" HAS THE MEANING IN RULE 1. 14 "EMPLOYER" HAS THE MEANING IN RULE 1. 15 "FINAL REMUNERATION" shall mean the greater of: (a) the highest remuneration upon which tax liability has been determined for any one of the 5 years preceding the Relevant Date being the aggregate of: (i) the basic pay for the year in question, and (ii) the yearly average over 3 or more consecutive years ending with the expiry of the corresponding basic pay year, of any Fluctuating Emoluments provided that Fluctuating Emoluments of a year other than the basic pay year may be increased in proportion to the increase in the Index from the last day of that year up to the last day of the basic pay year. Remuneration that is received after the Relevant Date and upon which tax liability has been determined will be treated as a Fluctuating Emolument (providing it was earned or qualified for prior to the Relevant Date). In these circumstances it may be included 50 provided the yearly average of 3 or more consecutive years begins no later than the commencement of the basic pay year; or (b) The yearly average of the total emoluments from the Employer which are assessable to income tax under Case I or II of Schedule E and upon which tax liability has been determined for any 3 or more consecutive years ending not earlier than 10 years before the Relevant Date. Where such emoluments are received after the Relevant Date but are earned or qualified for prior to that date, they may be included provided that in these circumstances the yearly average of 3 or more consecutive years begins no later than the commencement of the year ending with the Relevant Date. Provided that: (i) remuneration and total emoluments do not include any amounts which arise from the acquisition or disposal of shares or any interest in shares or from a right to acquire shares (except where the shares or rights etc. which give rise to such an amount liable to tax under Schedule E had been acquired before 17 March 1987) or anything in respect of which tax is chargeable by virtue of section 148; (ii) in relation to a Controlling Director, final remuneration shall be the amount ascertained in accordance with (b) and (a) above shall not apply; (iii) in relation to any other employee whose remuneration in any year subsequent to 5 April 1987 used for the purpose of calculating benefits has exceeded L 100,000, (or such other figure as may be prescribed by the Treasury), final remuneration shall not exceed the amount ascertained in accordance with (b) above and (a) above shall not apply, unless the individual chooses to adopt L 100,000 (or such other figure as may be prescribed by the Treasury); (iv) where final remuneration is computed by reference to any year other than the last complete year ending on the Relevant Date, the member's remuneration or total emoluments of any year may be increased in proportion to any increase in the Index from the last day of that year up to the Relevant Date. For a Class C Member this proviso shall not apply to the calculation of the maximum Lump Sum Retirement Benefit unless the member's aggregate total benefits are similarly increased beyond the maximum amount which could be paid but for this proviso and/or the first sentence of (a)(ii) above and then only to the same proportionate extent; (v) for Class A Members final remuneration shall not exceed the Permitted Maximum; 51 (vi) for the purpose of calculating the maximum Lump Sum Retirement Benefit of a Class B Member final remuneration shall not in any event exceed L 100,000 (or such other figure as may be prescribed by the Treasury); (vii) an employee who remains, or is treated as remaining, in service but by reason of Incapacity is in receipt of a much reduced remuneration i.e. under a sick pay or permanent health insurance scheme, for more than 10 years up to the Relevant Date, may calculate final remuneration under (a) or (b) above with the final remuneration calculated at the cessation of normal pay and increased in accordance with the Index; (viii) the total amount of any profit related pay (whether relieved from income tax or not) may be classed as pensionable remuneration and treated as a Fluctuating Emolument; (ix) an early retirement pension in payment from the Employer may not be included in final remuneration. Notes: Except as in proviso (i) above, benefits in kind may be taken into account when they are assessed to income tax as emoluments under Schedule E, and will normally be regarded as Fluctuating Emoluments. If benefits are not so assessable, they may not be included as part of final remuneration except with the agreement of the Pension Schemes Office. For the purposes of providing immediate benefits at the Relevant Date it will be permitted to calculate final remuneration on the appropriate basis above using remuneration assessable to tax under Case I or II of Schedule E and upon which tax liability has not been determined. On determination of this liability final remuneration must be recalculated. Should this result in a lower final remuneration then benefits in payment should be reduced if this is necessary to ensure that they do not exceed the maximum approvable based on the lower final remuneration. Where final remuneration is greater it will be possible to augment benefits in payment but such augmentation must take the form of a non-commutable pension. Where immediate benefits are not being provided or where a transfer payment is to be made in respect of accrued pension benefits then final remuneration may only be calculated using remuneration assessable to income tax under Case I or II of Schedule E and upon which tax liability has been determined. 16 "FLUCTUATING EMOLUMENTS" are any part of an employee's earnings which are not paid on a fixed basis and are additional to the basic wage or salary. They include overtime, commission, bonuses or benefits in kind as long as they are 52 assessable to tax under Case I or II Schedule E and profit related pay (see proviso (viii) to definition of Final Remuneration). Directors' fees may rank as fluctuating emoluments according to the basis on which they are voted. 17 "INDEX" shall mean the Government's Index of Retail Prices. 18 "LUMP SUM RETIREMENT BENEFIT" shall mean the total value of all retirement benefits payable in any form other than non-commutable pension under this and any Associated Scheme. 19 "MEMBER" SHALL MEAN A MEMBER OR FORMER MEMBER (AS DEFINED IN RULE 1) WHO HAS BENEFITS IMMEDIATELY OR PROSPECTIVELY PAYABLE UNDER THE SCHEME. 20 "NORMAL RETIREMENT DATE" HAS THE MEANING IN RULE 1. 21 "PENSIONABLE SERVICE" shall have the meaning ascribing to it by paragraph 3 Schedule 16 Social Security Act 1973. 22 "PERMITTED MAXIMUM" is to be construed as defined in section 590C(2) of the Act. 23 "RELEVANT DATE" shall mean the date of retirement, leaving Pensionable Service or death as the case may be. 24 "RELEVANT SCHEME" shall mean any other scheme approved or seeking approval under Chapter 1 Part XIV of the Act and in respect of a Class A Member who is a Controlling Director also any retirement annuity contract or trust scheme approved under Chapter III Part XIV or any personal pension scheme as approved under Chapter IV Part XIV of the Act insofar as it provides benefits secured by contributions in respect of Service. 25 "REMUNERATION" in relation to any year shall mean the aggregate of the total emoluments for the year in question from the Employer and which are assessable to Income Tax under Schedule E but excluding any amounts which arise from the acquisition or disposal of shares or any interest in shares or a right to acquire shares or anything in respect of which tax is chargeable by virtue of section 148 of the Act. Provided that for a Class A Member there shall be disregarded any emoluments in excess of the Permitted Maximum. 26 "RETAINED DEATH BENEFITS" shall mean any lump sum benefits payable on the Member's death from; (a) retirement benefits schemes approved or seeking approval under Chapter I Part XIV of the Act or relevant statutory schemes as defined in section 611A thereof, (b) funds to which section 608 of the Act applies, 53 (c) retirement benefits schemes which have been accepted by the Inland Revenue as "corresponding" in respect of a claim made on behalf of the Member for the purposes of section 596(2)(b) of the Act, (d) retirement annuity contracts approved under Chapter III Part XIV of the Act, or (e) term life provisions under personal pension schemes approved under Chapter IV Part XIV of the Act, (f) transfer payments from overseas schemes held in a type of arrangement defined in (a), (d) or (e) above in respect of previous employments or periods of self-employment (whether alone or in partnership). If the Retained Death Benefits do not exceed L 2,500 in total they may be ignored. If the Member is not a Controlling Director and his or her earnings in the 12 months after entry to the Scheme (in this context including any other Relevant Scheme providing benefits in respect of service with the current Employer) do not exceed one quarter of the Permitted Maximum, benefits from these sources, other than those transferred into the Scheme, shall not be classed as Retained Death Benefits. 27 "RULE" AND "RULES", EXCEPT IN CASES OF REFERENCES EXPRESSLY TO THESE MODEL RULES, ARE REFERENCES TO THE RULES TO WHICH THESE MODEL RULES ARE SCHEDULED. 28 "SCHEME" HAS THE MEANING IN RULE 1. 29 "SERVICE" shall mean service with the Employer or an Associated Employer or, except in relation to a Class A Member who is a Controlling Director of either employer, an employer who is associated with the Employer only by virtue of a permanent community of interest. 30 "TRUSTEES" HAS THE MEANING IN RULE 1. 54 PART 1 INLAND REVENUE LIMITS RULE CLASS A MEMBERS Notwithstanding anything to the contrary in the Scheme provisions the benefits payable to a Class A Member or his Dependants or other beneficiaries in respect of him shall not, when aggregated with all benefits of a like nature provided under all Associated Schemes exceed the limits set out below: 1. The Member's Aggregate Retirement Benefit shall not exceed:- (a) on retirement at any time between attaining age 50 and attaining age 75, except before Normal Retirement Date on grounds of Incapacity, a pension of 1/60th of Final Remuneration for each year of Service (not exceeding 40 years) or such greater amount as will not prejudice Approval; (b) on retirement at any time before Normal Retirement Date on grounds of Incapacity a pension of the amount which could have been provided at Normal Retirement Date in accordance with paragraph (a) above, Final Remuneration being computed as at the actual date of retirement; (c) on leaving Pensionable Service before attaining age 75, a pension of 1/60th of Final Remuneration for each year of Service prior to leaving Pensionable Service (not exceeding 40 years) or such greater amount as will not prejudice Approval. The amount computed may be increased by 5% for each complete year or if greater, in proportion to any increase in the Index which has occurred between the date of termination of Pensionable Service and the date on which the pension begins to be payable. Any further increase necessary to comply with Social Security legislation is also allowable. (d) Benefits for a Class A Member are further restricted to ensure that his total retirement benefit from this scheme and from any Associated Scheme or Connected Scheme does not exceed a pension of 1/30th of the Permitted Maximum for each year of service, subject to a maximum of 20/30ths. For the purpose of this limit, service is the aggregate of Service and any period of service which gives rise to benefits under a Connected Scheme provided that no period is to be counted more than once. (e) For the purpose of calculating the Aggregate Retirement Benefit or the total retirement benefit in (a) to (d) above, the pension equivalent of any Lump Sum Retirement Benefit is one twelfth of its total cash value. 2. The Member's Lump Sum Retirement Benefit shall not exceed:- (a) on retirement at any time between attaining age 50 and attaining age 75, except before Normal Retirement Date on grounds of Incapacity, 3/80ths of Final Remuneration for each year of Service (not exceeding 40 years) or such greater amount as will not prejudice Approval; 55 (b) on retirement at any time before Normal Retirement Date on grounds of Incapacity the amount which could have been provided at Normal Retirement Date in accordance with paragraph (a) above; Final Remuneration being computed as at the actual date of retirement; (c) on leaving Pensionable Service before attaining age 75, a lump sum of 3/80ths of Final Remuneration for each year of Service prior to leaving Pensionable Service (not exceeding 40 years) or such greater amount as will not prejudice Approval. The amount computed may be increased in proportion to any increase in the Index which has occurred between the date of termination of Pensionable Service and the date on which the benefit is first paid. CLASS B OR C MEMBERS Notwithstanding anything to the contrary in the Scheme provisions, the benefits payable to a Class B or a Class C Member or to his Dependants or other beneficiaries in respect of him shall not when aggregated with all benefits of a like nature provided under all Associated Schemes exceed the limits set out below. 1. The Member's Aggregate Retirement Benefit shall not exceed:- (a) on retirement at or before Normal Retirement Date, a pension of 1/60th of Final Remuneration for each year of Service (not exceeding 40 years) or such greater amount as will not prejudice Approval; (b) on retirement at any time before Normal Retirement Date on grounds of Incapacity a pension of the amount calculated in accordance with paragraph 1.(a) above as if the Member had remained in Service until the Normal Retirement Date, Final Remuneration being computed as at the actual date of retirement; (c) on retirement after Normal Retirement Date, a pension of the greatest of:- (i) the amount calculated in accordance with paragraph 1.(a) above on the basis that the actual date of retirement was the Member's Normal Retirement Date, (ii) the amount which could have been provided at Normal Retirement Date in accordance with paragraph 1.(a) above increased either actuarially in respect of the period of deferment or in proportion to any increase in the Index during that period, and (iii) where the Member's total Service has exceeded 40 years, the aggregate of 1/60th of Final Remuneration for each year of Service before Normal Retirement Date (not exceeding 40 such years) and of a further 1/60th of Final Remuneration for each year of Service after Normal Retirement Date, with an overall maximum of 45 reckonable years. 56 Final Remuneration being computed in respect of (i) and (iii) above as at the actual date of retirement, but subject always to paragraph 3 below; (d) on leaving Pensionable Service before Normal Retirement Date, a pension of 1/60th of Final Remuneration for each year of Service prior to leaving Pensionable Service (not exceeding 40 years) or such greater amount as will not prejudice Approval. The amount computed may be increased by 5% for each complete year or if greater, in proportion to any increase in the Index which has occurred between the date of termination of Pensionable Service and the date on which the pension begins to be payable. Any further increase necessary to comply with Social Security legislation is also allowable. 2. The Member's Lump Sum Retirement Benefit shall not exceed:- (a) on retirement at or before Normal Retirement Date, 3/80ths of Final Remuneration for each year of Service (not exceeding 40 years) or such greater amount as will not prejudice Approval; (b) on retirement at any time before Normal Retirement Date on grounds of Incapacity the amount calculated in accordance with paragraph 2.(a) above as if the Member had remained in Service until the Normal Retirement Date, Final Remuneration being computed as at the actual date of retirement; (c) on retirement after Normal Retirement Date, the greatest of:- (i) the amount calculated in accordance with paragraph 2.(a) above on the basis that the actual date of retirement was the Member's Normal Retirement Date, (ii) the amount which could have been provided at Normal Retirement Date in accordance with paragraph 2.(a) above together with an amount representing interest thereon, and (iii) where the Member's total Service has exceeded 40 years, the aggregate of 3/80ths of Final Remuneration for each year of Service before Normal Retirement Date (not exceeding 40 such years) and of a further 3/80ths of Final Remuneration for each year of Service after Normal Retirement Date, with an overall maximum of 45 reckonable years. Final Remuneration being computed in respect of (i) and (iii) above as at the actual date of retirement, but subject always to paragraph 3 below; (d) on leaving Pensionable Service before Normal Retirement Date, a lump sum of 3/80ths of Final Remuneration for each year of Service prior to leaving Pensionable Service (not exceeding 40 years) or such greater amount as will not prejudice Approval. The amount computed as aforesaid may be increased in proportion to any increase in the Index which has occurred between the date of termination of Pensionable Service and the date on which the benefit is first paid. 57 3. If a Member elects under Rule 54 to take any part of his benefits under this Scheme in advance of actual retirement, the limits set out in paragraphs 1 and 2 above shall apply as if he had retired at the date of the election as aforesaid, no account being taken of subsequent Service, save that the maximum amount of any uncommuted pension not commencing immediately may be increased either actuarially in respect of the period of deferment or in proportion to any increase in the Index during that period. 4. The preceding provisions of this model Rule shall be modified in their application to a Member who is a Controlling Director as follows:- (a) the amount of the maximum Aggregate Retirement Benefit in paragraph 1 and of the maximum Lump Sum Retirement Benefit in paragraph 2 shall be reduced, where necessary for Approval, to take account of any corresponding benefits under retirement annuity contracts or trust schemes approved under Chapter III Part XIV of the Act or under personal pension schemes approved under Chapter IV Part XIV of the Act; (b) where retirement takes place after Normal Retirement Date but not later than the Member's 70th birthday, paragraph 1.(c)(ii) and (iii) and paragraph 2.(c)(ii) and (iii) shall not apply, and if retirement is later than the attainment of that age, the said paragraphs shall apply as if the Member's 70th birthday had been specified in the Rules as his Normal Retirement Date, so as not to treat as Service after Normal Retirement Date any Service before the Member reaches the age of 70; (c) where paragraph 3 applies to him, the rate of the actuarial increase referred to therein in relation to any period of deferment prior to his attaining the age of 70, shall not exceed the percentage increase in the Index during that period. 58 PART 2 OTHER CONDITIONS RELATING TO CLASS A MEMBERS A. MEMBER'S CONTRIBUTIONS (CONTRIBUTORY SCHEME) (a) Each Member is required to contribute at such a rate (IF ANY) AS IS SPECIFIED IN RULE 46.1. No rate of contribution determined under this MODEL sub-rule may be altered before the expiry of a period of 12 months from the date on which the first payment at the current rate became due without the specific agreement of the Board of Inland Revenue. (b) In addition the Member may make voluntary contributions to the Scheme to secure additional benefits for himself and/or his Dependants. Any retirement benefits so secured must be in the form of non-commutable pension except to the extent to which the provisions of the Scheme allow commutation of trivial pensions or on the grounds of serious ill health. (c) The contributions paid to the Scheme by a Member in a year of assessment shall not exceed either: B. CONTINUED LIFE COVER Any provision in the rules to provide a lump sum benefit on the death of a Member occurring after retirement on pension (other than a payment under a guarantee of pension provision) shall be restricted in respect of a Member who joined the Scheme on or after 1st October 1991 to exclude any provision other than on death occurring before the Normal Retirement Date and after retirement on grounds of Incapacity. The amount of the benefit shall not exceed the amount payable had the Member died immediately before retirement increased in proportion to any increase in the Index between the date of the Member's retirement and the date of death. C. PAYMENT OF RETIREMENT BENEFITS 1. The payment of a Member's retirement benefits shall not commence earlier than the Member attaining age 50, except on retirement on grounds of Incapacity, nor later than attaining age 75. 2. No part of the Member's retirement benefits is to be paid in advance of actual retirement except as necessary to comply with paragraph C.1 above or to the extent necessary to comply with the requirements of the Social Security Pensions Act 1975. PART 3 OTHER CONDITIONS RELATING TO CLASS B OR C MEMBERS A. MEMBER'S CONTRIBUTIONS (CONTRIBUTORY SCHEME) (a) Each Member is required to contribute at such a rate (IF ANY) AS IS SPECIFIED IN RULE 59 46.1. No rate of contribution determined under this MODEL sub-rule may be altered before the expiry of a period of 12 months from the date on which the first payment at the current rate became due without specific agreement of the Board of Inland Revenue. (b) In addition the Member may make voluntary contributions to the Scheme to secure additional benefits for himself and/or his Dependants. Where such contributions commence on or after 8th April 1987 any retirement benefits so secured must be in the form of non-commutable pension except to the extent to which the provisions of the Scheme allow commutation of trivial pensions or on the grounds of serious ill health. (c) The total contributions paid by the Member in year of assessment to this and any Associated Scheme shall not exceed 15% of his Remuneration for that year. B. TRANSFERS (a) Any retirement benefits arising by virtue of the receipt by the Scheme of a transfer value (other than from another scheme providing benefits in respect of Service) shall not be capable of commutation unless and then only to the extent that a certificate has been obtained from the administrator of the transferring scheme showing the maximum lump sum payable from the transfer value. The amount so certified may be increased in proportion to any increase in the Index since the date the transfer payment was received. (b) When, on or after a transfer having been made to another occupation pension scheme, the administrator of that scheme requests such a certificate as is referred to in paragraph B.1 above, the Administrator shall calculate as at the date of the transfer the maximum lump sum payable on retirement from the transfer value and certify that amount to the receiving scheme. C. CONTROLLING DIRECTORS Where a Postponed Pensioner who is a Controlling Director remains in Service on or after his 75th birthday, any lump sum payable on his death on or after his 75th birthday, with the exception of any lump sum payable under rule 64.2(a) where his pension is already in payment, shall not be subject to rule 25 but shall be paid to the Controlling Director's surviving spouse or, in the absence of any surviving spouse to his legal personal representatives. 60 PART 4 OTHER CONDITIONS RELATING TO ALL MEMBERS 1. LUMP SUM DEATH BENEFIT The lump sum benefit (exclusive of any refund of the Member's own contributions not applied specifically to secure the payment of benefits on the Member's death and any interest thereon) payable on the death of a Member while in Service or, (having left Pensionable Service with a deferred pension) before the commencement of his pension, shall not, when aggregated with all benefits of a like nature under all Associated Schemes, exceed the greater of: (a) L 5,000, and (b) 4 times the greatest of: (i) the annual rate (subject, for a Class A Member, to the Permitted Maximum) of the Member's basic salary or wages at the date of death or leaving Pensionable Service together with the yearly average of Fluctuating Emoluments received in the 3 years (or the whole period of Service if less) up to the date of death or leaving Pensionable Service, and (ii) the Member's total emoluments (subject, for a Class A Member, to the Permitted Maximum) of any selected period of 12 months ending not earlier than 36 months before the date of death. (iii) Final Remuneration disregarding provisos (i), (ii) and (iii) of that definition less Retained Death Benefits. 2. DEPENDANTS' PENSIONS Any pension for a Dependant, when aggregated with the pensions, other than those provided by surrender or allocation of the Member's own pension, payable to that Dependant under all Associated Schemes, shall not exceed an amount equal to 2/3rds of the maximum Aggregate Retirement Benefit payable to the Member immediately before death under Part 1 above. Where the death of the Member occurs whilst in Service before the Normal Retirement Date the maximum is that appropriate had the Member retired on grounds of Incapacity on the date of death entitled to no retained benefits from previous employments. If pensions are payable to more than one Dependant of a Member, the aggregate of all Dependants' pensions payable in respect of him under this and all Associated Schemes shall not exceed the full amount of the maximum Aggregate Retirement Benefit described in the previous paragraph of this MODEL rule. 61 3. INCREASES OF PENSIONS IN PAYMENT The maximum amount of a pension ascertained in accordance with Part 1 and Part 4 of this MODEL Rule less any pension which has been commuted for a lump sum or the pension equivalent of any benefits in lump sum form and any pension surrendered to provide a Dependant's pension may be increased by 3% for each complete year or if greater, in proportion to any increase in the Index since the pension commenced. 4. SURPLUS AVCS Where the application of the limits in this MODEL Rule requires the quantum of the Aggregate Retirement Benefit to be restricted and the Member has paid additional voluntary contributions to supplement scheme benefits, that restriction shall first be effected on those supplementary benefits so as to permit the repayment of the surplus additional voluntary contributions subject to section 599A of the Act. The Administrator of the Scheme shall comply with the requirements of Regulation 5 of The Retirement Benefits Schemes (Restriction on Discretion to Approve) (Additional Voluntary Contributions) Regulations 1993 [S1 1993 No 3016] and where the Scheme is the "leading scheme" in relation to a member, with the requirements of Regulation 6 of those Regulations so far as they concern "main schemes". If these Regulations are amended or replaced by any other Regulations then this MODEL Rule will have effect as if it had been amended or replaced accordingly. 5. TRANSFERS (a) The benefits arising on retirement from a transfer value shall not be capable of commutation nor shall they be paid in lump sum form if the transfer is accompanied by a certificate from the administrator of the transferring scheme to the effect that the transfer value is not to be used to provide benefits in lump sum form. (b) When making a transfer to an approved personal pension scheme the Administrator shall provide a certificate of the maximum lump sum payable on retirement from the transfer value if the transferring member: (a) was aged 45 or more at the time that the transfer payment was made, OR (b) has at any time within the 10 years preceding the date on which the right to the cash equivalent being transferred arose, been, in respect of any employment to which the transfer payment or any part of its relates, either (i) a Controlling Director, OR (ii) in receipt of annual remuneration in excess of L 60,000 or, if greater, the allowable maximum (i.e. the equivalent for personal pension schemes of the Permitted Maximum) for the year of assessment in which the date of transfer falls, OR 62 (c) is entitled to benefits included in the transfer payment which arise from an occupational pension scheme under which the normal retirement age is 45 or less. 63 SCHEDULE 2SCHEDULE 2 CONTRACTING-OUT 1. DEFINITIONS In these GMP Model Rules the following words have the following meanings:- "THE ACT" means the Pension Schemes Act 1993. "ACTUARY" means a Fellow of the Institute of Actuaries or a Fellow of the Faculty of Actuaries, or a person with other actuarial qualifications who is approved by the Secretary of State for Social Security, at the request of the Trustees, as being a proper person to act in this capacity. "CONTRACTED-OUT EMPLOYMENT" means a Member's contracted-out employment by reference to the Scheme (as in section 8(1)(a)(i) and 8(1)(b) of the Act). "FIXED RATE REVALUATION" means the method of revaluing a GMP before State Pensionable Age described in Rule 6.1 (C) below. "GMP" means the guaranteed minimum pension of a Member, Widow or Widower as defined in the Act. "INSURER" means an insurance company, an EC company or a friendly society as defined in regulation 30 of the Occupational Pension Schemes (Contracting-out) Regulations 1984 (SI 1984/380) as amended by regulation 2 of SI 1995/35. "LIMITED REVALUATION" means the method of revaluing a GMP before State Pensionable Age described in Rule 6.1 (B) below. "MEMBER" means a member of the Scheme (including a person who is not in the pensionable service of any employer participating in the Scheme but to whom, or in respect of whom, benefits are still immediately or prospectively payable under the Scheme in respect of previous membership of the Scheme or another scheme). "NORMAL RETIRING DATE" means the day on which a Member attains normal pension age (within the meaning of the Act) under the Scheme. "PROTECTED RIGHTS" has the same meaning as in section 10 of the Act. "QUALIFYING SERVICE" has the same meaning as in section 71(7) of the Act. "RULE" (followed by a number) means the Rule (with that number) in this Appendix. "SCHEME" means this occupational pension scheme. "SECTION 53 MONEY PURCHASE SCHEME" means a scheme which was a contracted-out 64 scheme, providing protected rights pensions and satisfying section 9(3) of the Act, and which the Occupational Pensions Board are under a duty to supervise under section 53 of the Act. "SECTION 53 SALARY RELATED SCHEME" means a scheme which was a contracted-out scheme, providing guaranteed minimum pensions and satisfying section 9(2) of the Act, and which the Occupational Pensions Board are under a duty to supervise under section 53 of the Act. "SECTION 148 REVALUATION" means the method of revaluing a GMP before State Pensionable Age described in Rule 6.1 (A) below. "SHORT SERVICE BENEFIT" means the benefit to which an early leaver who satisfies the qualifying conditions must be entitled under the preservation requirements. "STATE PENSIONABLE AGE" means a man's 65th birthday and a woman's 60th birthday. "TRUSTEES" means the trustees or administrators of the Scheme. "WIDOW" and "WIDOWER" means respectively the widow and the widower of a Member. If a Member has married under a law which allows polygamy and, on the day of the Member's death, has more than one spouse, the Trustees must decide which, if any, survivor is the Widow or Widower. In reaching that decision, the Trustees must have regard to the practice of the Department of Social Security and any relevant provisions of existing Social Security legislation, in particular section 17(5) of the Act and regulation 2 of the Social Security and Family Allowance (Polygamous Marriages) Regulations 1975 (SI 1975/561). 2. OVERRIDING EFFECT OF THESE GMP MODEL RULES These Rules shall apply if any Member's employment becomes Contracted-out Employment by reference to the Scheme and the Scheme is not contracted-out on a money purchase basis. These Rules will only apply for so long as anyone has a GMP or a prospective right to receive a GMP under the Scheme which subjects the Scheme to the continuing supervision of the Occupational Pensions Board. These Rules override any inconsistent provisions elsewhere in the Scheme except provisions which are necessary in order that Inland Revenue approval for the purposes of Chapter I of Part XIV of the Income and Corporation Taxes Act 1988 is not prejudiced. 65 3. ALTERATIONS TO THESE GMP MODEL RULES 3.1 POWER TO ALTER GMP MODEL RULES. The persons or bodies having the power of alteration in relation to the rest of the Scheme may at any time in writing make any alteration to these GMP Model Rules necessary to comply with the contracting-out requirements of the Act applicable to salary related contracted-out schemes and Section 53 salary related schemes. This power of alteration may be exercised by them without any condition except the one in 3.2 below. It is additional to, and independent of, any other power of alteration in relation to the Scheme. 3.2 OPB CONSENT. No alteration to these GMP Model Rules may be made without the consent of the Occupational Pensions Board. This applies whether the alteration is made under 3.1 above or under any other power of alteration in relation to the Scheme. 4. MEMBERSHIP OF THE SCHEME Membership of the Scheme must be open to persons who enter employment to which the Scheme relates more than 6 years before Normal Retiring Date. If the Scheme has an annual entry date, this 6 year period may be increased to a period of 6 years plus the part of a year until the next entry date. Where the Scheme and one or more other contracted-out schemes relate to employment with the same employer, those schemes may be treated as if they were a single scheme in deciding whether the requirements of this Rule are satisfied. 5. ENTITLEMENT TO GMP 5.1 GUARANTEED MINIMUM. This Rule 5 applies to a Member, Widow or Widower where the Member has a guaranteed minimum in relation to the pension provided for the Member under the Scheme in accordance with section 14 of the Act. 5.2 MEMBER'S GMP. The Member shall be entitled to a pension for life paid at a rate equivalent to a weekly rate of not less than that guaranteed minimum. The pension will be paid from State Pensionable Age but commencement of the pension may be postponed for any period during which the Member remains in employment after State Pensionable Age:- (1) if the employment is employment to which the Scheme relates and the postponement is not for more than 5 years after State Pensionable Age; or (2) if the Member consents to the postponement. 5.3 WIDOW'S GMP. Where the Member is a man and dies at any time leaving a Widow, she shall be entitled, subject to 5.4 below, to receive a pension from the 66 Scheme paid at a rate equivalent to a weekly rate of not less than half that guaranteed minimum. 5.4 PAYMENT OF WIDOW'S GMP. The pension shall be payable to any Widow who is eligible for payment of a State benefit as described in section 17(5) of the Act. It shall cease when the Widow ceases to be entitled to receive payment of those State benefits. 5.5 WIDOWER'S GMP. Where the Member is a woman and dies at any time on or after 6 April 1989 leaving a Widower, he shall be entitled, subject to 5.6 below, to receive a pension from the Scheme paid at a rate equivalent to a weekly rate of not less than half of that part of the guaranteed minimum which is attributable to earnings for the tax year 1988/1989 and subsequent tax years. 5.6 PAYMENT OF WIDOWER'S GMP. The pension shall be payable to any Widower who is eligible for payment of a GMP under Regulation 33B of the Occupational Pension Scheme (Contracting-out) Regulations 1984. It shall cease when the Widower ceases to be entitled to receive payment of that GMP under Regulation 33C of the Occupational Pension Scheme (Contracting-out) Regulations 1984. 5.7 OFFSETTING PENSION AGAINST GMP. Any pension payable to the Member, Widow or Widower under any other provision of the Scheme may be offset against the pension entitlement under this Rule 5 except to the extent that:- (1) any part of the pension is an equivalent pension benefit within the meaning of the National Insurance Act 1965; or (2) any part of the pension is an increase, calculated in accordance with Schedule 3 of the Act and added to the amount that would be payable but for Chapter II of Part IV of the Act or regulations made under it; or (3) offsetting would contravene the anti-franking legislation (see Rule 8 below). 6. REVALUATION OF GMP 6.1 REVALUATION BEFORE STATE PENSIONABLE AGE. Where a Member ceases to be in Contracted-out Employment before State Pensionable Age, the Member's GMP at State Pensionable Age or at the Member's earlier death will be calculated by increasing the accrued rights to GMP at cessation of Contracted-out Employment under one of the options (A),(B) or (C) below. (A) SECTION 148 REVALUATION. The increase will be by the percentage by which earnings factors for the tax 67 year in which Contracted-Out Employment ceases are increased by the last order under section 148 of the Social Security Administration Act 1992 to come into force before the tax year in which the Member reaches State Pensionable Age (or dies, if earlier). (B) LIMITED REVALUATION. The increase will be by the lesser of:- (1) 5 per cent (5%) compound for each tax year after that in which Contracted-out Employment ceases up to and including the last complete tax year before the Member reaches State Pensionable Age (or dies, if earlier); and (2) the percentage by which earnings factors for the tax year in which Contracted-Out Employment ceases are increased by the last order under section 149 of the Social Security Administration Act 1992 to come into force before the tax year in which the Member reaches State Pensionable Age (or dies, if earlier). The Trustees must pay a limited revaluation premium in respect of the Member to the Secretary of State for Social Security. (C) FIXED RATE REVALUATION. The increase will be by such rate as regulations made under section 55(5) of the Act specify as being relevant at the date Contracted-out Employment ceases, for each complete tax year after the tax year containing that date up to and including the last complete tax year before the Member reaches State Pensionable Age (or dies, if earlier). The Trustees and the principal employer participating in the Scheme shall decide which of the options (A),(B) or (C) applies to the Scheme. They may at any time decide that one of the other two methods shall be used, instead of the method currently being used, for all Members ceasing to be in Contracted-out Employment after a specified date. They must notify the Occupational Pensions Board whenever the method of revaluation for the Scheme is changed. 6.2 TRANSFERS IN. Where a transfer payment is received in respect of a Member from another scheme ("the transferring scheme") which includes accrued rights of the Member to a GMP (or includes protected rights in respect of which the receiving scheme will provide a GMP) the earnings factors used in calculating that GMP will normally be revalued using Section 148 Revaluation during the Member's Contracted-Out Employment, and 6.1 above will apply if that Contracted-out Employment ceases before State Pensionable Age. The Trustees may, however, decide, if the provisions of the transferring scheme so allow, to use either Limited Revaluation or Fixed Rate 68 Revaluation from the date on which the Member ceased to be in contracted-out employment by reference to the transferring scheme until the Member attains State Pensionable Age (or dies, if earlier) but:- (1) Limited Revaluation may not be used as regards any part of the GMP being transferred which arose from contracted-out employment in relation to a previous scheme and which the transferring scheme is already revaluing by Fixed Rate Revaluation (or vice versa); and (2) the Trustees may not make the decision if, on becoming a Member, the Member's contracted-out employment in relation to a previous scheme is treated as continuing for the purposes of the Act. Where, under this Rule 6.2, Limited Revaluation is to be used, the Trustees shall have power to pay out of the transfer payment in respect of that Member any limited revaluation premium payable as a result of the Member ceasing to be in contracted-out employment by reference to the transferring scheme. Where the Scheme accepts the proceeds of, or the assignment of, an insurance policy which consists of, or includes, accrued rights to GMP, the Trustees may use either Section 148 Revaluation or the method of revaluation that was in use under the policy (and condition (1) above applies). 6.3 TRANSFERS OUT. Where a Member's accrued rights to GMP are transferred to another contracted-out salary related scheme or to a Section 53 salary related scheme, the Trustees may agree with the administrator of that scheme that the member's GMP shall, instead of being revalued using the method currently being adopted under 6.1 above, be revalued using another method which would be permitted if that scheme contained a rule in the same terms as 6.2 above but, where Limited Revaluation is to be used, that administrator must make arrangements for the payment of any limited revaluation premium (unless it has already been paid by the Trustees). 7. INCREASE OF GMP 7.1 INCREASE AFTER STATE PENSIONABLE AGE. If the commencement of any Member's GMP is postponed for any period after State Pensionable Age, that GMP shall be increased to the extent, if any, specified in section 15 of the Act. 7.2 INCREASE AFTER STATE PENSIONABLE AGE OR MEMBER'S DEATH. Any GMP to which a Member, Widow or Widower is entitled under Rule 5 above shall, insofar as it is attributable to earnings in the tax years from and including 1988/1989, be increased in accordance with the requirements of section 109 of the Act. 8. ANTI-FRANKING 69 Except as provided in sections 87-92 and 110 of the Act, no part of a Member's, Widow's or Widower's pension under the Scheme may be used to frank an increase in the Member's, Widow's or Widower's GMP under Rule 6 or Rule 7 above. 9. TRANSFERS INTO THE SCHEME 9.1 ACCEPTANCE OF TRANSFERS. The Trustees may accept:- (1) a transfer payment in respect of the Member's accrued rights to GMPs under a contracted-out salary related scheme, a Section 53 salary related scheme or a policy of insurance or an annuity contract of the type described in section 19 of the Act; (2) a transfer of the liability for the payment of GMPs to, or in respect of, any person who has become entitled to them; (3) a transfer of Protected Rights (a) in respect of the Member or a former Member from another scheme which is, or was, an appropriate personal pension scheme; (b) in respect of the Member or a former Member from another scheme which is, or was, a scheme contracted-out on a money purchase basis or a Section 53 money purchase scheme. Transfers may be accepted only as provided in the appropriate regulations. 9.2 EFFECT OF TRANSFERS. Where a transfer is accepted under 9.1(1) above, the Member's accrued rights to GMPs under the Scheme will be increased accordingly. Where a transfer is accepted under 9.1(3) above, the Member's, Widow's and Widower's GMPs under the Scheme will be increased by amounts equal to the GMPs to which they would have been treated as entitled by reason of the Member's membership of the transferring scheme if the transfer payment had not been made. 10. TRANSFERS OUT OF THE SCHEME 10.1 CONDITIONS FOR TRANSFER OF GMPs. A transfer payment made out of the Scheme may include a Member's accrued rights to GMPs or the liability for the payment of GMPs to, or in respect of, any person who has become entitled to them only if the following conditions are fulfilled. These conditions depend on the type of scheme, policy or contract to which the transfer is being made. (1) ALL SCHEMES AND ARRANGEMENTS 70 The Member must consent to the transfer unless:- (a) it is made to another contracted-out salary related scheme or a Section 53 salary related scheme where either the scheme is a scheme of the same employer or the transfer involves all of, or a group of, the Members, and either the transfer results from a financial transaction between the Member's old and new employers, or the receiving scheme is a scheme of an employee connected with the Member's old employer for the purposes of section 35 of the Act. The transfer must be made in accordance with the appropriate regulations (SI 1991/167) which may involve an actuarial certificate; (b) it is to allow benefits to be bought out where the Member has less than 5 years Qualifying Service, or to allow the Trustees to buy out the benefits of the Widow or Widower of such a Member. The transfer will be subject to any requirements of the Inland Revenue. The receiving scheme, policy or contract must be an appropriate personal pension scheme, a contracted-out occupational pension scheme, a Section 53 money purchase scheme, a Section 53 salary related scheme, an overseas occupational pension scheme to which the Occupational Pensions Board approve the transfer, or an insurance policy or annuity contract of the type described in section 19 of the Act. (2) CONTRACTED-OUT SALARY RELATED SCHEMES AND SECTION 19 INSURANCE POLICIES OR ANNUITY CONTRACTS The receiving scheme, policy or contract must provide the Member and the Member's Widow or Widower with GMPs equal to their accrued GMPs under the Scheme up to the date of transfer, together with revaluation until the Member reaches State Pensionable Age (or dies, if earlier). In the case of GMPs already in payment, the receiving scheme must provide for the pensions to commence from the date from which liability for payment has been assumed by it, and for the conditions of payment relating to its own GMPs to apply equally to such pensions. (3) ALL OCCUPATIONAL PENSION SCHEMES (EXCEPT OVERSEAS SCHEMES COVERED BY (6)) The Member must have entered employment with an employer which is (or, in the case of a Section 53 scheme, is or was) a contributor to the receiving scheme. If the employment is not contracted-out, the transfer must be in accordance with regulations 2(4) and 2A(4) of SI 1985/1323. (4) APPROPRIATE PERSONAL PENSION SCHEMES AND OCCUPATIONAL PENSION SCHEMES WHICH ARE OR WERE CONTRACTED-OUT BY THE MONEY PURCHASE TEST 71 That part of the transfer payment which relates to the Member's accrued rights to GMPs must be of an amount at least equal to the cash value of those accrued rights and applied by the receiving scheme in providing money purchase benefits for, or in respect of, the Member. (5) SECTION 53 MONEY PURCHASE OR SECTION 53 SALARY RELATED SCHEMES No transfer payment may be made to such a scheme without the approval of the Occupational Pensions Board, who may impose any conditions they consider appropriate. (6) OVERSEAS OCCUPATIONAL PENSION SCHEMES NOT COVERED BY (2), (4) OR (5) ABOVE The Member must have entered employment outside the United Kingdom to which the receiving scheme applies. No transfer payments may be made to such a scheme without the approval of the Occupational Pensions Board, who may impose any conditions they consider appropriate. 10.2 EFFECT OF SUCH TRANSFERS. Where the Member's accrued rights to GMPs or liability for GMPs already in payment are transferred in accordance with 10.1 above, the Member and the Member's Widow or Widower will cease to have any entitlement to a GMP under the Scheme. If the transfer does not relate to the whole of the Member's rights to benefits under the Scheme, the Member's remaining benefits under the Scheme may be reduced to allow for the fact that the Member's GMP rights have been transferred. 11. TRANSFER PREMIUMS Where a Member ceases to be in a Contracted-out Employment before Normal Retiring Date and the Member's accrued rights to benefits (other than GMPs) are transferred to another occupational pension scheme which is neither a contracted-out scheme nor one which was formerly contracted-out and which remains under the supervision of the Occupational Pensions Board in accordance with section 53 of the Act, or to a non-appropriate personal pension scheme, the Trustees may elect to pay a transfer premium to the Secretary of State for Social Security. No such election may be made where the Member has completed less than 2 years' Qualifying Service or where an accrued rights premium is payable in respect of the Member. Where a transfer premium is paid, the Member's accrued rights to GMPs under the Scheme shall be extinguished. 12. COMMUTATION OF GMP 72 12.1 CIRCUMSTANCES IN WHICH GMP MAY BE COMMUTED. (1) MEMBER'S GMP. The Member's GMP may be commuted if the Commutation Condition is satisfied and all the Member's other benefits under the Scheme are being commuted, and (a) the benefits have become payable; or (b) the Scheme is being wound-up. (2) WIDOW'S OR WIDOWER'S GMP. The Widow's or Widower's GMP may be commuted if the Commutation Condition is satisfied and all the Widow's or Widower's other benefits under the Scheme are being commuted, and (a) the benefits have become payable; or (b) the Member's benefits are being commuted on grounds of triviality. (3) MORE THAN ONE RETIREMENT BENEFIT SCHEME RELATING TO SAME EMPLOYMENT. If the Member is a member of more than one retirement benefit scheme relating to the same employment the requirements of this Rule must be satisfied by all of the schemes. 12.2 COMMUTATION CONDITION. The Commutation Condition is that the aggregate of the pensions and the pension equivalent of any lump sum benefits to which the person is entitled under the Scheme, and under all other retirement benefit schemes relating to employment with the same employer as the employment in respect of which the benefits are payable, does not exceed L 260 per annum (or such greater amount as may be prescribed by regulations made under section 21 and section 77 of the Act and is permitted by the Inland Revenue). In addition:- (1) Where commutation is taking place before State Pensionable Age, other than on the death of the Member, Limited Revaluation or Fixed Rate Revaluation must be applied to any GMP included in the aggregate pension, and such GMP must be revalued to State Pensionable Age for the purposes of calculating that aggregate. For this purpose, Limited Revaluation is to be taken as 5% per annum compound. (2) Where the Member's pension, being an alternative to Short Service Benefit, becomes payable before or after Normal Retiring Date, the value of that pension must, to the reasonable satisfaction of the Trustees, be at least equal to the value of the Short Service Benefit, plus the revaluation to Normal Retiring Date that the deferred pension would have attracted in accordance with Chapter II of Part IV of the 73 Act had it been provided by the Scheme at Normal Retiring Date, and the revaluation of GMP referred to in (1) above. (3) Where commutation of the whole of a Member's deferred pension is taking place at Normal Retiring Date (or on the winding-up of the Scheme if earlier), the Member's pension in excess of GMP must be revalued up to Normal Retiring Date in accordance with Chapter II of Part IV of the Act, and the GMP revalued in accordance with (1) above. (4) In any event, the Trustees must be satisfied that the basis of commutation is reasonable. The basis must be certified as reasonable by an Actuary or be in accordance with commutation factors agreed with the PSO as suitable for the Scheme. 13. SECURING GMPs GMPs may be secured through the Scheme provided it has been established under an irrevocable trust subject to the laws of any part of the United Kingdom. Otherwise, a GMP must be secured by means of an insurance policy or annuity contract with an Insurer. 14. WINDING-UP THE SCHEME 14.1 PRIORITIES ON WINDING-UP. If the Scheme winds-up for any reason, priority must be given, over any other liability to provide benefits, to any benefit which falls within any one or more of the following:- (1) pensions and other benefits in respect of which entitlement to payment has already arisen; (2) GMPs and accrued rights to GMPs; (3) state scheme premiums; (4) equivalent pension benefits within the meaning of the National Insurance Act 1965. 14.2 ORDER OF PRIORITIES. The Trustees and the principal employer participating in the Scheme may elsewhere in the provisions of the Scheme specify an order of priorities amongst the items listed in 14.1 above, but the order of priorities shall not give any liability to provide benefits which are not listed in 14.1 above priority equal to or exceeding the priority given to any item which is listed there. 14.3 VOLUNTARY CONTRIBUTIONS. Where Members' voluntary contributions to the 74 Scheme are being used to provide benefits equivalent on a money purchase basis to the voluntary contributions paid, and where there are separately identifiable assets attributable to those voluntary contributions within the Scheme, 14.1 above shall not apply to those separately identifiable assets. That part of those assets which is attributable to the voluntary contributions of a Member shall be used to provide benefits for, or in respect of, that Member of the types specified in the other provisions of the Scheme. No regular payments may be made by the employer to those separately identified assets unless they are used solely for the purpose of meeting administrative expenses. 15. SCHEME CEASES TO BE A CONTRACTED-OUT SALARY RELATED SCHEME If the Scheme ceases to be a contracted-out salary related scheme, the Trustees must seek the approval of the Occupational Pensions Board to any proposed arrangement for securing GMPs. If it is decided to buy Members back into the State Earnings Related Pension Scheme (SERPS), then accrued rights premiums or pensioner's rights premiums must be paid to the Secretary of State for Social Security in the manner required by regulations made under the Act. Once these premiums have been paid, the GMPs will be extinguished. The other benefits of the Members, Widows or Widowers concerned under the Scheme shall be reduced by the amount of the GMP accrued at the date the Scheme ceased to be contracted-out, increased to State Pensionable Age (or the Member's death, if earlier) by Fixed Rate Revaluation or Section 148 Revaluation. 16. SUSPENSION OF GMP Payment of a GMP may be suspended during any period when:- 16.1 The person receiving the GMP is unable to act (by reason of mental disorder or otherwise) but the amount of the GMP must either be paid or applied for the maintenance of the recipient or his dependants, or paid to the recipient when that recipient is again able to act, or paid to the recipient's estate after the recipient's death; or 16.2 The recipient of the GMP is in prison or detained in legal custody but the amount of the GMP must then be paid or applied for the maintenance of such one or more of the recipient's dependants as the Trustee shall determine; or 16.3 The Member is receiving the GMP but is then re-employed in an employment to which the Scheme relates. The GMP must then be increased under Rule 7.1 above during the period of suspension. 17. FORFEITURE OF GMP 75 17.1 Any instalment of a GMP may be forfeited if it is not paid within 6 years of the date on which the instalment became due and the Trustees do not know the whereabouts of the recipient. 17.2 A GMP may be forfeited if the person entitled to the GMP has been convicted of one or more offenses under the Official Secrets Acts 1911 to 1989, for which the recipient has been sentenced to a term or consecutive terms of imprisonment totalling at least 10 years, or of an offence of treason. 18. CONTRIBUTIONS EQUIVALENT PREMIUMS 18.1 A contribution equivalent premium shall be paid, subject to 18.2 below, in respect of a Member who ceases to be in Contracted-out Employment before whichever is the earlier of the Member's Normal Retiring Date and the end of the tax year preceding that in which the Member will reach State Pensionable Age with less than 2 years' Qualifying Service and less than 2 years' Contracted-out Employment. A contributions equivalent premium shall not be paid where the Member's accrued rights include rights transferred from a personal pension, nor where the Member is a woman who dies in contracted-out employment in respect of Widower's GMP. Payment of the contributions equivalent premium extinguishes the Member's accrued rights to GMPs under the Scheme. Therefore, where the premium is paid, any refund of contributions to the Member or any transfer payment from the Scheme in respect of a Member shall be reduced by the certified amount (as defined in the Act) in relation to that premium and any pension benefit under the Scheme for the Member or the Member's Widow or Widower shall be reduced so as to allow the fact that their accrued rights to GMPs have been extinguished. 18.2 The premium shall not be payable if:- (a) its amount is less than L 17 (or such greater amount as is specified in regulations made under the Act). (b) the Member's accrued rights to GMPs are transferred to another scheme, policy or contract in accordance with Rule 10 above. (c) the Member has become entitled to an immediate or a deferred pension under the Scheme on ceasing to be in Contracted-out Employment. 76 SCHEDULE 3SCHEDULE 3 SCHEME DEEDS AND DOCUMENTS 1. 05.01.96 1996 Deed IMI Computing Limited (1) I.N.Brown and C.G. Powell (2) - ----------------------------------------------------------------------------------------------- 2. 01.04.96 Supplemental Deed Icom Solutions Limited (1) Icom Systems Limited (2) P.J.Wheble (3) - ----------------------------------------------------------------------------------------------- 3. 29.07.96 Deed of Appointment Icom Solutions Limited (1) S.M.Smith (2)

SCHEDULE 4SCHEDULE 4 PARTICIPATING EMPLOYERS Icom Solutions Limited (No. 1641088) Icom Systems Limited (No. 3056544) 77 EXECUTED as a DEED by ICOM SOLUTIONS LIMITED by means of these signatures: Director /s/ Irene Brown --------------- Irene Brown Director/Secretary /s/ Chris Powell ---------------- Chris Powell SIGNED as a DEED by IRENE NORMA BROWN /s/ Irene Norma Brown --------------------- in the presence of: /s/ Julia Cox ------------- Julia Cox 30 Nursery Road Bendley D413 IAL SIGNED as a DEED by CHRISTOPHER GARY POWELL /s/ Christopher Gary Powell --------------------------- in the presence of: /s/ Julia Cox ------------- Julia Cox 30 Nursery Road Bendley D413 IAL SIGNED as a DEED by PETER JOHN WHEBLE /s/ Peter John Wheble --------------------- in the presence of: /s/ Anil Patel -------------- 23 Mayfield Road Street L4 Sutton Coldfield B74 3P4 SIGNED as a DEED by STEPHEN MICHAEL SMITH /s/ Stephen Michael Smith ------------------------- in the presence of: /s/ Dean Tranter ---------------- Dean Tranter 22 Quarry House Close Frankly Birmingham B45 CA5 78 DATED FEBRUARY 4, 1999 ------------------------- KEANE LIMITED (1) AND I.N. BROWN, C.G. POWELL, P.J. WHEBLE AND S.M SMITH (2) ------------------------------------------ DEED OF AMENDMENT RELATING TO THE KEANE LIMITED PENSION SCHEME ------------------------------------------ THIS DEED is made on February 4, 1999 BETWEEN: (1) KEANE LIMITED (formerly known as Icom Solutions Limited) (Company Number 1641088) whose registered office is at Lion House, PO Box 1240, Birmingham B6 7UH (the "PRINCIPAL EMPLOYER"); and (2) IRENE NORMA BROWN of 8 Downham Close, Walsall, West Midlands, WS5 3BX, CHRISTOPHER GARY POWELL of 25 Heritage Court, Lichfield, Staffordshire, WS14 9ST, PETER JOHN WHEBLE of 62 Kingshayes Road, Aldridge, Walsall, WS9 8RZ and STEPHEN MICHAEL SMITH of 17 Petworth Close, Stevenage, Hertfordshire, SG2 8UP (the "TRUSTEES"). WHEREAS: (A) This deed is supplemental to the deeds more particularly described in the Schedule establishing and constituting a retirement benefits scheme called the Icom Solutions Pension Scheme (the "SCHEME"). The Scheme is currently governed by a definitive trust deed and rules dated 5th January 1998 (the "DEFINITIVE DEED"). (B) The Principal Employer is the current Principal Employer in relation to the Scheme and the Trustees are the current trustees of the Scheme. (C) Rule 4 of the Definitive Deed provides that the Principal Employer may by deed change all or any of the provisions of the Definitive Deed or other provisions of the Scheme in any way. Any change shall take effect from the date specified in the deed making the change, which date may be earlier or later than the date of that deed. (D) The Principal Employer wishes to amend the provisions of the Scheme as set out in this deed. NOW THIS DEED WITNESSES that in exercise of the power contained in Rule 4 of the Definitive Deed (and any and every other relevant power) the Principal Employer alters the Definitive Deed with effect from the 12th October 1998 so that the name of the Scheme as defined in Rule 1.1 of the Definitive Deed shall be changed to the "KEANE LIMITED PENSION SCHEME". The Trustees acknowledge the modification to the Scheme by their execution of this deed. IN WITNESS whereof this deed has been executed by or on behalf of the parties and delivered the day and year first above written. 1 THE SCHEDULE DEEDS AND DOCUMENTS CONSTITUTING THE SCHEME
DATE DOCUMENT PARTIES - ---------------------------------------------------------------------------------------- 05.01.96 Interim Deed IMI Computing Limited (1) I.N. Brown and C.G. Powell (2) 01.04.96 Supplemental Deed Icom Solutions Limited (1) Icom Systems Limited (2) P.J Wheble (3) 29.07.96 Deed of Appointment Icom Solutions Limited (1) S.M. Smith (2) 05.01.98 Definitive Deed and Rules Icom Solutions Limited (1) I.N Brown, C.G Powell, P. J Wheble and S.M Smith (2)
EXECUTED as a DEED by KEANE LIMITED by means of these signatures: Director /s/ Irene Brown --------------- Irene Brown Director/Secretary /s/ Chris Powell ---------------- Chris Powell SIGNED as a DEED by the said IRENE NORMA BROWN /s/ Irene Norma Brown --------------------- in the presence of: WITNESS: /s/ M. J. Elston ---------------- Name: M. J. Elston Address: Auchinleck House Broad Street Birmingham B15 IDL Occupation: Pensions Consultant 2 SIGNED as a DEED by the said CHRISTOPHER GARY POWELL /s/ Christopher Gary Powell --------------------------- in the presence of: WITNESS: /s/ M. J. Elston ---------------- Name: M. J. Elston Address: Auchinleck House Broad Street Birmingham B15 IDL Occupation: Pensions Consultant SIGNED as a DEED by the said PETER JOHN WHEBLE /s/ Peter John Wheble --------------------- in the presence of: WITNESS: /s/ M. J. Elston ---------------- Name: M. J. Elston Address: Auchinleck House Broad Street Birmingham B15 IDL Occupation: Pensions Consultant SIGNED as a DEED by the said STEPHEN MICHAEL SMITH /s/ Stephen Michael Smith ------------------------- in the presence of: WITNESS: /s/ M. J. Elston ---------------- Name: M. J. Elston Address: Auchinleck House Broad Street Birmingham B15 IDL Occupation: Pensions Consultant 3 DATED SEPTEMBER 1, 2000 ------------------------- KEANE LIMITED (1) AND UNA CROXFORD (2) --------------------------------------- DEED OF REMOVAL AND APPOINTMENT RELATING TO THE KEANE LIMITED PENSION SCHEME --------------------------------------- THIS DEED OF REMOVAL AND APPOINTMENT is made on September 1, 2000 BETWEEN: (1) KEANE LIMITED (Company Number: 1641088) whose registered office is at Lion House, Oscott Road, Witton, Birmingham, B6 7UH (the "PRINCIPAL EMPLOYER"); and (2) UNA CROXFORD of Flat 54, City Heights, 85 Old Snow Hill, Birmingham, B4 6HW (the "NEW TRUSTEE"). WHEREAS: (A) This deed is supplemental to the deeds more particularly described in the Schedule, establishing and constituting a retirement benefits scheme then called the Icom Solutions Pension Scheme and now called the Keane Limited Pension Scheme (the "SCHEME"). (B) The Scheme is currently governed by a definitive trust deed and rules dated 5th January 1998 (the "DEFINITIVE DEED"), as amended by a deed of amendment dated 4 February 1999. (C) The Principal Employer is the current principal employer of the Scheme. (D) Rule 7.1 of the Definitive Deed provides that the Principal Employer may by deed appoint and remove a trustee. (E) The Principal Employer wishes to remove Christopher Powell (the "RETIRING TRUSTEE") as a trustee of the Scheme. (F) The Principal Employer wishes to appoint the New Trustee as a trustee of the Scheme. (G) The New Trustee consents to act as a trustee of the Scheme. NOW THIS DEED WITNESSES: 1 the Principal Employer HEREBY REMOVES the Retiring Trustee as a trustee of the Scheme for all purposes of the Scheme, with effect from 7 July 2000; 2 the Principal Employer HEREBY APPOINTS the New Trustee to be a trustee of the Scheme for all the purposes of the Scheme, with effect from 1 September 2000; and 3 the New Trustee HEREBY AGREES to act as a trustee of the Scheme. IN WITNESS whereof this deed has been executed by or on behalf of the parties and delivered the day and year first above written. 1 THE SCHEDULE DEEDS AND DOCUMENTS CONSTITUTING THE SCHEME
DATE DOCUMENT PARTIES - ----------------------------------------------------------------------------------------- 05.01.96 Interim Deed IMI Computing Limited (1) I.N. Brown and C.G. Powell (2) 01.04.96 Supplemental Deed Icom Solutions Limited (1) Icom Systems Limited (2) P.J. Wheble (3) 05.01.98 Definitive Deed and Rules Icom Solutions Limited (1) I.N. Brown, C.G Powell, P.J Wheble and S.M. Smith (2) 04.02.99 Deed of Amendment Keane Limited (1) I.N. Brown, C.G. Powell, P.J. Wheble and S.M. Smith (2)
EXECUTED as a DEED by KEANE LIMITED by means of these signatures: Director /s/ Irene Brown --------------- Irene Brown Director/Secretary /s/ Chris Powell ---------------- Chris Powell 2 SIGNED as a DEED by the said UNA CROXFORD /s/ Una Crawford ---------------- in the presence of: Signature: /s/ Thomas Roach ---------------- Name: Thomas Roach Address: c/o Keane Ltd, Lion House, Oscott Road Witton, Birmingham B6 74H Occupation: HR Manager 3 DATED SEPTEMBER 28, 2001 --------------------------- KEANE LIMITED (1) AND I.N. BROWN, P.J. WHEBLE, S.M SMITH AND UNA CROXFORD (2) ------------------------------------ DEED OF AMENDMENT RELATING TO THE KEANE LIMITED PENSION SCHEME ------------------------------------ THIS DEED is made on the 28th day of September, 2001 BETWEEN: (1) KEANE LIMITED (formerly known as Icom Solutions Limited) (Company Number 1641088) whose registered office is at Lion House, PO Box 1240, Birmingham B6 7UH (the "PRINCIPAL EMPLOYER"); and (2) IRENE NORMA BROWN of The Grove, Walls Hill Road, Torquay, Devon, TQ1 3LZ PETER JOHN WHEBLE of 62 Kingshayes Road, Aldridge, Walsall, WS9 8RZ, STEPHEN MICHAEL SMITH of 17 Petworth Close, Stevenage, Hertfordshire, SG2 8UP and UNA CROXFORD of Flat 54, City Heights, 85 Old Snow Hill, Birmingham, B4 6HW (the "TRUSTEES"). WHEREAS: (A) This deed is supplemental to the deeds more particularly described in the Schedule establishing and constituting a retirement benefits scheme called the Icom Solutions Pension Scheme (the "SCHEME"). (B) The Scheme is currently governed by a definitive trust deed and rules dated 5th January 1998 (the "DEFINITIVE DEED"). (C) The Principal Employer is the current Principal Employer in relation to the Scheme and the Trustees are the current trustees of the Scheme. (D) Rule 4 of the Definitive Deed provides that the Principal Employer may by deed change all or any of the provisions of the Definitive Deed or other provisions of the Scheme in any way. Any change shall take effect from the date specified in the deed making the change, which date may be earlier or later than the date of that deed. (E) The Principal Employer and the Trustees wish to amend the provisions of the Scheme as set out in this deed with effect from 1st October 2001. (F) The parties to this deed are satisfied that the modifications set out in this deed can be made without requiring the certification requirements or the consent requirements referred to in section 67 of the Pensions Act 1995. NOW THIS DEED WITNESSES as follows: 1 With effect from 1st October 2001: 1.1 delete the definition of "Basic Salary" and add a new definition as follows: ""BASIC SALARY" means: (a) in relation to a Member who does not join the RewardChoice Scheme, the Member's basic annual salary; or (b) in relation to a Member who does join the RewardChoice Scheme, the Member's basic annual salary as at 30 September 2001 or the date on which he 1 joined the RewardChoice Scheme if later varied by the same percentage as his Total Reward Fund each year." 1.2 add a new definition as follows: ""TOTAL REWARD FUND" in relation to a Member means the annual value of the remuneration package provided by the Principal Employer to that Member and from which the Member can select cash and benefits under the terms of the Principal Employer's RewardChoice scheme." 1.3 Rule 61.2(a) is deleted and replaced with the following: "(a) a lump sum will be payable equal to two, or such other greater whole multiplier up to a maximum of four as the Principal Employer from time to time notifies to the Trustees and the Trustees accept, times the Member's Pensionable Pay at the date of his death;" 1.4 A new schedule 5 in the form annexed to this deed is added after schedule 4 in the Definitive Deed. 1.5 The words "(f) the pension sharing on divorce provisions in schedule 5" shall be added at the end of Rule 2.2. 2 This Deed may be entered into in the form of two or more counterparts each executed by one or more of the parties but, taken together, executed by all of them and, provided that each party duly executes such a counterpart, each of the executed counterparts, when duly executed and delivered, shall be deemed to be an original, but, taken together, they shall constitute one instrument. IN WITNESS of which this deed has been executed by or on behalf of the parties and delivered the day and year first above written. 2 THE SCHEDULE DEEDS AND DOCUMENTS CONSTITUTING THE SCHEME
DATE DOCUMENT PARTIES - ----------------------------------------- ------------------------------------------------ 05.01.96 Interim Deed IMI Computing Limited (1) I.N. Brown and C.G. Powell (2) 01.04.96 Supplemental Deed Icom Solutions Limited (1) Icom Systems Limited (2) P.J Wheble (3) 05.01.98 Definitive Deed and Rules Icom Solutions Limited (1) I.N Brown, C.G Powell, P. J Wheble and S.M Smith (2) 04.02.99 Deed of Amendment Keane Limited (1), C. G. Powell, P. J. Wheble and S. M. Smith (2)
EXECUTED as a DEED by KEANE LIMITED by means of these signatures: Director /s/ Irene Brown --------------- Irene Brown Director/Secretary /s/ Christopher Powell ---------------------- Christopher Powell SIGNED as a DEED by the said IRENE NORMA BROWN /s/ Irene Norma Brown --------------------- in the presence of: WITNESS: /s/ Jackie Mead --------------- Name: Jackie Mead Address: J. Harvington Way Sutton Coldfield West Midlands B16129 Occupation: Secretary 3 SIGNED as a DEED by the said PETER JOHN WHEBLE /s/ Peter John Wheble ---------------------- in the presence of: WITNESS: /s/ Keith Francis Brown ----------------------- Name: Keith Francis Brown Address: 43 Bodmin Rise Warsaw WS6 3HY Occupation: Chartered Accountant SIGNED as a DEED by the said STEPHEN MICHAEL SMITH /s/ Stephen Michael Smith ------------------------- in the presence of: WITNESS: /s/ Deborah Smith ---------------- Name: Deborah Smith Address: 17 Petworth Close Stevenagg Herts SU2 84P Occupation: Sales Advisor SIGNED as a DEED by the said UNA CROXFORD /s/ Una Croxford ---------------- in the presence of: WITNESS: /s/ Chris Borner ---------------- Name: Chris Borner Address: Flat S4 City Heights B4 6HW Occupation: IT Analyst 4 SCHEDULE 5 PENSION SHARING ON DIVORCE INDEX 1 Definitions and Interpretation 2 Assignment 3 Provision of Benefits 4 Satisfaction of Pension Credit Rights 5 Internal Benefits for Ex-Spouses 6 Safeguarded Rights 7 Internal Money Purchase Benefits 7.1 The Terms 7.2 Death in Deferment 7.3 Notice to Start Pension 7.4 Incapacity Pension 7.5 Medical Evidence 7.6 Time and Default Choices 7.7 Compliance 7.8 75th Birthday 7.9 Securing the Benefits 7.10 Policy Terms 7.11 Cost 7.12 Commutation 7.13 Pension Guarantee 7.14 Pension Increases 7.15 Death after Pension Starts 7.16 Charges 5 7.17 Investment Funds 8 Internal Deferred or Immediate Pension 8.1 The Terms 8.2 Death In Deferment 8.3 Commencement of Pension 8.4 Amount of Pension 8.5 Early Payment of Pension 8.6 Actuarial Reduction 8.7 Medical Evidence 8.8 Commutation 8.9 Pension Guarantee 8.10 Revaluation 8.11 Pension Increases 8.12 Death after Pension Starts 9 Transfers 10 Benefit Limits for Pension Debit Members 11 Transfer of Benefits for Pension Debit Members 12 Receipt of Transfers including Pension Credit Rights 13 Receipt of Transfers subject to a Pension Debit 14 Death before Implementation 15 Balance remaining in the Ex-Spouse's Fund 6 1 DEFINITIONS AND INTERPRETATIONS 1.1 In this Schedule 5 the following expressions shall have the meanings ascribed to them: "1999 ACT" means the Welfare Reform and Pensions Act 1999. "EX-SPOUSE" means an individual to whom Pension Credit Rights have been or are to be allocated following a Pension Sharing Order. "EX-SPOUSE'S DEPENDANT" means the Ex-Spouse's Spouse or Eligible Child. "EX-SPOUSE PARTICIPANT" is an Ex-Spouse who participates in the Scheme. For this purpose the Ex-Spouse must participate in the Scheme either: (a) solely for the provision of a Pension Credit Benefit; or (b) for the wholly separate provision of a Pension Credit Benefit where benefits accrue or have accrued to that individual under the Scheme for any other reason. "EX-SPOUSE'S FUND" means the Cash Equivalent of the Ex-Spouse's Pension Credit Rights under the Scheme or the fund which would have provided the Pension Credit Rights for the Ex-Spouse. "IMPLEMENTATION PERIOD" means the implementation period for a Pension Credit of an Ex-Spouse described in Section 34 1999 Act. "INDIVIDUAL EX-SPOUSE'S ACCOUNT" means the amount of any assets representing an Ex-Spouse's Fund applied to provide a Pension Credit Benefit for the Ex-Spouse in question, after the deduction of expenses under Paragraph 15. "INVESTMENT FUND" means a fund operated or arranged by the Trustees for the investment of an Individual Ex-Spouse's Account. "NEGATIVE DEFERRED PENSION" means the amount by which the Member's pension or deferred pension under the Scheme which arose/arises from Pensionable Service with an Employer, is reduced at the Relevant Date by section 31 1999 Act or under corresponding Northern Ireland legislation, under a Pension Sharing Order. For this purpose, Pensionable Service with an Employer includes all periods of service with other employers which have been treated as if they were Pensionable Service with an Employer where a transfer payment has been made to the Scheme in respect of that other service. "NORMAL ANNUITY AGE" is the 65th birthday of an Ex-Spouse Participant unless the Ex-Spouse Participant is also a Member in which case it is the Member's Normal Retirement Date. "PARAGRAPH" means a paragraph in this Schedule 5. 7 "PENSION CREDIT" means a credit under section 29(1)(b) 1999 Act or under corresponding Northern Ireland legislation. "PENSION CREDIT BENEFIT" in relation to the Scheme means the benefits payable under the Scheme to or in respect of a person by virtue of rights under the Scheme attributable (directly or indirectly) to a Pension Credit. "PENSION CREDIT RIGHTS" means rights to benefits or future benefits under a scheme which are attributable (directly or indirectly) to a Pension Credit. "PENSION DEBIT" means a debit under section 29(1)(a) 1999 Act or under corresponding Northern Ireland legislation. "PENSION DEBIT MEMBER" means a Member whose benefits have been permanently reduced by a Pension Debit. Such a Member will either be: (a) a Member who is a controlling director of a company which is his/her employer if he/she is a director of a company to whom paragraph (b) of section 417(5) 1988 Act applies either at the date on which the marriage was dissolved or annulled, or at any time within the period of 10 years before that date; or (b) a Member whose earnings at the date at which his/her marriage was dissolved or annulled exceeded 1/4 of the Permitted Maximum for the year of assessment in which the dissolution or annulment occurred. Earnings for these purposes shall be taken to be the total emoluments: (i) which were paid to the member in consequence of Pensionable Service to which the Scheme relates during the year of assessment before the year of assessment in which the marriage was dissolved or annulled; and (ii) (in respect of emoluments not falling within (i) above) emoluments from which tax was deducted in the year of assessment before the year of assessment in which the marriage was dissolved or annulled in accordance with the Income Tax (Employments) Regulations 1993. "PENSION SHARING ORDER" means any order, agreement or equivalent provision as is mentioned in section 28(1) 1999 Act or Article 25(1) of the Welfare Reform and Pensions (Northern Ireland) Order 1999. "SAFEGUARDED RIGHTS" has the meaning given by Section 68A of the Pension Schemes Act 1993. "SOCIAL SECURITY LEGISLATION" means the 1999 Act and any legislation relating to Safeguarded Rights. 1.2 Save where the context otherwise requires words and expressions defined in the Rules and in the other schedules to the Rules have the same meanings in this schedule 5. 8 1.3 In giving effect to this schedule 5, the Trustees shall, as far as required by the Social Security Legislation, comply with the Social Security Legislation. To that extent, this schedule 5 takes effect subject to the Social Security Legislation. 2 ASSIGNMENT 2.1 Rule 38 is amended to permit the assignment of part or all of a Member's, Deferred Pensioner's or Pensioner's retirement benefits or rights to benefits under the Scheme to his/her Ex-Spouse to the extent necessary to comply with a Pension Sharing Order. 2.2 The Trustees shall give effect to the assignment of part or all of a Member, Former Member or Pensioner's benefits or rights to benefits under the Scheme to his/her Ex-Spouse to the extent necessary to comply with a Pension Sharing Order. 3 PROVISION OF BENEFITS 3.1 Pension Credit Benefits under the Scheme shall be treated as provided separately from any other benefits provided under the Scheme for the same individual as a Member, Former Member or Pensioner or as a Dependant of a Member, Former Member or Pensioner. 4 SATISFACTION OF PENSION CREDIT RIGHTS 4.1 The Trustees shall without the consent of the Ex-Spouse and subject to Paragraph 14 discharge their liability in respect of an Ex-Spouse's Pension Credit Rights either by: (a) the payment of a credit to a qualifying arrangement under Schedule 5(3) 1999 Act or under corresponding Northern Ireland legislation; or (b) where Paragraph 4.1(a) is not possible or with the consent of the Principal Employer providing the Ex-Spouse with rights to benefits under the Scheme as an Ex-Spouse Participant. 4.2 If an Ex-Spouse's 75th birthday is on or before the end of the Implementation Period, their pension pursuant to Paragraph 4.1, must start on or before the end of the Implementation Period. 5 INTERNAL BENEFITS FOR EX-SPOUSES 5.1 Where Paragraph 4.1(b) above applies the Trustees shall before the end of the Implementation Period apply the Ex-Spouse's Fund either, without the consent of the Ex-Spouse, to establish an Individual Ex-Spouse's Account to be applied to provide a Pension Credit Benefit for or in respect of the Ex-Spouse on the terms of Paragraph 7 {money purchase benefits} or, where that is not possible, to provide a Pension Credit Benefit for or in respect of the Ex-Spouse on the terms of Paragraph 8 {deferred or immediate pension benefits}. 9 6 SAFEGUARDED RIGHTS 6.1 Where the Ex-Spouse's Pension Credit includes Safeguarded Rights the Trustees shall comply with the requirements of the 1999 Act and all regulations made thereunder in giving effect to Paragraph 4.1(a) or (b). In particular, where the Ex-Spouse becomes an Ex-Spouse Participant the Trustees shall ensure that Safeguarded Rights can be separately identified from other rights under the Scheme. 7 INTERNAL MONEY PURCHASE BENEFITS 7.1 THE TERMS The terms of the Pension Credit Benefit provided under this Paragraph 7 are defined in Paragraphs 7.2-7.14 subject to the provisions of this schedule 5. 7.2 DEATH IN DEFERMENT If the Ex-Spouse Participant dies before their Individual Ex-Spouse's Account is applied under Paragraph 7.3, the Trustees may at their discretion apply their Individual Ex-Spouse's Account or any part of it to provide: (a) a lump sum death benefit, which may be paid at the Trustees' discretion to any Ex-Spouse's Dependant, limited to 25% of the Individual Ex-Spouse's Account; and/or (b) a non-commutable pension to an Ex-Spouse's Dependant limited to a maximum of 2/3rds of the amount of the pension that could have been paid to the Ex-Spouse Participant at the date of death if the whole of the Individual Ex-Spouse's Account had been used to purchase an annuity at an available market rate. For the purpose of determining the pension which could have been paid to the Ex-Spouse Participant, it should be assumed, if he/she died under age 50,that he/she was aged 50 at the date of death. Where more than one pension is to be paid the total of all the pensions cannot exceed the amount of the pension that could have been paid to the Ex-Spouse Participant. A pension payable under Paragraph 7.2(b) must be payable for life, except that a pension paid to an Eligible Child shall cease once the recipient ceases to be an Eligible Child. The Trustees may, however, fully commute such a pension for a lump sum on the grounds of triviality at the time that the pension becomes payable. 7.3 NOTICE TO START PENSION An Ex-Spouse Participant may by three months' notice expiring at any time between attaining age 50 and Normal Annuity Age require the Trustees to apply their Individual Ex-Spouse's Account in the provision of a pension for themselves for life commencing either on the expiry of the notice or on a specified date between their Normal Annuity Age and their 75th birthday and in the provision of such other benefits as they choose under this Paragraph 7. An Ex-Spouse Participant selecting a start date for their pension which is after their Normal Annuity Age may defer 10 choosing any other benefits under this Paragraph 7 until three months before the selected start date. 7.4 TIME AND DEFAULT CHOICES The Ex-Spouse Participant must choose the benefits to be chosen under Paragraph 7.3 and the Insurance Company under Paragraph 7.7(a) at least 30 days before any of the benefits become payable. If they do not do so, the Trustees may choose those benefits and the Insurance Company in their place. 7.5 COMPLIANCE The Ex-Spouse Participant's choices under this Paragraph 7 must comply with the 1993 Act, the requirements of the Inland Revenue to maintain Approval, the provisions of this schedule 5 and the legislation and other provisions referred to in this schedule 5. 7.6 NORMAL ANNUITY AGE If the Ex-Spouse Participant does not give a notice under Paragraph 7.3 either to start their pension on or before Normal Annuity Age, or to defer starting it until a specified date between Normal Annuity Age and their 75th birthday, the Trustees shall choose their benefits under Paragraph 7.3 and the Insurance Company for them and arrange payment of them with effect from their Normal Annuity Age. 7.7 SECURING THE BENEFITS Subject to Paragraph 7.5, and in order to secure the benefits payable out of an Individual Ex-Spouse's Account, the Trustees shall either: (a) apply the Individual Ex-Spouse's Account in the purchase from an Insurance Company chosen under Paragraphs 7.4 or 7.6 of the appropriate benefits; or (b) with the consent of the Principal Employer, and if the Ex-Spouse Participant does not choose an Insurance Company under Paragraph 7.4, apply the Individual Ex-Spouse's Account within the Fund and pay the benefits from the Fund on such terms as the Trustees decide. 7.8 POLICY TERMS A pension shall be payable on the terms agreed by the Trustees with the Insurance Company from whom it is purchased. 7.9 COST The total cost of providing the benefits under Paragraph 7.3 shall not exceed the realised value of the Ex-Spouse's Individual Ex-Spouse's Account and the benefits shall be limited accordingly. 7.10 COMMUTATION 11 An Ex-Spouse Participant may choose to have part or all of his Individual Ex-Spouse's Account paid as a lump sum subject to the following: (a) The lump sum will be payable on the date when the pension begins to be paid. (b) The lump sum is limited to a maximum of 2.25 x the initial annual pension. (c) The reduction in pension to take account of the lump sum will be calculated by the Trustees on a basis certified as reasonable by the Actuary. For this purpose, the initial annual pension should be calculated on the following bases: (i) if the pension payable for the year changes, the initial pension payable should be taken; (ii) it should be assumed that the Ex-Spouse Participant will survive for at least a year; and (iii) the effect of commutation should be ignored. (d) No lump sum may be paid to the Ex-Spouse Participant where the Member (who was formerly married to the Ex-Spouse Participant) has already received a lump sum retirement benefit from the Scheme before the date of the implementation by the Scheme of the Pension Sharing Order. (e) No lump sum may be paid to the Ex-Spouse Participant where all of the Pension Credit Rights under the Scheme applicable to them have been transferred into the Scheme with a lump sum nil certificate. (f) The Trustees may allow an Ex-Spouse Participant who is in the opinion of the Trustees in such exceptional circumstances of ill-health as to have a life expectancy of less than one year, to have all of their Individual Ex-Spouse's Account paid to them as a lump sum. (g) If the pension payable pursuant to Paragraph 7.3 is a Trivial Pension the Trustees may, instead of applying the Individual Ex-Spouse's Account under Paragraph 7.3, pay the whole of it to the Ex-Spouse Participant as a lump sum. (h) Where the Ex-Spouse Participant is also entitled to benefits under the Scheme arising from Pensionable Service as an employee, for the purposes of determining the aggregate value of the total benefits payable to the Member under Rule 59 benefits from Pension Credit Rights must be included. (i) Where the Ex-Spouse Participant is also entitled to benefits under the Scheme arising from Pensionable Service as an employee, full commutation of the Pension Credit Rights on the grounds of triviality will only be permitted where benefits arising from Pensionable Service as an employee are simultaneously commuted. 7.11 PENSION INCREASES 12 All pensions in the course of payment will be increased in accordance with Sections 51-54 1995 Act. 7.12 DEATH AFTER PENSION STARTS An Ex-Spouse Participant may choose to use part of their Individual Ex-Spouse's Account to provide a pension or pensions payable on their death which shall be: (a) non-commutable; (b) payable to one or more persons who survives the Ex-Spouse Participant, who is the Ex-Spouse Participant's Spouse, Eligible Child or Dependant at the date of their death and who is nominated by the Ex-Spouse Participant to receive the pension; (c) where only one pension is to be paid, limited to a maximum of 2/3rds of the initial annual pension (calculated on the same basis as for Paragraph 7.10(c)) which was payable to the Ex-Spouse Participant as increased by any rise in the Index since the commencement of the Ex-Spouse Participant's pension; (d) where more than one pension is to be paid, limited in aggregate to no more than the amount of the initial annual pension (calculated on the same basis as for Paragraph 7.10(c)) which was payable to the Ex-Spouse Participant, as increased by any rise in the Index since the commencement of the Ex-Spouse Participant's pension; (e) payable for life, except that a pension paid to an Eligible Child shall cease once the recipient ceases to be an Eligible Child. Such pensions may, however, be fully commuted for a lump sum on the grounds of triviality at the time that such a pension becomes payable; 7.13 CHARGES Notwithstanding Rule 16, all costs, charges and expenses incurred by the Trustees in connection with the benefits of an Ex-Spouse Participant under this schedule 5 or in connection with his Individual Ex-Spouse's Account including any remuneration of the Trustees shall be payable out of his Individual Ex-Spouse's Account. 7.14 INVESTMENT FUNDS For the purpose of this schedule 5, the Trustees may establish one or more Investment Funds. If there is more than one Investment Fund: (a) the Trustees may invite an Ex-Spouse Participant to choose and to change, at such times and subject to such restrictions as the Trustees decide, one or more of the Investment Funds in which their Individual Ex-Spouse's Account is to be invested and in what proportions; (b) the Ex-Spouse Participant will be responsible for their choice under Paragraph 7.14(a) in exoneration of the Trustees; 13 (c) subject to Paragraphs 7.14(a) and (b), the Trustees shall specify, at such times as they decide, one or more of the Investment Funds in which the Individual Ex-Spouse's Account of each Ex-Spouse Participant is to be invested and in what proportions. 14 8 DEFERRED OR IMMEDIATE PENSION BENEFITS 8.1 THE TERMS The terms of the Pension Credit Benefit provided under this Paragraph 8 are defined in Paragraphs 8.2-8.11 subject to the provisions of this schedule 5. 8.2 DEATH IN DEFERMENT If the Ex-Spouse Participant dies before their pension starts under Paragraph 8.3 or 8.4, the Trustees may at their discretion and in the place of any other benefit provide: (a) a lump sum death benefit, which may be paid at the Trustees' discretion to any Ex-Spouse's Dependant, limited to 25% of the Ex-Spouse's Fund as at the date of application under Paragraph 5; and/or (b) a non-commutable pension to an Ex-Spouse's Dependant limited to a maximum of 2/3rds of the amount of the pension that could have been paid to the Ex-Spouse Participant at the date of death if the whole of the Ex-Spouse's Fund had been used to purchase an annuity at an available market rate before the end of the Implementation Period. For the purpose of determining the pension which could have been paid to the Ex-Spouse Participant, it should be assumed, if they died under age 50, that they were aged 50 at the date of death. Where more than one pension is to be paid the total of all the pensions cannot exceed the amount of the pension that could have been paid to the Ex-Spouse Participant. A pension payable under Paragraph 8.2(b) must be payable for life, except that a pension paid to an Eligible Child shall cease once the recipient ceases to be an Eligible Child . The Trustees may, however, fully commute such a pension for a lump sum on the grounds of triviality at the time that the pension becomes payable. 8.3 COMMENCEMENT OF PENSION The Trustees will pay or secure the payment of a deferred pension to the Ex-Spouse Participant commencing on the first day of the calendar month immediately following their Normal Annuity Age for life. If the Ex-Spouse Participant's Normal Annuity Age is on or before the end of the Implementation Period, then their pension must start on or before the first day of the calendar month in which the Implementation Period ends. 8.4 AMOUNT OF PENSION The amount of pension under Paragraph 8.3 will be determined by the Trustees on the advice of the Actuary on the footing that the Pension Credit Benefit of the Ex-Spouse Participant under this Paragraph 8 and an allowance for costs, charges and expenses incurred or to be incurred by the Trustees in connection with it are together equal in value to the Ex-Spouse's Fund when it is applied to provide their Pension Credit Benefit. 15 8.5 EARLY PAYMENT OF PENSION An Ex-Spouse Participant may with the consent of the Trustees require the Trustees to start their pension at any time before their Normal Annuity Age if they have attained age 50. 8.6 ACTUARIAL REDUCTION The Trustees will reduce a pension started early under Paragraph 8.5 by the amount advised by the Actuary to take account of early payment. 8.7 COMMUTATION An Ex-Spouse Participant may elect, by giving the Trustees notice in writing at least 30 days notice before their pension becomes payable, to be paid a lump sum in place of part of their pension subject to the following: (a) The lump sum will be payable on the date when the pension begins to be paid. (b) The lump sum is limited to a maximum of 2.25 x the initial annual pension. (c) The reduction in pension to take account of the lump sum will be calculated by the Trustees on a basis certified as reasonable by the Actuary. For this purpose, the initial annual pension should be calculated on the following bases: (i) if the pension payable for the year changes, the initial pension payable should be taken; (ii) it should be assumed that the Ex-Spouse Participant will survive for at least a year; and (iii) the effect of commutation should be ignored. (d) No lump sum may be paid to the Ex-Spouse Participant where the Member (who was formerly married to the Ex-Spouse Participant) has already received a lump sum retirement benefit from the Scheme before the date of the implementation by the Scheme of the Pension Sharing Order. (e) No lump sum may be paid to the Ex-Spouse Participant where all of the Pension Credit Rights under the Scheme have been transferred into the Scheme with a lump sum nil certificate. (f) The Trustees may allow an Ex-Spouse Participant who is in the opinion of the Trustees in exceptional circumstances of ill-health to be paid a lump sum in place of the whole of their pension. (g) If the pension payable pursuant to Paragraph 8.3 is a Trivial Pension, the Trustees may pay a lump sum to the Ex-Spouse Participant in the place of the whole of the pension. 16 (h) Where the Ex-Spouse Participant is also entitled to benefits under the Scheme arising from Pensionable Service as an employee, for the purposes of determining the aggregate value of the total benefits payable to the Member under Rule 59 benefits from Pension Credit Rights must be included. (i) Where the Ex-Spouse Participant is also entitled to benefits under the Scheme arising from Pensionable Service as an employee, full commutation of the Pension Credit Rights on the grounds of triviality will only be permitted where benefits arising from Pensionable Service as an employee are simultaneously commuted. 8.8 PENSION GUARANTEE A pension payable to the Ex-Spouse Participant will be payable with effect from the date of commencement under Paragraph 8.3 or 8.5 for life. 8.9 REVALUATION A deferred pension under Paragraph 8.3 will be revalued during the period between the end of the Implementation Period and the date on which the deferred pension begins to be paid in accordance with the Preservation Requirements. 8.10 PENSION INCREASES All pensions in the course of payment will be increased in accordance with Sections 51-54 1995 Act. 8.11 PAYMENT OF BENEFITS (a) A pension will begin to be paid on the date specified in Paragraph 8.3 or 8.5 or in the case of any other pension on the first day of the calendar month immediately following the event giving rise to the pension, unless the Trustees notify the recipient of some other date. (b) The pension will then be paid on the first day of each month in advance unless the Trustees notify the recipient in advance that some other interval (not exceeding 12 months) will apply. (c) The last payment will be that which is payable on or immediately before the date of death or earlier termination and will not be apportioned. (d) Every pension and lump sum will be payable from any office nominated by the Trustees to the bank account of the Beneficiary or in any other manner the Trustees decide. 9 TRANSFERS 9.1 The Ex-Spouse Participant may, at any time up to 12 months before their pension is due to start under Paragraph 7 or 8, ask the Trustees to arrange a transfer of the whole of their Pension Credit Rights: 17 (a) to another scheme approved under Chapter I Part XIV of the 1988 Act if they are already a member of that scheme or an ex-spouse participant in that scheme; or (b) to a scheme approved under Chapter IV Part XIV of the 1988 Act; or (c) to any other scheme if the Inland Revenue's requirements are satisfied in relation to a transfer to that scheme. 9.2 The Trustees must confirm to the receiving scheme or arrangement, that the transfer value consists wholly or partly of Pension Credit Rights for the benefit of an Ex-Spouse Participant. 10 BENEFIT LIMITS FOR PENSION DEBIT MEMBERS 10.1 Notwithstanding any other provisions of the Rules, the benefits for a Pension Debit Member are additionally subject to the following limits: (a) The pension shall not exceed the Aggregate Retirement Benefit in schedule 1 less the Negative Deferred Pension in this Scheme and the Negative Deferred Pension in any Associated Scheme and also, in the case of a Class A Member, the Negative Deferred Pension in any Connected Scheme. (b) The lump sum from this and any Associated Scheme shall not exceed: (i) for Pension Debit Members who are Class A Members or Class B Members, an amount determined by 2.25 times the initial annual pension payable; or (ii) for Pension Debit Members who are Class C Members, an amount of the greater of: (A) 2.25 times the initial annual pension payable; or (B) an amount determined in accordance with schedule 1 as if there had been no Pension Debit, less 2.25 times the Negative Deferred Pension. For the purposes of this Paragraph 10.1(b), the initial annual pension should be calculated on the following bases: 1) if the pension payable for the year changes, the initial pension payable should be taken; 2) it should be assumed that the Pension Debit Member will survive for at least a year; and 3) the effect of commutation should be ignored. (c) On the death of the Pension Debit Member, any pension for a Dependant shall not exceed 2/3 times an amount determined in accordance with schedule 1 as 18 if there had been no Pension Debit, less the Negative Deferred Pension and the Negative Deferred Pension in any Associated Scheme and, also in the case of a Class A Member the Negative Deferred Pension in any Connected Scheme. Where more than one pension is to be paid the total of all the pensions cannot exceed 100% of an amount determined in accordance with schedule 1 as if there had been no Pension Debit, less the Negative Deferred Pension and the Negative Deferred Pension in any Associated Scheme and, also in the case of a Class A Member the Negative Deferred Pension in any Connected Scheme. 11 TRANSFERS OF BENEFITS FOR PENSION DEBIT MEMBERS 11.1 The Trustees must give full details of the Pension Debit and a lump sum certificate specifying the maximum permissible lump sum, to the receiving scheme/arrangement where the fund underlying the benefits for a Pension Debit Member is transferred to another scheme approved under Chapter I Part XIV of the 1988 Act or a scheme approved under Chapter IV Part XIV of the 1988 Act. 12 RECEIPT OF TRANSFERS INCLUDING PENSION CREDIT RIGHTS 12.1 Where the Trustees accept a transfer payment for an individual who is already a Member of the Scheme or is already an Ex-Spouse Participant in the Scheme and are informed by the transferor that the transfer value consists wholly or partly of Pension Credit Rights in the former scheme or arrangement, then the Trustees must separately identify the transfer payment relating to the Pension Credit Rights or the part of the transfer payment relating to the Pension Credit Rights from other funds held for the benefit of the Member. 12.2 The Trustees must comply with the requirements of Paragraph 3 in respect of the transferred-in Pension Credit Rights. Then the individual will acquire the status of an Ex-Spouse Participant in the Scheme in relation to their transferred-in Pension Credit Benefits. Such Pension Credit Benefits will not count towards any limit on benefits for that Member. 13 RECEIPT OF TRANSFERS SUBJECT TO A PENSION DEBIT 13.1 Where the Trustees accept a transfer payment and are informed by the transferor of the details of a Pension Debit relating to the transfer payment, the Trustees must take account of the Pension Debit, if appropriate, in the calculation of any limit on benefits for that Member. 14 DEATH BEFORE IMPLEMENTATION 14.1 If the Ex-Spouse dies after a Pension Sharing Order is made but before it is acted upon by the Trustees, the Trustees may at their discretion apply the Ex-Spouse's Fund, or any part of the Ex-Spouse's Fund, to provide: (a) a lump sum death benefit, which may be paid to any person, limited to 25% of the Ex-Spouse's Fund; and/or 19 (b) a non-commutable pension to an Ex-Spouse's Dependant limited to a maximum of 2/3rds of the amount of the pension that could have been paid to the Ex-Spouse at the date of death if the whole of what would have been the Ex-Spouse's Fund had been used to purchase an annuity at an available market rate. Where more than one pension is to be paid the total of all the pensions cannot exceed the amount of the pension that could have been paid to the Ex-Spouse. A pension payable under Paragraph 14.1(b) must be payable for life, except that a pension paid to an Eligible Child shall cease once the recipient ceases to be an Eligible Child. The Trustees may, however, fully commute the pension for a lump sum on the grounds of triviality at the time such a pension becomes payable. 14.2 Any balance remaining in the Ex-Spouse's Fund after Paragraph 14.1 has been applied shall be retained by the Trustees for better securing the solvency of the Scheme. 15 CHARGES 15.1 The Trustees may at their discretion pass on to the Member and the Ex-Spouse the reasonable administrative expenses involved in giving effect to a Pension Sharing Order or providing information in relation to a proposed Pension Sharing Order. At the first notification of the parties' intention to seek a Pension Credit and a Pension Debit the Trustees shall notify both of them of the relevant charges and the timing and method of payment. The Trustees may require payment of the charges in cash or may deduct the charges from the Pension Credit or Pension Debit as they consider appropriate. 20 21 DATED JANUARY 16, 2003 -------------------------- KEANE LIMITED (1) CHRISTOPHER EARNSHAW (2) AND LAURENCE SHAW (3) ----------------------------------------- DEED OF APPOINTMENT AND REMOVAL RELATING TO THE KEANE LIMITED PENSION SCHEME ----------------------------------------- THIS DEED OF APPOINTMENT AND REMOVAL is made on January 16, 2003 BETWEEN: (1) KEANE LIMITED (Company No. 1641088) whose registered office is at Bentima House, 168-172 Old Street, London, EC1V 9BP (the "PRINCIPAL EMPLOYER"); (2) CHRISTOPHER EARNSHAW of 8 The Brambles, Lichfield, Staffordshire, WS14 9SE (the "FIRST NEW TRUSTEE"); and (3) LAURENCE SHAW of 8 Nightingale Road, Guildford, Surrey, GU1 1ER (the "SECOND NEW TRUSTEE"). WHEREAS: (A) This deed is supplemental to the deeds set out in the Schedule, establishing and constituting a retirement benefits scheme now known as the Keane Limited Pension Scheme (the "SCHEME"). (B) The Scheme is currently governed by a definitive trust deed and rules dated 5 January 1998 (the "DEFINITIVE DEED AND RULES"), as amended to the date of this deed. (C) The Principal Employer is the current principal employer of the Scheme. The current Trustees of the Scheme are Peter Wheble (the "FIRST RETIRING TRUSTEE"), Irene Brown (the "SECOND RETIRING TRUSTEE") and Una Croxford and Stephen Smith (the "REMAINING TRUSTEES"). (D) Rule 7.1 of the Definitive Deed and Rules provides that the Principal Employer may by deed appoint and remove trustees. (E) The First Retiring Trustee and the Second Retiring Trustee have ceased to be employed by the Principal Employer and the Principal Employer therefore wishes to remove them as trustees of the Scheme. (F) The Principal Employer wishes to appoint the First New Trustee and the Second New Trustee as trustees of the Scheme in place of, respectively, the First Retiring Trustee and the Second Retiring Trustee. (G) The First New Trustee and the Second New Trustee consent to act as trustees of the Scheme jointly with the Remaining Trustees. NOW THIS DEED WITNESSES: 1 The Principal Employer hereby removes the First Retiring Trustee and the Second Retiring Trustee as trustees of the Scheme with effect from the date of this deed. 2 The Principal Employer hereby appoints the First New Trustee and the Second New Trustee to be trustees of the Scheme to act jointly with the Remaining Trustees for all the purposes of the Scheme with effect from the date of this deed. 3 The First New Trustee and the Second New Trustee hereby agree to act as trustees of the Scheme jointly with the Remaining Trustees. 1 IN WITNESS of which this deed has been executed by or on behalf of the parties and delivered the day and year first above written. 2 SCHEDULE DEEDS AND DOCUMENTS CONSTITUTING THE SCHEME
DATE DOCUMENT PARTIES - ----------------------------------------------------- ---------------------------------------- 05.01.1996 Interim Deed IMI Computing Limited (1) I.N. Brown and C.G. Powell (2) 01.04.1996 Supplemental Deed Icom Solutions Limited (1) Icom Systems Limited (2) P.J. Wheble (3) 05.01.1998 Definitive Deed and Rules Icom Solutions Limited (1) I.N. Brown, C.G Powell, P.J Wheble and S.M. Smith (2) 04.02.1999 Deed of Amendment Keane Limited (1) I.N. Brown, C.G. Powell, P.J. Wheble and S.M. Smith (2) 01.09.2000 Deed of Appointment and Removal Keane Limited (1) Una Croxford (2) 28.09.2001 Deed of Amendment Keane Limited (1) I.N. Brown, P.J. Wheble, S.M. Smith and U. Croxford (2)
3 SIGNED as a DEED by KEANE LIMITED acting by a Director and its Secretary (or two Directors) Director /s/ Laurence Shaw ----------------- Laurence Shaw Director/Secretary /s/ Una Croxford ---------------- Una Croxford SIGNED as a DEED by CHRISTOPHER EARNSHAW /s/ Christopher Earnshaw ------------------------ in the presence of: Signature of witness /s/ Una Croxford ---------------- Name (in BLOCK CAPITALS) UNA CROXFORD Address Keane Ltd Stonecourt Siskin Drive Coventry SIGNED as a DEED by LAURENCE SHAW /s/ Laurence Shaw ----------------- in the presence of: Signature of witness /s/ Una Croxford ---------------- Name (in BLOCK CAPITALS) UNA CROXFORD Address Keane Ltd Stonecourt Siskin Drive Coventry 4 DATED AUGUST 8, 2003 -------------------------- KEANE LIMITED (1) UNA CROXFORD, CHRISTOPHER EARNSHAW AND LAURENCE SHAW (2) AND ROBERT PENNY (3) ------------------------------------------- DEED OF APPOINTMENT AND REMOVAL RELATING TO THE KEANE LIMITED PENSION SCHEME ------------------------------------------- THIS DEED is made on the 8th day of August 2003 BETWEEN: (1) KEANE LIMITED (Company No. 1641088) whose registered office is at Bentima House, 168-172 Old Street, London, EC1V 9BP (the "PRINCIPAL EMPLOYER"); (2) UNA CROXFORD of 65 Church Road, Boldmere, Sutton Coldfield, West Midlands, B73 5RG, CHRISTOPHER EARNSHAW of 8 The Brambles, Lichfield, Staffordshire, WS14 9SE, and LAURENCE SHAW of 28 Nightingale Road, Guildford, Surrey GU1 1ER (the "CONTINUING TRUSTEES"); and (3) ROBERT PENNY of 209 Dower Road, Sutton Coldfield, West Midlands B75 6SY (the "NEW TRUSTEE"). RECITALS: (A) This deed is supplemental to the deeds set out in the Schedule, establishing and constituting a retirement benefits scheme now known as the Keane Limited Pension Scheme (the "SCHEME"). (B) The Scheme is currently governed and administered in accordance with the provisions of the Definitive Trust Deed and Rules of the Scheme dated 5 January 1998 (the "DEFINITIVE DEED AND RULES"), as amended to the date of this deed. (C) The Principal Employer is the current principal employer in relation to the Scheme and the current trustees of the Scheme are the Continuing Trustees and Stephen Michael Smith (the "RETIRING TRUSTEE"). (D) Rule 7.1 of the Definitive Deed and Rules provides that the Principal Employer may by deed appoint and remove trustees. (E) The Retiring Trustee was elected as a Member Nominated Trustee under alternative arrangements made by the Principal Employer in accordance with the Pensions Act 1995. (F) The Retiring Trustee has left the employment of the Principal Employer and, in accordance with those alternative arrangements, the New Trustee has been elected by the members as a trustee of the Scheme in place of the Retiring Trustee. (G) The Principal Employer wishes to formally confirm the removal of the Retiring Trustee and the appointment of the New Trustee in his place. (H) The Retiring Trustee is not immediately available to execute this deed but his execution of this deed is not required to effect a valid removal. 2 (I) The New Trustee has consented to act as a trustee of the Scheme jointly with the Continuing Trustees. (J) It is certified that this deed is an instrument falling within Category A to the Schedule of the Stamp Duty (Exempt Instruments) Regulations 1987. NOW THIS DEED WITNESSES as follows: 1 The Principal Employer hereby confirms the removal of the Retiring Trustee as a trustee of the Scheme with effect from the date of this deed. 2 The Principal Employer hereby confirms the appointment of the New Trustee as a trustee of the Scheme to act jointly with the Continuing Trustees for all the purposes of the Scheme with effect from the date of this deed. 3 The New Trustee hereby agrees to act as a trustee of the Scheme jointly with the Continuing Trustees, with effect from the date of this deed. IN WITNESS of which this deed has been executed by or on behalf of the parties and delivered the day and year first above written 3 SCHEDULE DEEDS AND DOCUMENTS CONSTITUTING THE SCHEME
DATE DOCUMENT PARTIES - ---------------------------------------------------------------------------------------------- 05.01.1996 Interim Deed IMI Computing Limited (1) I.N. Brown and C.G. Powell (2) 01.04.1996 Supplemental Deed Icom Solutions Limited (1) Icom Systems Limited (2) P.J. Wheble (3) 05.01.1998 Definitive Deed and Rules Icom Solutions Limited (1) I.N. Brown, C.G. Powell, P.J. Wheble and S.M Smith (2) 04.02.1999 Deed of Amendment Keane Limited (1) I.N. Brown, C.G. Powell, P.J. Wheble and S.M Smith (2) 01.09.2000 Deed of Appointment and Removal Keane Limited (1) Una Croxford (2) 28.09.2001 Deed of Amendment Keane Limited (1) I.N. Brown, P.J. Wheble, S.M. Smith and U. Croxford (2) 16.01.2003 Deed of Appointment and Removal Keane Limited (2) C Earnshaw, L Shaw (2)
4 EXECUTED as a DEED by KEANE LIMITED by means of these signatures: Director /s/ Laurence Shaw ----------------- Laurence Shaw Director/Secretary /s/ Una Croxford ---------------- Una Croxford SIGNED as a DEED by the said UNA CROXFORD /s/ Una Croxford ---------------- in the presence of: WITNESS: Signature /s/ Yvette Fisher ----------------- Name Yvette Fisher Address 290 Queens Road Nuneaton CV11 5LY Occupation HR Administrator SIGNED as a DEED by the said CHRISTOPHER EARNSHAW /s/ Christopher Earnshaw ------------------------ in the presence of: WITNESS: Signature /s/ Yvette Fisher ----------------- Name Yvette Fisher Address 290 Queens Road Nuneaton CV11 5LY Occupation HR Administrator 5 SIGNED as a DEED by the said LAURENCE SHAW /s/ Laurence Shaw ----------------- in the presence of: WITNESS: Signature /s/ Sarah Perks --------------- Name Sarah Perks Address Flat 1 2 Chapel Market Islington London N19EL Occupation PA SIGNED as a DEED by the said ROBERT PENNY /s/ Robert Penny ---------------- in the presence of: WITNESS: Signature /s/ Maurice Pitt --------------- Name Maurice Pitt Address 207 Dover Road Four Oaks Sutton Colorfield B75654 Occupation Retired 6 EX-10.20 5 a2153146zex-10_20.txt EXHIBIT 10.20 Exhibit 10.20 FIRST AMENDMENT AND RESTATEMENT OF THE KEANE, INC. DEFERRED COMPENSATION PLAN (EFFECTIVE AS OF JANUARY 1, 2001) ARTICLE 1 PURPOSE AND INTENT The Keane, Inc. Deferred Compensation Plan (the "Plan") was originally established by Keane, Inc. effective as of October 23, 1997, to permit certain of its management or highly compensated employees to defer all or a portion of their salary and bonuses. The Plan has been amended in certain respects and restated in its entirety effective January 1, 2001, for the purpose of providing such employees with a capital accumulation opportunity by permitting them to defer compensation on a pre-tax basis, to provide Keane, Inc. and its affiliates with a method of rewarding and retaining its key employees. The Plan is intended to be "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3) and 401(a) of ERISA, and shall be implemented and administered in a manner consistent therewith. ARTICLE 2 DEFINITIONS Whenever used herein, unless the context clearly indicated otherwise, the following words and phrases shall have the meaning herein specified and the following definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined. The masculine pronoun whenever used herein shall include the feminine and neuter genders and the singular shall include the plural, unless the context clearly indicates a different meaning. - 2 - 2.1 "ACCOUNT" means the account established on behalf of the Participant as described in Section 6.1. 2.2 "BENEFICIARY" means an individual or entity designated by a Participant or otherwise determined pursuant to Section 8.1.1 hereof to receive any death benefits payable under the Plan. 2.3 "BONUS" means the amount otherwise payable to a Participant under the Keane, Inc. Annual Incentive Bonus (AIB), as from time to time in effect, based on the Participant's participation in the AIB for that computation period under the AIB applicable to the Plan Year in question, during the Plan Year following the year in which the Participant executes a Deferral Agreement based on the Participant's participation in the AIB for the current AIB computation period, or any comparable computation period used for computation of the bonus prior to such bonus awards becoming payable to the Participant. 2.4 "CODE" means the U.S. Internal Revenue Code of 1986, as amended. 2.5 "COMMITTEE" means the Keane, Inc. Administrative Committee, or such other committee as may be established from time to time to administer the Plan, which shall consist of one or more individuals who shall be designated by, and serve at the pleasure of, the Board of Directors of Keane, Inc. 2.6 "DEFERRAL AGREEMENT" means an agreement between the Employer and a Participant to defer a Bonus or Salary, which is executed pursuant to Article 5 hereof. 2.7 "DISABILITY" or "DISABLED" means the inability of an Employee to perform each of the material duties of the Employee's regular occupation for a period of time extending beyond - 3 - a period of one hundred eighty (180) consecutive days from the first day on which said inability commences. 2.8 "EMPLOYER" means Keane, Inc., Keane Federal Systems, Inc., Keane Service Company, Inc., Keane Consulting Group, Inc., Keane CRM Solutions Practice, Inc., Keane Care Computer Systems, Inc. and any successor or other entity which, by written agreement, assumes the obligations of the Plan. 2.9 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2.10 "NORMAL RETIREMENT DATE" means a Participant's date of termination from active employment with Employer after having attained the age of fifty-five (55) years. 2.11 "PARTICIPANT" means an Employee of the Employer selected by the Board of Directors of the Employer or its designee pursuant to Article 4 hereof to participate in this Plan. 2.12 "PLAN" means the Keane, Inc. Deferred Compensation Plan, as herein set forth, as the same may be amended from time to time. 2.13 "PLAN YEAR" means the twelve month period commencing on January 1 and ending on December 31, except that in the year the Plan is adopted the Plan Year shall commence on the date the Plan was adopted. 2.14 "SALARY" means the amount otherwise payable to the Participant, as salary or commissions during the Plan Year following the year in which the Participant executes a Deferral Agreement. ARTICLE 3 ADMINISTRATION - 4 - The Plan shall be administered by the Committee. The Committee shall have the authority to interpret the provisions of the Plan and decide all questions and settle all disputes which may arise in connection with the Plan, all in the exercise of its sole discretion. The Committee may establish operating and administrative rules and procedures in connection therewith, provided that such rules and procedures are consistent with the requirements of ERISA. All interpretations, decisions and determinations made by the Committee shall be final, conclusive and binding on all persons concerned. No member of the Committee who is a Participant may vote upon or otherwise participate in any decision or act with respect to a matter relating to himself or his Beneficiaries. ARTICLE 4 PARTICIPATION The Participants in the Plan shall be those "Management or Highly-Compensated Employees," within the meaning of Section 201(2), 301(a)(3) and 401(a)(1) of ERISA, who shall be Employees of the Employer and who shall be selected from time to time by the Committee from among those Employees with an annual base Salary of One Hundred Thousand Dollars ($100,000) or more, with job classifications at the level of Director or above. To participate in the Plan an eligible Employee must complete all requisite election forms and applications in a timely manner reasonably acceptable to the Committee, provided that newly-hired Employees who are immediately eligible to participate in the Plan may complete the requisite forms and applications within thirty (30) calendar days following their written notification by the Committee or its designee of eligibility to participate. Once an Employee becomes a Participant, - 5 - he or she generally remains eligible to participate for all Plan Years thereafter; provided that a Participant's participation in the Plan shall end upon his termination of service with the Employer for any reason or his ceasing to be a Management or Highly-Compensated Employee. In the latter case, ceasing to be such an Employee shall not reduce the obligation of the Employer to any Participant below the amount to which the Participant would be entitled under the Plan as in effect immediately prior to such termination of participation if the Participant's employment with the Employer had then terminated. The Committee may alter its criteria for Plan eligibility within the framework of the provisions of this Article 4. ARTICLE 5 DEFERRALS AND CONTRIBUTIONS 5.1 DEFERRAL ELECTION. Each Participant may elect to defer the Bonus and/or Salary that would otherwise be payable to him for a Plan year by executing a Deferral Agreement. 5.2 ELECTION PROCEDURES. An election to defer Salary or a Bonus is made by completing a Deferral Agreement by December 15 (December 22, 2000 as to the 2001 Plan Year only) of the Plan Year prior to the Plan Year in which the Salary or Bonus would otherwise be paid. The election shall pertain to the succeeding Plan Year only and shall be irrevocable as to that Plan Year. The election shall specify the percentage of the Bonus to be deferred in one percent (1%) increments from ten percent (10%) to ninety percent (90%), and the percentage of Salary to be deferred in one percent (1%) increments from five percent (5%) to fifty percent (50%). - 6 - 5.3 DEFERRAL LIMITATIONS. No deferral election shall reduce a Participant's current compensation (Salary and Bonus) below the amount necessary to satisfy the following obligations: (a) Applicable employment taxes on the amounts deferred; (b) Federal, state and local income and withholding taxes on amounts deferred or other compensation; and (c) Contributions required of or elected by the Participant under any other employee benefit plans from time to time maintained by the Employer, or any other deductions authorized by the Employee or ordered by a court or other authority of competent jurisdiction under applicable law or regulations. 5.4 EMPLOYER CONTRIBUTIONS AND MATCHING CONTRIBUTIONS. In addition to Participant deferrals pursuant to Section 5.1, the Employer may, in its sole discretion, make contributions to the Plan for the benefit of any or all Participants in any Plan Year, based upon the performance of the Employer or of the Participant(s) in question, or such other and further criteria as the Employer may deem appropriate. Such contributions may take the form of matching contributions based upon the Participant's deferral election, and may become vested and nonforfeitable in accordance with a schedule different from that applicable to the Participant's deferrals, all as from time to time stipulated by the Employer at the time such contributions are determined. 5.5 FULL FUNDING UPON A CHANGE OF CONTROL. Notwithstanding any other provision hereof, the Employer shall, as soon as possible (but in no event more than thirty (30) days) - 7 - following a Change of Control, as hereinafter defined, irrevocably set aside and contribute to a trust fund, irrevocable letter of credit or other funding arrangement providing comparable security to Plan Participants and Beneficiaries and established for this purpose, an amount sufficient to pay each Plan Participant or Beneficiary the benefits to which Plan Participants or their Beneficiaries would be entitled pursuant to the terms of the Plan as of the date on which the Change of Control occurred. For purposes hereof, "Change of Control" shall mean (i) the purchase or other acquisition by any person, entity or group of persons, within the meaning of Section 13(d) or 14(a) of the Securities Exchange Act of 1934 ("Act") or any comparable successor provisions, of "beneficial ownership" (within the meaning of Rule 13d-3 promulgated under the Act) of thirty percent (30%) or more of either the outstanding shares of common stock or the combined voting power of the then outstanding voting securities of Keane, Inc. entitled to vote generally; (ii) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to Keane, Inc.), where the term "Continuing Director" means at any date a member of the Board (x) who was a member of the Board on the date of the initial adoption of this Plan by the Board or (y) who was nominated or elected subsquent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; PROVIDED, HOWEVER, that there shall be excluded from this clause (y) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a - 8 - person other than the Board; (iii) the approval by the stockholders of Keane, Inc. of a reorganization, merger, consolidation, recapitalization or share exchange involving Keane, Inc. in each case, with respect to which persons who were stockholders of Keane, Inc. immediately prior to such reorganization, merger, consolidation, recapitalization or share exchange do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the then outstanding securities of the reorganized, merged, or consolidated Keane, Inc. (or the legal successor(s) thereto); or (iv) a liquidation or dissolution of Keane, Inc. or of the sale of all or substantially all of its assets. ARTICLE 6 ACCOUNTS AND CREDITS 6.1 ESTABLISHMENT OF ACCOUNT. For accounting and computational purposes only, the Employer shall establish and maintain for each Participant an Account to which credits and charges shall be made as provided hereunder, which shall remain part of the general assets of the Employer. Each Participant or Beneficiary under the Plan holds only the status of a general creditor of the Employer (e.g., in the event of the bankruptcy or insolvency of the Employer) and shall have no right to receive any specific Account balance or Plan asset. 6.2 CREDITS TO THE ACCOUNT. The amount a Participant elects to defer pursuant to Sections 5.1 and 5.2 hereof shall be credited ratably to the Participant's Account as soon as administratively feasible and normally within five (5) business days after the time the Salary or Bonus would otherwise have been payable to the Participant but for his election to defer. Employer contributions pursuant to Section 5.4 hereof will be credited to the Participant's - 9 - Account as stipulated by the Employer at the time such contributions are determined. Each Participant's Account will also be credited with earnings as determined under Article 6.4 hereof. A Participant shall not have any right to receive any current or accumulated deferred compensation or earnings until such time as determined under Article 7 of the Plan. 6.3 INVESTMENT OF AMOUNTS CREDITED TO THE ACCOUNT. It is intended that the Employer shall invest the amounts credited to Participant Accounts from time to time in investments determined by the Committee in its sole discretion. For purposes of measuring the investment returns of his Account a Participant may select, by an investment designation on a form provided by the Committee, or in such other manner as the Committee may from time to time designate, from one or more benchmark investment funds chosen by the Committee, in which such Accounts are deemed to be invested. The deferrals and contributions pertaining to each Plan Year may be allocated separately for this purpose. Investment allocations may be changed monthly in increments of one full percentage point (1%). Changes received by the Committee or its designee by the twenty-fifth (25th) day of any calendar month will be given effect as of the first business day of the calendar month following. Notwithstanding the above, the Committee in its sole discretion may from time to time change the benchmark investment funds available under the Plan. 6.4 VALUATION OF ACCOUNTS. Each benchmark investment fund shall be valued daily, insofar as practicable, and the value of each Participant's Account shall be recorded monthly based on the amounts credited to such Account, the investment performance of the Account, any distributions made from such Account and any Plan expenses allocated by the Committee to such Account. The net investment earnings or loss credited to or deducted from each Participant's - 10 - Account shall reflect the net investment return (positive or negative) of the applicable benchmark investment funds selected by the Participant. In all cases a Participant's Account shall reflect net investment return through the last business day of the calendar month preceeding that which includes the date of distribution of amounts from such Account. 6.5 DECREASES IN ACCOUNT. A Participant's Account will be reduced by any benefits distributed to or on behalf of a Participant pursuant to Article 7. 6.6 PARTICIPANT STATEMENTS. The Committee shall provide statements to each Participant on at minimum an annual basis showing such information as is appropriate, including the aggregate amount in his Account as of a reasonably current date. 6.7 VESTING. Participants' interests in their respective Plan Accounts shall become vested and nonforfeitable as follows: (a) Participants' interests in their Account balances derived from elective deferrals and net investment returns attributable thereto shall at all times be fully vested and nonforfeitable. (b) Participants' interests in their Account balances derived from Employer contributions (including matching contributions) and net investment returns attributable thereto shall become vested and nonforfeitable in the manner prescribed by the Employer at such time as the contributions in question are determined, provided that if the Employer does not so prescribe the foregoing paragraph (a) shall apply to such interests. ARTICLE 7 AMOUNT AND DISTRIBUTION OF BENEFITS - 11 - 7.1 AMOUNT OF BENEFITS. Except as specifically provided in Article 8 hereof, the value of a Participant's Account, as determined under Article 6 hereof, shall determine and constitute the sole basis for the value of the benefits payable to the Participant under the Plan. 7.2 COMMENCEMENT OF BENEFIT PAYMENTS. Except as provided in this Article and in Article 8 hereof, the benefits payable to a Participant shall commence in accordance with the terms of the Participant's Deferral Agreements. The deferrals and contributions attributable to each Plan Year, and any net investment gains attributable thereto, may be distributed on a separate schedule. Distributions are taxable as ordinary income when received by the Participant or his Beneficiary. A Participant may elect to receive his vested Account balance attributable to a Plan Year upon termination, retirement or disability or at a specified future date while still employed by the Employer, all as provided in this Article. Any Participant who made a distribution election under the Plan as constituted prior to January 1, 2001 may on a one-time basis prior to December 15, 2000, elect to change the form of benefit payment. 7.3 FORM OF BENEFIT PAYMENT. Except as specifically provided in Article 8 hereof, the benefits payable to a Participant shall be paid as provided in this Article 7 and, to the extent consistent therewith, in the Participant's Deferral Agreement or Agreements. If a Participant's Deferral Agreement does not provide for a form of payment, the benefits attributable to such Deferral Agreement shall be paid as provided in Articles 7 and 8 hereof. 7.4 RETIREMENT OR OTHER TERMINATION OF SERVICE. The provisions of this Section 7.4 apply in the event of any termination of service with the Employer by a Participant other than due to death or disability, in which case the provisions of Article 8 hereof shall apply. Except as otherwise specifically provided herein, a Participant's election in a Deferral Agreement to receive - 12 - the vested deferrals, contributions and net investment earnings attributable thereto with respect to a given Plan Year upon such termination of service shall be irrevocable. If termination occurs prior to Normal Retirement Age such distribution shall be in the form of a lump sum. If termination occurs at or after Normal Retirement Age the distribution will be made in accordance with the Participant's election in his original Deferral Agreement, provided that if no such designation is made distribution shall be in the form of a lump sum. The Participant may elect to receive his distribution in the form of a lump sum or in annual installments over five (5), ten (10) or fifteen (15) years following termination. Notwithstanding the foregoing, if the Participant's vested Account balance is less than Ten Thousand Dollars ($10,000) at termination, distribution will be made in the form of a lump sum. Subject to the foregoing, the form or timing of a distribution may be changed by the Participant by giving written notice, upon a form to be provided by the Committee or its designee, to the Committee at least one (1) year prior to the date of the distribution. 7.5 SCHEDULED IN-SERVICE DISTRIBUTIONS. A Participant may elect to receive a Scheduled Distribution from his vested Plan Account while still employed by the Employer, provided that (a) no such Distribution may pertain to deferrals or contributions made with respect to Plan Years beginning prior to January 1, 2001; (b) such Distribution may not commence until the third Plan Year after the Plan Year in which the deferrals or contributions were made (e.g., until 2004 as to 2001 deferrals or contributions); and (c) the Distribution shall be in the form of a lump sum payable prior to the end of the first quarter of the Plan Year specified in the Scheduled Distribution election form (e.g., the first quarter of 2004, as to an election made as to 2001). A Scheduled Distribution may be postponed provided the Participant gives the Committee written - 13 - notice of his desire to do so at least one (1) year prior to the date that the Distribution was originally scheduled to be made. A Scheduled Distribution may not be postponed more than twice in this fashion. If the Participant terminates service with the Employer before or after his Normal Retirement Age, but prior to the date of his Scheduled Distribution, his entire vested Account balance (including any Scheduled Distributions) shall instead be distributed pursuant to Section 7.4 hereof. 7.6 HARDSHIP DISTRIBUTIONS. A Participant may at any time apply to the Commitee for an immediate distribution of all or any portion of his vested Account balance in the event of hardship. Hardship Distributions shall be granted by the Committee only to the extent required to meet the hardship and only for the following reasons: (a) illness or accident suffered by the Participant or his spouse or dependent; (b) a casualty loss affecting the property of the Participant or his spouse or dependent; (c) other circumstances of similar character and magnitude arising from events beyond the control of the Participant. Any Participant claiming hardship status shall be required to submit documentation of the hardship, the amount of the Hardship Distribution required to alleviate the same and proof in form acceptable to the Committee in its sole discretion that the hardship cannot be alleviated by other means, such as insurance coverage, available taxable or non-taxable withdrawals from the Employer's tax-qualified retirement plans or other resources reasonably available to the Participant. A Participant receiving a Hardship Distribution shall be ineligible to make an - 14 - elective deferral to the Plan for the remainder of the Plan Year in which the Distribution is made or the Plan Year following. 7.7 TAX WITHHOLDING. The Employer shall make whatever agreements are necessary to effectuate a timely and proper withholding (from the Account or otherwise) on account of any payments under the Plan that are subject to Federal, State and local income and employment tax withholding at the time of deferral or payment, as the case may be. - 15 - ARTICLE 8 DEATH AND DISABILITY BENEFITS 8.1 DEATH BENEFITS. 8.1.1 DESIGNATION OF BENEFICIARY. A Participant may, by written instrument delivered during his lifetime to the Employer, designate primary and contingent Beneficiaries to receive any benefit payments which may be payable hereunder following his death, and may designate the proportions in which such Beneficiaries are to receive such payments. A Participant may change such designations from time to time and the last written designation filed with the Employer prior to the Participant's death will control. If a Participant fails to designate a Beneficiary or no designated Beneficiary survives the Participant, or if all designated Beneficiaries who survive the Participant die before all payments are made, any remaining payments shall be made to the Participant's surviving spouse, if then living; or if not then living, to the then living issue of the Participant, if any, by right of representation, or if no such issue is then living, the legal representatives of the Participant's estate, all of whom shall be considered Beneficiaries of the Participant for purposes of this Plan. 8.1.2 DEATH BENEFITS. If a Participant dies while employed by the Employer, an amount equal to the greater of (1) his Insured Benefit hereunder, if any, or (2) his vested Account balance, determined in each case as of the date of death, will be paid to his Beneficiary or Beneficiaries as designated pursuant to Section 8.1.1 hereof, subject to ordinary income taxes. Notwithstanding the foregoing, the Beneficiary or Beneficiaries of a Participant whose participation in the Plan began on January 1, 1998, and whose - 16 - termination of employment with the Employer is due to death shall be entitled to receive the greater of (i) such vested Account balance, or (ii) an insured Plan death benefit (the "Insured Death Benefit") equal to the difference between (a) the stated death benefit under any life insurance contract(s) purchased on the life of the Participant pursuant to the Plan, and (b) such vested Account balance. The Beneficiary or Beneficiaries of a Participant whose participation in the Plan began on January 1, 1999, and whose termination of employment with the Employer is due to death shall be entitled to receive an Insured Death Benefit based upon the schedule attached hereto as Exhibit A, as from time to time amended, provided that the insurance coverage required to fund such Insured Death Benefit has been procured and is in force upon the death of the Participant. Any Participant (a) whose participation in the Plan begins on January 1, 2000, or thereafter, (b) who on or after January 1, 2001 discontinues deferrals under the Plan, other than for the minimum period mandated under Section 7.6 hereof in the event of a Hardship Distribution or because the Participant has no compensation to defer (e.g., due to disability or unpaid leave of absence), or (c) whose employment with the Employer terminates prior to death, shall be entitled to no Insured Death Benefit under this Plan whatsoever. Any Insured Death Benefits payable under this Plan shall be paid to the Participant's Beneficiary or Beneficiaries in accordance with the Participant's election or, in the sole discretion of the Committee, in a single lump sum payable as soon as administratively possible following the death of the Participant. Any other death benefit shall be paid in the manner designated by the Participant in his Deferral Agreement or - 17 - Agreements or, if no such designation is made, in a single lump sum payable as soon as administratively possible following the death of the Participant. 8.1.3 DEATH FOLLOWING BENEFIT COMMENCEMENT. If a Participant dies after the date payment of benefits has commenced under the Plan, the Participant's Beneficiary or Beneficiaries shall continue to receive payment of the balance credited to the Participant's Account as provided under the Participant's Deferral Agreement or Agreements, provided that within six (6) months following the death of the Participant any Beneficiary may apply to the Committee to change the form of distribution to any other form permitted under this Plan. 8.2 DISABILITY PRIOR TO BENEFIT COMMENCEMENT. Except as otherwise provided herein, if a Participant becomes Disabled before payment of benefits has commenced under the Plan, at the request of the Participant and in the sole discretion of the Committee the entire vested amount credited to the Participant's Account shall be paid to the Participant in five (5) substantially equal annual installments, payable as soon as administratively feasible following the determination by the Committee that the Participant is Disabled. Upon application by the Disabled Participant to the Committee within six (6) months after the date that the Participant becomes Disabled, any remaining installments may be distributed to the Participant over a period of ten (10) years or in a lump sum. If any distribution from the Plan shall have the effect of reducing disability benefits receivable by the Participant under any other policy, plan, program or arrangement, such distribution may be postponed at the election of the Participant. - 18 - ARTICLE 9 NO ASSIGNMENT OR ALIENATION Except to the extent set forth in Section 8.4, the interest hereunder of any Participant shall not be alienable by the Participant by assignment or any other method, and shall not be subject to be taken by his creditors by any process whatsoever; and any attempt to cause such interest to be so subjected shall not be recognized, except to such extent required by applicable law. ARTICLE 10 NO CONTRACT OF EMPLOYMENT The Plan shall not be deemed to constitute a contract of employment between the Employer and any Participant, or to be consideration for the employment of any Participant. Neither the action of establishing the Plan for the Employer nor any action taken by or on behalf of the Employer or by the Committee under the provisions hereof, nor any provision of the Plan, shall be construed as giving to any Participant the right to be retained in the employ of the Employer or any right to any payment whatsoever except to the extent of the benefits provided for by the Plan. The Employer expressly reserves its right at any time to dismiss any Participant or Employee without liability for any claim against the Employer or for any claim for any payment whatsoever, except to the extent provided for in the Plan. - 19 - ARTICLE 11 AMENDMENT/TERMINATION The Plan may be altered, amended, terminated or revoked in writing by the Committee with the consent of the Board of Directors of Keane, Inc. at any time; but no such action shall operate to reduce any Participant's vested Account balance below the vested amount credited to such Account immediately prior to such action. ARTICLE 12 CLAIMS PROCEDURES 12.1 GENERAL. Any claim for benefits under the Plan shall be filed by a Participant or Beneficiary (Claimant) of the Plan on the form prescribed for such purpose with the Committee, or in lieu thereof, by written communication which is made by the Claimant's authorized representative in a manner reasonably calculated to bring the claim to the attention of the Committee. 12.2 DENIALS. If a claim for a Plan benefit is wholly or partially denied, notice of the decision shall be furnished to the Claimant by the Committee within ninety (90) days after receipt of the claim by the Committee. 12.3 NOTICE. Any Claimant who is denied a claim for benefits shall be furnished written notice setting forth: (a) The specific reason or reasons for the denial; and (b) Specific reference to the pertinent Plan or Deferral Agreement provision upon which the denial is based; and - 20 - (c) A description of any additional material or information necessary for the Claimant to perfect the claim; and (d) An explanation of the Plan's claims review procedure. 12.4 APPEALS PROCEDURE. In order that a Claimant may appeal the denial of a claim, a Claimant or his duly authorized representative: (a) May request a review by written application to the Employer's Board of Directors or its designee not later than sixty (60) days after receipt by the Claimant of written notification of denial of claim; (b) May review pertinent documents; (c) May submit issues and comments in writing to the Board of Directors of the Employer or its designee; and (d) May request a hearing before the Board of Directors of the Employer or its designee. 12.5 REVIEW. A decision on review of a denied claim shall be made not later than sixty (60) days, or in the case a hearing is requested and held one hundred twenty (120) days, after receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within a reasonable period of time, but not later than one hundred twenty (120) days after receipt of a request for review. The decision on review shall be in writing and shall include the specific reason(s) for the decision and the specific reference(s) to the pertinent Plan provisions on which the decision is based. - 21 - ARTICLE 13 GOVERNING LAW The Plan shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts except to the extent preempted by federal law. IN WITNESS WHEREOF, the Employer has caused the Plan to be executed by its duly authorized representatives on the dates provided below. KEANE, INC. By: /s/ Brian T. Keane -------------------------------------- Brian Keane Date KEANE FEDERAL SYSTEMS, INC. By:/s/ John F. Keane --------------------------------------- John F. Keane Date KEANE SERVICE COMPANY, INC. By:/s/ Walter J. Kaczor, Jr. --------------------------------------- Walter Kaczak Date KEANE CONSULTING GROUP, INC. By: /s/ Linda B. Toops --------------------------------------- Linda Toops Date - 22 - KEANE CRM SOLUTIONS PRACTICE, INC. By: /s/ Brian T. Keane --------------------------------------- Brian Keane Date KEANE CARE, INC. By: /s/ Brian T. Keane --------------------------------------- Brian Keane Date - 23 - EXHIBIT A TO FIRST AMENDMENT AND RESTATEMENT OF THE KEANE, INC. DEFERRED COMPENSATION PLAN SCHEDULE OF PLAN INSURED DEATH BENEFITS FOR JANUARY 1, 1999 PARTICIPANTS PURSUANT TO PLAN SECTION 8.1.2, AS AMENDED
Participant Name Insured Death Benefit - ---------------- --------------------- KEANE, INC. Adams, Wayne $ 190,000 Benkeser, Kenneth $ 190,000 Johnson, Scott $ 380,000 Krueger, Brian $ 100,000 Kurtz, James $ 190,000 KEANE CONSULTING GROUP, INC. Fenske, Michael $ 380,000 Jenn, Andrew $ 100,000
- 24 - FIRST AMENDMENT TO THE FIRST AMENDMENT AND RESTATEMENT OF THE KEANE, INC. DEFERRED COMPENSATION PLAN This First Amendment to the First Amendment and Restatement of the Keane, Inc. Deferred Compensation Plan executed December 14, 2001 and effective January 1, 2002, by Keane, Inc., and the affiliates thereof hereunto set forth (hereinafter collectively referred to as the "Employers"). WITNESSETH: WHEREAS, the Employers, having heretofore adopted the Keane, Inc. Deferred Compensation Plan (hereinafter referred to as the "Plan") for the benefit of certain management or highly-compensated employees, now wish to amend the provisions thereof in certain respects; NOW, THEREFORE, in consideration of the premises and of the execution of this First Amendment to the amended and restated Plan by the Employers, the Employers do hereby amend the provisions of the Plan as follows, effective as provided above: 1. Section 7.5 of the Plan shall be amended to provide as follows: "7.5 IN-SERVICE DISTRIBUTIONS. A Participant may elect to receive a Scheduled Distribution from his vested Plan Account while still employed by the Employer, provided that except as otherwise specifically provided in this Section 7.5, (a) no such Distribution may pertain to deferrals or contributions made with respect to Plan Years beginning prior to January 1, 2001; (b) such Distribution may not commence until the third Plan Year after the Plan Year in which the deferrals or contributions were made (e.g., until 2004 as to 2001 deferrals or contributions); and (c) the Distribution shall be in the form of a lump sum payable prior to the end of the first quarter of the Plan Year specified in the Scheduled Distribution election form (e.g., the first quarter of 2004, as to an election made as to 2001). A Scheduled Distribution may be postponed provided the Participant gives the Committee written notice of his desire to do so at least one (1) year prior to the date that the Distribution was originally scheduled to be made. A Scheduled Distribution may not be postponed more than twice in this fashion. If the Participant terminates service with the Employer before or after his Normal Retirement Age, but prior to the date of his Scheduled Distribution, his entire vested Account balance (including any Scheduled Distributions) shall instead be distributed pursuant to Section 7.4 hereof. Notwithstanding any other provision hereof, any Participant who was a Participant in the Plan prior to January 1, 2001 may, by filing a written election in form acceptable to the Committee during the month of November, 2001, elect on a one-time basis to receive a Distribution of all or a portion of that portion of his vested Plan Account pertaining to deferrals or contributions made with respect to Plan Years beginning prior to January 1, 2001 (the "Pre-2001 Account Balance"), subject to the following provisions. The Participant may elect to receive one hundred percent (100%) of his Pre-2001 Account Balance or any lesser portion thereof which is a ten percent (10%) increment of such Balance. The Participant may elect to have such Distribution paid in one of the following forms: (i) a lump sum payable in March, 2003, or at any time thereafter, as specified by the Participant; or (ii) in three (3) or five (5) equal installments commencing in March, 2003 or at any time thereafter and continuing on an annual basis on the same date in the two (2) or four (4) ensuing calendar years, as the case may be, with the amount of such subsequent installments to be adjusted to reflect the investment performance of the Participant's undistributed Pre-2001 Account Balance in the interim. Notwithstanding any provision hereof, including, without limitation, Article 8 hereof, if a Participant elects to receive such a Distribution, the Stated Death Benefit, as defined in Section 8.1.2 hereof, taken into account for purposes of calculating the Death Benefit payable pursuant to Article 8 hereof in the event of the Participant's death after such Distribution takes place shall be reduced by an amount equal to the Stated Death Benefit which would otherwise be so taken into account, as set forth in Exhibit A hereto attached, multiplied by that percentage of his Pre-2001 Account Balance which the Participant elects to receive pursuant to this paragraph; provided that if the Participant elects to receive an installment Distribution pursuant to clause (ii) above, such reduction shall be prorated accordingly if the death of the Participant occurs after some, but fewer than all, of such installments have been paid. 2. Section 8.1.2 of the Plan shall be amended to provide as follows: 8.1.2. DEATH BENEFITS. Subject to the provisions of Section 7.5 hereof, if and to the extent applicable, the beneficiary or beneficiaries of a Participant whose participation in the Plan began on January 1, 1998, and whose termination of employment with the Employer is due to death shall be entitled to an insured Plan death benefit (the "Insured Death Benefit") equal to the difference between (a) the Stated Death Benefit, as set forth on Exhibit A attached hereto, and (b) the value of the life insurance contract(s) investment account(s); provided that if such Participant discontinues deferrals and does not resume them on or prior to January 1, 2000, no Insured Death Benefit shall be payable under this Plan upon the death of such Participant on or after such date. Subject to the provisions of Section 7.5 hereof, if and as applicable, the beneficiary or beneficiaries of a Participant whose participation in the Plan began on January 1, 1999, and whose termination of employment with the Employer is due to death shall be entitled to a Stated Death Benefit based upon the schedule attached hereto as Exhibit A, as from time to time amended, provided that the insurance coverage required to fund such Stated Death Benefit has been procured and is in force upon the death of the Participant; and further provided that if such Participant discontinues deferrals and does not resume them on or prior to January 1, 2000, no Stated Death Benefit shall be payable under this Plan upon the death of such Participant on or after such date. Any Participant whose participation in the Plan begins on January 1, 2000, or thereafter, and any Participant whose employment with the Employer terminates prior to death, shall be entitled to no Insured or Stated Death Benefit under this Plan. The beneficiary or beneficiaries of a deceased Participant shall be entitled to receive a Plan death benefit equal to the greater of (a) the Participant's Insured or Stated Death Benefit, if any, and as the case may be (as reduced pursuant to Section 7.5 hereof, if and to the extent applicable), or (b) the amount credited to the Participant's Account pursuant to Article 6 hereof as of the date of death. Any Insured or Stated Death Benefits payable under this Plan shall be paid to the Participant's beneficiary or beneficiaries in five (5) substantially equal annual installments or, in the sole discretion of the Committee, in a single lump sum payable as soon as administratively possible following the death of the Participant." 3. Exhibit A to the Plan is hereby amended to provide as set forth in Exhibit A hereto attached and by this reference incorporated herein. IN WITNESS WHEREOF, the Employers have caused this First Amendment to the amended and restated Plan to be executed on the date set forth above, effective as hereinabove set forth. KEANE, INC. By: /s/ Brian T. Keane ------------------------------ Brian T. Keane KEANE FEDERAL SYSTEMS, INC. By:/s/John F. Keane ------------------------------ John F. Keane KEANE SERVICE COMPANY, INC. By: /s/ Walter J. Kaczor ------------------------------ Walter Kaczak KEANE CARE, INC. By:/s/ Brian T. Keane ------------------------------- Brian T. Keane EXHIBIT A TO FIRST AMENDMENT TO THE FIRST AMENDMENT AND RESTATEMENT OF THE KEANE, INC. DEFERRED COMPENSATION PLAN SCHEDULE OF PLAN STATED DEATH BENEFITS
Participant Name Enrollment Date Plan Stated Death Benefit - ---------------- --------------- ------------------------- Robert Atwell 1998 $ 736,648 Bob Hagaman 1998 $ 1,530,667 Ralph Mazza 1998 $ 260,504 Sharon Merritt 1998 $ 100,000 Donald R. Scott 1998 $ 1,212,154 Renee Southard 1998 $ 339,039 Larry Vale 1998 $ 344,234 Barbara Wentzel 1998 $ 797,344 John P. Wilkins 1998 $ 137,088 Bob Wyatt 1998 $ 1,631,314 Wayne Adams 1999 $ 190,000 Robert Balon 1999 $ 100,000 Ken Benkeser 1999 $ 190,000 Scott A. Johnson 1999 $ 380,000 Brian Krueger 1999 $ 100,000 James Kurtz 1999 $ 190,000
SECOND AMENDMENT TO THE FIRST AMENDMENT AND RESTATEMENT OF THE KEANE, INC. DEFERRED COMPENSATION PLAN This Second Amendment to the First Amendment and Restatement of the Keane, Inc. Deferred Compensation Plan executed December 31, 2002 and effective January 1, 2003, by Keane, Inc., and the affiliates thereof hereunto set forth (hereinafter collectively referred to as the "Employers"): WITNESSETH: WHEREAS, the Employers, having heretofore adopted the Keane, Inc. Deferred Compensation Plan (hereinafter referred to as the "Plan") for the benefit of certain management or highly-compensated employees, now wish to amend the provisions thereof in certain respects, primarily to reflect the merger of the CyLogix, Inc. Nonqualified Deferred Compensation Plan with and into the Plan, with the latter as the surviving plan, effective January 1, 2003; NOW, THEREFORE, in consideration of the premises and of the execution of this Second Amendment to the amended and restated Plan by the Employers, the Employers do hereby amend the provisions of the Plan as follows, effective as provided above: Article 11 of the Plan shall be amended to provide as follows, effective January 1, 2003: "ARTICLE 11 AMENDMENT/TERMINATION/MERGER 11.1. GENERAL. The Plan may be altered, amended, terminated, revised, or merged with any other nonqualified deferred compensation plan by written action of the Committee taken with the consent of the Board of Directors of Keane, Inc. at any time; but no such action shall operate to reduce any Participant's vested Account balance below the vested amount credited to such Account immediately prior to such action. 11.2. MERGER WITH CYLOGIX NONQUALIFIED DEFERRED COMPENSATION PLAN. The CyLogix Nonqualified Deferred Compensation Plan (hereinafter referred to as the "CyLogix Plan") was merged with and into this Plan, with the latter as the surviving Plan, effective January 1, 2003 (the "CyLogix Merger Effective Date"), pursuant to this Article and the applicable provisions of the CyLogix Plan. Pursuant to the merger, all of the assets and liabilities of the CyLogix Plan shall be transferred to and taken up on the books of the Plan, all as of said Merger Effective Date. 11.2.1. PLAN ACCOUNTS. The individual Account balances as of the CyLogix Merger Effective Date of each CyLogix Plan Participant derived from Deferrals, Matching Contributions and Employer Contributions shall, on and as of said Merger Effective Date, be credited to an Account established and maintained under this Plan for the benefit of said Participant. The establishment and designation of any Accounts as Retirement, Education or Fixed Period Accounts under the CyLogix Plan shall be preserved as to such Account balances as of the Merger Effective Date, in each case as adjusted to reflect the investment experience of such subaccounts after said Merger Effective Date. 11.2.2. VESTING. Notwithstanding any other provision hereof, each CyLogix Plan Participant shall be fully vested with respect to the entire amount credited to his or her Account attributable to Deferrals made while a Participant in the CyLogix Plan, in each case as adjusted to reflect the investment experience of such Account, and the vested portion of each CyLogix Plan Participant's interest in his or her Account attributable to Matching Contributions and Employer contributions made while a Participant in the CyLogix Plan, in each case as adjusted to reflect the investment experience of such Account, shall be determined in accordance with the following schedule:
Period of Service Vested Percentage ------------------------------------------------------- Less than 1 year 0% 1 but fewer than 2 years 20% 2 but fewer than 3 years 40% 3 but fewer than 4 years 60% 4 but fewer than 5 years 80% 5 or more 100%
Notwithstanding the foregoing vesting schedule, any CyLogix Plan Participant who dies, becomes disabled, or attains age 65 and retires from the employ of the Employer shall be fully vested with respect to all Plan Account balances derived from those Account balances transferred from the CyLogix Plan to the Plan pursuant to this Section, in each case as adjusted to reflect the investment experience of such Account. For purposes of this Plan, Participants shall be granted service credit for Plan eligibility and vesting purposes with respect to prior service with CyLogix, Inc. 11.2.3. CYLOGIX PLAN TRUST. The Nonqualified Deferred Compensation Trust established for the purpose of funding benefits under the CyLogix Plan pursuant to a Trust Agreement dated November 15, 1999, as from time to time amended, shall remain in full force and effect, and the assets of said Trust shall remain available for the purpose of funding benefits payable to Participants to the extent the same are derived from Account balances transferred from the Cylogix Plan to the Plan -2- pursuant to this Section, in each case as adjusted to reflect the investment experience of such Account. 11.2.4. DISTRIBUTION PAYMENT OPTIONS. The Plan Account balances of Participants derived from Account balances transferred to the Plan pursuant to this Section, in each case as adjusted to reflect the investment experience of such Account, shall be distributable in any form or manner provided under this Plan or under the CyLogix Plan as in effect immediately prior to the CyLogix Merger Effective Date, as provided in Article VI of the CyLogix Plan document." IN WITNESS WHEREOF, the Employers have caused this Second Amendment to the amended and restated Plan to be executed on the date set forth above, effective as hereinabove set forth. KEANE, INC. By: /s/ Brian T. Keane ------------------------------- Brian T. Keane KEANE FEDERAL SYSTEMS, INC. By: /s/ John F. Keane ------------------------------- John F. Keane KEANE SERVICE COMPANY, INC. By: /s/ Walter J. Kaczor, Jr. ------------------------------- Walter Kaczak KEANE CARE, INC. By: /s/ Brian T. Keane ------------------------------- Brian T. Keane CYLOGIX, INC. By: /s/ Brian T. Keane ------------------------------- Brian T. Keane -3- THIRD AMENDMENT TO THE FIRST AMENDMENT AND RESTATEMENT OF THE KEANE, INC. DEFERRED COMPENSATION PLAN This Third Amendment to the First Amendment and Restatement of the Keane, Inc. Deferred Compensation Plan executed April 4, 2003, by Keane, Inc., and the affiliates thereof hereunto set forth (hereinafter collectively referred to as the "Employers"): WITNESSETH: WHEREAS, the Employers, having heretofore adopted the Keane, Inc. Deferred Compensation Plan (hereinafter referred to as the "Plan") for the benefit of certain management or highly-compensated employees, now wish to amend the provisions thereof in certain respects; NOW, THEREFORE, in consideration of the premises and of the execution of this Third Amendment to the amended and restated Plan by the Employers, the Employers do hereby amend the provisions of the Plan as follows, effective as provided herein: Section 7.4 of the Plan shall be amended to provide as follows, effective January 1, 2003: 7.4 RETIREMENT OR OTHER TERMINATION OF Service. The provision of this Section 7.4 shall apply in the event of any termination of service with the Employer by a Participant other than due to death or disability, in which case the provisions of Article 8 hereof shall apply. 7.4.1 VOLUNTARY TERMINATION. If the Participant voluntarily terminates his or her service with the Employer, except as otherwise provided herein the Participant shall receive the vested deferrals, contributions and net investment earnings attributable thereto (the Participant's "vested Account balance") in the manner elected by the Participant in a Deferral Agreement, which shall be irrevocable except as otherwise provided herein. If such termination occurs prior to Normal Retirement Age such distribution shall be in the form of a lump sum payable prior to the end of the first quarter of the Plan Year following that in which such termination occurred. If such termination occurs at or after Normal Retirement Age the distribution shall be made in accordance with the Participant's election in his or her signed Deferral Agreement, provided that if no such designation is made distribution shall be made as provided in the preceding sentence. The Participant may in such a Deferral Agreement elect to receive his or her distribution in the form of a lump sum or in annual installments over five (5), ten (10) or fifteen (15) years following termination, payable prior to the end of the first quarter of each Plan Year. Notwithstanding the foregoing, if the Participant's vested Account balance is less than Ten Thousand Dollars ($10,000) at termination, distribution will be made in the form of a lump sum, payable prior to the end of the first quarter of the Plan Year following that in which such termination occurred. Subject to the foregoing, the form and timing of a distribution may be changed (a) at the sole discretion of the Committee, or (b) by the Participant by giving written notice, upon a form to be provided by the Committee or its designee, to the Committee at least one (1) year prior to the date of distribution. 7.4.2 INVOLUNTARY TERMINATION. If the Participant's service with the Employer is terminated under any circumstances other than those contemplated by Section 7.4.1 or Article 8 hereof, including but not limited to an involuntary termination of service occurring prior to, at or subsequent to Normal Retirement Age, the Participant's vested Account balance shall be distributed to the Participant in the manner prescribed in Section 7.4.1 hereof ; provided that the Participant may, within thirty (30) days following written notice by the Committee subsequent to said termination and for good cause shown, apply to the Committee in writing, upon a form to be provided by the Committee or its designee, for distribution in the form of a single lump sum payable as soon as administratively feasible following such application and approval of the same by the Committee in its sole discretion. IN WITNESS WHEREOF, the Employers have caused this Third Amendment to the amended and restated Plan to be executed on the date set forth above, effective as hereinabove set forth. KEANE, INC. By: /s/ Brian T. Keane ----------------------------- Brian T. Keane KEANE FEDERAL SYSTEMS, INC. By: /s/ John F. Keane ------------------------------- John F. Keane KEANE SERVICE COMPANY, INC. By: /s/ Walter J. Kaczor, Jr. ---------------------------- Walter Kaczor, Jr. KEANE CARE, INC. By: /s/ Brian T. Keane ------------------------------- Brian T. Keane CYLOGIX, INC. By: /s/ Brian T. Keane ------------------------------- Brian T. Keane FOURTH AMENDMENT TO THE FIRST AMENDMENT AND RESTATEMENT OF THE KEANE, INC. DEFERRED COMPENSATION PLAN This Fourth Amendment to the First Amendment and Restatement of the Keane, Inc. Deferred Compensation Plan executed October 17, 2003, by Keane, Inc., and the affiliates thereof hereunto set forth (hereinafter collectively referred to as the "Employers"): WITNESSETH: WHEREAS, certain Employers having heretofore adopted the Keane, Inc. Deferred Compensation Plan (hereinafter referred to as the "Plan") for the benefit of certain management or highly-compensated employees, the Employers now wish to amend the provisions thereof in certain respects; NOW, THEREFORE, in consideration of the premises and of the execution of this Fourth Amendment to the amended and restated Plan by the Employers, the Employers do hereby amend the provisions of the Plan as follows, effective as provided herein: Section 2.8 of the Plan shall be amended to provide as follows, effective October 17, 2003: 2.8 "EMPLOYER" means Keane, Inc., Keane Federal Systems, Inc., Keane Service Company, Inc. Keane Care, Inc., Worldzen, Inc. (except as to Worldzen Dataskills Employees, as from time to time designated as such by Worldzen, Inc.), and any successor or other entity which, by written agreement, assumes the obligations of the Plan. IN WITNESS WHEREOF, the Employers have caused this Fourth Amendment to the amended and restated Plan to be executed on the date set forth above, effective as hereinabove set forth. KEANE, INC. By: /s/ John Leahy ------------------------------- John Leahy KEANE FEDERAL SYSTEMS, INC. By: /s/ John Leahy ------------------------------- John Leahy KEANE SERVICE COMPANY, INC. By: /s/ Francis Cleary ------------------------------- Francis Cleary KEANE CARE, INC. By: /s/ John Leahy ------------------------------- John Leahy WORLDZEN, INC. By: /s/ John Leahy ------------------------------- John Leahy FIFTH AMENDMENT TO THE FIRST AMENDMENT AND RESTATEMENT OF THE KEANE, INC. DEFERRED COMPENSATION PLAN This Fifth Amendment to the First Amendment and Restatement of the Keane, Inc. Deferred Compensation Plan executed December 15, 2004, by Keane, Inc., and the affiliates thereof hereunto set forth (hereinafter collectively referred to as the "Employers"): WITNESSETH: WHEREAS, the Employers, having heretofore adopted the Keane, Inc. Deferred Compensation Plan (hereinafter referred to as the "Plan") for the benefit of certain management or highly-compensated employees, now wish to amend the provisions thereof in certain respects; NOW THEREFORE, in consideration of the premises and of the execution of this Fifth Amendment to the amended and restated Plan by the Employers, the Employers do hereby amend the provisions of the Plan as follows, effective as of the date first written above herein: 1. Section 2.11 of the Plan shall be amended to provide as follows: 2.11 "PARTICIPANT" means an Employee of the Employer selected by the Board of Directors of the Employer or its designee pursuant to Article 4 hereof to participate in this Plan. Except for purposes of Article 5 hereof, concerning eligibility for deferrals and contributions, a Participant shall continue to be treated as such until such time as he or she no longer has an undistributed Account balance hereunder. 2. Section 5.2 of the Plan shall be amended to provide as follows: 5.2 ELECTION PROCEDURES. An election to defer Salary or a Bonus is made by completing a Deferral Agreement by December 15 of the Plan Year prior to the Plan Year in which the Salary or Bonus is to be earned. The election shall pertain to the succeeding Plan Year only and shall be irrevocable as to that Plan Year. The election shall specify the percentage of the Bonus to be deferred in one percent (1%) increments from ten percent (10%) to ninety percent (90%), and the percentage of Salary to be deferred in one percent (1%) increments from five percent (5%) to fifty percent (50%). IN WITNESS WHEREOF, the Employers have caused this Fifth Amendment to the amended and restated Plan to be executed on the date set forth above, effective as hereinabove set forth. KEANE, INC. By:/s/ Brian T. Keane ----------------------------- Brian T. Keane KEANE FEDERAL SYSTEMS, INC. By:/s/ John J. Leahy ------------------------------- John J. Leahy KEANE SERVICE COMPANY, INC. By:/s/ C. Whitney Pedersen ------------------------------- C. Whitney Pedersen KEANE CARE, INC. By:/s/ C. Whitney Pedersen ------------------------------ C. Whitney Pedersen WORLDZEN, INC. By:/s/ Sandeep Bhargava ------------------------------- Sandeep Bhargava 2 EX-10.21 6 a2153146zex-10_21.txt EXHIBIT 10.21 Exhibit 10.21 AGREEMENT THIS AGREEMENT ("Agreement") is entered into as of March 11, 2005, by and between Keane, Inc., a Massachusetts corporation with its principal place of business at 100 City Square, Boston, Massachusetts 02129 ("Keane" or the "Company"), and Robert B. Atwell, (the "Executive"). Keane and the Executive are referred to together herein as the "Parties." WHEREAS, the Executive intends to retire on or about December 31, 2006 (the "Retirement Date") and would like to remain employed by Keane until that time; WHEREAS, Keane would like the Executive's job duties and responsibilities to undergo an orderly transition prior to the Executive's retirement; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows: 1. TERM OF EMPLOYMENT. Keane hereby agrees to employ the Executive, and the Executive hereby accepts employment with Keane, upon the terms set forth in this Agreement, for the period ending on the Retirement Date, unless sooner terminated in accordance with the provisions of paragraph 2. Subject to the benefits described in paragraph 3, the Company retains the right to terminate the employment of the Executive at any time, including, without limitation, with or without notice and with or without Cause. The Retirement Date may be changed upon the mutual agreement of both Parties. 2. EMPLOYMENT TERMINATION. The employment of the Executive by the Employer pursuant to this Agreement shall terminate upon the occurrence of any of the following: a. Attainment of the Retirement Date; b. FOR CAUSE. At the election of Keane, "for Cause" (as defined below), immediately upon written notice by Keane to the Executive. For the purposes of this Agreement, "for Cause" termination shall be deemed to exist upon a good faith finding by the Company of failure of the Executive to perform his assigned duties for the Company, illegal conduct, dishonesty, gross negligence or misconduct; c. FOLLOWING A CHANGE IN CONTROL. Termination within one year following a Change in Control, as defined in Exhibit A to this Agreement. d. IN THE EVENT OF DEATH OR DISABILITY. As used in this Agreement, the term "disability" shall mean the inability of the Executive, due to a physical or mental disability, for a period of 180 days, whether or not consecutive, during any 360-day period to perform the services contemplated under this Agreement. A determination of disability shall be made by a physician satisfactory to both the Executive and Keane, provided that if the Executive and Keane do not agree on a physician, the Executive and Keane shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties; e. Termination at the election of Keane without Cause, upon not less than 90 days' prior written notice of termination; or f. Termination at the election of the Executive, upon not less than 90 days' prior written notice of termination. 3. EFFECT OF TERMINATION. a. TERMINATION UPON ATTAINMENT OF THE RETIREMENT DATE. If the Executive's employment is terminated upon attainment of the Retirement Date pursuant to paragraph 2.a, Keane shall pay to the Executive the compensation and benefits otherwise payable to him through the last day of his actual employment by Keane. In this circumstance, Keane also agrees to seek approval of its Board of Directors to accelerate the vesting of any unvested shares of Restricted Stock and Stock Options held by the Executive, to his benefit. b. TERMINATION BY KEANE FOR CAUSE. If the Executive's employment is terminated by Keane for Cause pursuant to paragraph 2.b, Keane shall pay to the Executive the compensation and benefits otherwise payable to him through the last day of his actual employment by Keane. c. TERMINATION FOLLOWING A CHANGE IN CONTROL. If the Executive's employment is terminated following a Change in Control pursuant to paragraph 2.c, this Agreement shall be null and void and the terms of the Executive's Change-in-Control Agreement, attached, shall apply. d. TERMINATION FOR DEATH OR DISABILITY. If the Executive's employment is terminated by death or because of disability pursuant to paragraph 2.d, Keane shall pay to the estate of the Executive or to the Executive, as the case may be, the compensation which would otherwise be payable to the Executive up to the end of the month in which the termination of his employment because of death or disability occurs. e. TERMINATION BY KEANE WITHOUT CAUSE. If the Executive's employment is terminated by Keane without cause pursuant to paragraph 2.e: (i) Prior to December 31, 2005, Keane shall continue to pay the Executive his base salary, for one year; or (ii) After December 31, 2005 but before attainment of the Retirement Date, Keane shall continue to pay the Executive his base salary through the Retirement Date; and (iii) Keane agrees to seek approval of its Board of Directors to accelerate the vesting of any unvested shares of Restricted Stock and Stock Options held by the Executive, to his benefit. (iv) The last day of the Executive's actual employment with Keane shall be treated as a qualifying event under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"), and the Executive will receive COBRA information under separate cover. If the Executive elects continuation coverage under COBRA, during the period the Executive is receiving base salary continuation payments under this paragraph 3.e, he will be responsible for any contribution required from active employees of the Company under said health insurance program. f. TERMINATION AT THE ELECTION OF THE EXECUTIVE. If the Executive elects to terminate his employment for any reason whatsoever, in accordance with paragraph 2.f, Keane shall pay to the Executive the compensation and benefits otherwise payable to him through the last day of his actual employment by Keane. 4. OBLIGATIONS AND RESTRICTIVE COVENANTS. All obligations and restrictive covenants as set forth in any existing or future Employment Agreements, Stock Option Agreements, or the like, shall remain in full force and effect notwithstanding this Agreement, including but not limited to, provisions and/or restrictions relating to trade secrets, confidential information, works made for hire and inventions, competition, solicitation, hiring, Company property, et cetera. 5. RELEASE OF CLAIMS BY EXECUTIVE. In order to receive any severance payment described in this Agreement, the Executive shall be required to execute a Release Agreement, in a form acceptable to Keane's counsel, before and as a condition of receiving any such payment. 6. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Party; provided, that Keane may assign its rights, interests or obligations hereunder to: (a) a subsidiary, subdivision or affiliate, provided that Keane shall remain responsible to the Executive for such obligations in the event they are not met by such assignee; or to a person, corporation, organization or other entity that acquires (whether by stock or merger or otherwise) all or substantially all of the business or assets of Keane. 7. MISCELLANEOUS. a. This Agreement may be amended or modified only by a written instrument executed by Keane and the Executive. b. This Agreement shall be governed by and construed in accordance with the internal laws (and not the laws of conflicts) of the Commonwealth of Massachusetts. c. The term "Keane" shall include Keane, Inc. and any of its subsidiaries, subdivisions and affiliates. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. d. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. e. The Executive states and represents that he has had an opportunity to fully discuss and review the terms of this Agreement with an attorney. The Executive further states and represents that he has carefully read this Agreement, understands the contents herein, freely and voluntarily assents to all of the terms and conditions hereof, and signs his name of his own free act. Executed this 11th day of March, 2005. By: /s/ Robert B. Atwell -------------------- Robert B. Atwell By: /s/ Brian T. Keane ------------------- Brian T. Keane President and Chief Executive Officer Keane, Inc. EXHIBIT A DEFINITION OF "CHANGE IN CONTROL" "Change in Control" shall mean any of the following: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act") (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board ("Voting Securities") or (B) the then outstanding shares of Company's common stock ("Common Stock") (other than as a result of an acquisition of securities directly from the Company); or (b) During any period of two years or less, persons who at the beginning of such period (the "Commencement Date") constitute the Company's Board (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the Commencement Date shall be considered an Incumbent Director if such person's election was approved by or such person was nominated for election by a vote of at least a majority of the Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate fifty percent (50%) or more of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities outstanding, increases the proportionate number of shares beneficially owned by any person to fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities or Common Stock (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock, then a "Change of Control" shall be deemed to have occurred for purposes of the foregoing clause (a). EX-10.22 7 a2153146zex-10_22.txt EXHIBIT 10.22 Exhibit 10.22 CHANGE-IN-CONTROL AGREEMENT THIS AGREEMENT ("Agreement") is entered into as of March 11, 2005, by and between Keane, Inc., a Massachusetts corporation with its principal place of business at 100 City Square, Boston, Massachusetts 02129 ("Keane"), and Robert B. Atwell (the "Executive"). Keane and the Executive are referred to together herein as the "Parties." WHEREAS, the Executive is currently employed as Senior Vice President, North American Branch Operations, of the Company; and WHEREAS, the Compensation Committee of the Board of Directors of the Company has authorized certain severance provisions in respect of senior executives of the Company following the occurrence of a change of control in order to assist in the retention of the Company's executives; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Executive agree as follows: 1. TERM OF EMPLOYMENT. Subject to the benefits described in paragraph 2, the Company retains the right to terminate the employment of the Executive at any time, including, without limitation, with or without notice and with or without Cause. 2. SEVERANCE BENEFITS UPON TERMINATION AFTER CORPORATE CHANGE IN CONTROL. If within one year after a Change in Control (as defined in Exhibit A to this Agreement) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, both as defined below (the effective date of any such termination being hereinafter referred to as the "Termination Date") the Executive shall be entitled to the following severance benefits (and no others): a. For a period of twenty-four months following the Termination Date (the "Salary Continuation Period"), (on the normal payroll schedule for the Executive in effect immediately prior to the Termination Date) the Company shall continue to pay the Executive the base salary and targeted annual bonus (monthly on a pro rata basis), both at the rate in effect immediately before the Termination Date, EXCEPT THAT in the case of a termination by the Executive for Good Reason, disregarding any reduction thereof that was the basis for such termination. b. Upon the Termination Date, all stock options, restricted stock and other equity awards previously granted to the Executive shall become vested immediately and shall be exercisable in full in accordance with the applicable stock option, restricted stock or other form of equity agreement and the terms of any applicable stock or equity plan. c. The Termination Date shall be treated as a qualifying event under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"). Under COBRA, if the Executive is covered by the group medical and/or dental plan offered by Keane, the Executive and his or her spouse and dependents are entitled to elect a temporary extension of health and/or dental coverage at group rates in certain instances where coverage under the plan would otherwise end ("Continuation Coverage"). If the Executive elects Continuation Coverage under COBRA, during the period of such Continuation Coverage, the Executive will be responsible for any contribution required from active employees of the Company under the applicable group medical and/or dental plan. If and to the extent this Section 2.c does not apply, as where the Executive is not resident in or of the United States, the Executive shall receive a monthly stipend to offset medical and/or dental benefits lost following the Termination Date. d. For 12 months, the Executive shall be entitled to continue participation in the executive financial planning benefit in effect as of the Termination Date. e. Neither the Executive nor Keane shall have the right to accelerate or to defer the delivery of the payments to be made under this Section 2; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the "Code"), and any of the payments to be made to the Executive under this Section 2 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. 3. DEFINITIONS. a. "GOOD REASON". "Good Reason" means termination at the Executive's initiative within one year after a Change in Control (as defined in Exhibit A to this Agreement) if: (i) The Executive's title, duties, status, reporting relationship, authority or responsibilities have been materially and adversely affected; or (ii) The Executive's compensation, including base salary and target annual bonus, has been reduced by 10% or greater; or (iii) The Executive's principal place of employment immediately prior to the Change of Control is relocated to a location more than 25 miles from such place of employment. The Executive shall give the Company Notice of termination specifying which of the foregoing provisions is applicable and the factual basis therefor, and if the Company fails to remedy such material failure, the Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. b. "CAUSE". For purposes of this Agreement only, "Cause" means and shall be limited to: (i) wrongful misappropriation of the funds or property of the Company; (ii) use of alcohol or illegal drugs interfering with the performance of the Executive's obligations, continuing after written warning of such actions; (iii) admission, confession, or plea bargain to, or conviction of, a felony, or of any crime involving moral turpitude, dishonesty, or unethical conduct; (iv) commission of any willful, intentional or grossly negligent act which would reasonably be expected to materially injure the reputation, business or business relationships of the Company or which would bring the Executive or the Company into disrepute, or the willful commission of any act which is a breach of the Executive's fiduciary duties to the Company; (v) the deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability) to substantially perform his duties with the Company and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of Notice specifying the scope and nature of such failure and the Company's intention to terminate the Executive for Cause; or (vi) commission of any act which constitutes a material breach of the policies of the Company, including but not limited to the disclosure of any confidential information or trade secrets pertaining to the Company or any of its clients. For purposes of this Section, any act or failure to act of the Executive shall not be considered "willful" unless done or omitted to be done by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. The Company shall give the Executive Notice of termination specifying which of the foregoing provisions is applicable. The effective Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. 4. GROSS-UP PAYMENT. a. In the event an Executive becomes entitled to any benefits or payments under this Agreement or under any other agreement, plan or arrangement to which the Company and the Executive are parties, including any non-cash benefit or deferred payment or benefit (the "Total Benefits"), (i) where such payment or benefit is contingent on a Change in Control (as defined in Exhibit A to this Agreement), and (ii) in the event that any of the Total Benefits will be subject to a tax imposed by Section 4999 of the Code (the "Excise Tax"), due to classification as an excess parachute payment in accordance with Section 280G of the Code, the Company shall pay to him an additional amount (the "Gross-Up Payment") such that the net amount retained by him, after reduction of any Excise Tax on the Total Benefits and any federal, state and local income tax, Excise Tax and FICA and Medicare withholding taxes upon the payment provided for by this Section, shall be equal to the Total Benefits. For purposes of this Gross-Up Payment, the amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by the Company, after consultation with its legal and tax advisors. b. For purposes of determining the amount of the Gross-Up Payment, an Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of his residence on the Termination Date, net of the reduction in federal income taxes which could be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Code in the amount of itemized deductions allowable to him applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by him). c. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, the Executive shall promptly repay to the Company the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the portion of the Gross-Up Payment being repaid by him to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or federal, state or local income taxes) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. d. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder, the Company shall make an additional Gross-Up Payment to him in respect of such excess (plus any interest, penalties or additions payable by him with respect to such excess) at the time that the amount of such excess is finally determined. e. The Gross Up Payment shall be made within two and a half months after the Termination Date; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of Code and any of the payments to be made to the Executive under this Section 4 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. f. The intent of this Section 4 is to make the Executive whole, to the extent allowed under applicable laws and regulations, such that he is not detrimentally impacted by the imposition of a tax over and above the marginal rate applicable to his Keane-related earnings as a result of a Change In Control. To the extent the Executive is subject to income tax laws of a country other than the United States, the Company shall use its best efforts to implement the intent of this Section 4 in accordance with applicable laws and regulations. 5. OBLIGATIONS AND RESTRICTIVE COVENANTS. All obligations and restrictive covenants as set forth in any existing or future Employment Agreements, Stock Option Agreements, or the like, shall remain in full force and effect notwithstanding this Agreement, including but not limited to, provisions and/or restrictions relating to trade secrets, confidential information, works made for hire and inventions, competition, solicitation, hiring, Company property, et cetera, EXCEPT THAT any and all such obligations and restrictive covenants shall remain in full force and effect for the entire Salary Continuation Period notwithstanding any shorter period set forth therein. 6. NOTICES a. Each notice, demand, consent or communication (hereinafter "Notice") which is or may be required to be given by any party to the other party in connection with this Agreement shall be in writing and given by facsimile, personal delivery, receipted delivery services, or by certified mail, return receipt requested, prepaid and properly addressed to the other party as shown below. b. Notices shall be effective on the date sent via facsimile, the date delivered personally or by receipted delivery service, or three (3) days after the date mailed: (i) To the Company: Legal Department Attn: Corporate Counsel Keane, Inc. 100 City Square Charlestown, MA 02129 (ii) To the Executive: At the residence address most recently filed with the Company. 7. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Party; provided, that Keane may assign its rights, interests or obligations hereunder to: (a) a subsidiary, subdivision or affiliate, provided that Keane shall remain responsible to the Executive for such obligations in the event they are not met by such assignee; or (b) to a person, corporation, organization or other entity that acquires (whether by stock purchase or merger or otherwise) all or substantially all of the business or assets of Keane. 8. MISCELLANEOUS. a. This Agreement may be amended or modified only by a written instrument executed by Keane and the Executive. Notwithstanding anything herein to the contrary, to the extent that the Executive or Keane reasonably believe that Section 409A of the Code will result in adverse tax consequences to the Executive as a result of this Agreement, then the Executive and Keane shall renegotiate this Agreement in good faith in order to minimize or eliminate such tax consequences and retain the basic economics of this Agreement to the extent possible. b. This Agreement shall be governed by and construed in accordance with the internal laws (and not the laws of conflicts) of the Commonwealth of Massachusetts. c. Except in the case of Section 7 above, the term "Keane" or the "Company" shall include Keane, Inc. and any of its subsidiaries, subdivisions and affiliates. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. d. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. e. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. f. The Executive's or the Company's failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. g. Keane shall have the right to withhold all applicable income and employment taxes due with respect to any payment made to the Executive under this Agreement. Executed this 11th day of March, 2005 By: /s/ Brian T. Keane -------------------- Brian T. Keane Keane, Inc. By: /s/ Robert B. Atwell -------------------- Robert B. Atwell EXHIBIT A DEFINITION OF "CHANGE IN CONTROL" "Change in Control" shall mean any of the following: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act") (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board ("Voting Securities") or (B) the then outstanding shares of Company's common stock ("Common Stock") (other than as a result of an acquisition of securities directly from the Company); or (b) During any period of two years or less, persons who at the beginning of such period (the "Commencement Date") constitute the Company's Board (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the Commencement Date shall be considered an Incumbent Director if such person's election was approved by or such person was nominated for election by a vote of at least a majority of the Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate fifty percent (50%) or more of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities outstanding, increases the proportionate number of shares beneficially owned by any person to fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities or Common Stock (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock, then a "Change of Control" shall be deemed to have occurred for purposes of the foregoing clause (a). EX-10.23 8 a2153146zex-10_23.txt EXHIBIT 10.23 Exhibit 10.23 CHANGE-IN-CONTROL AGREEMENT THIS AGREEMENT ("Agreement") is entered into as of March 11, 2005, by and between Keane, Inc., a Massachusetts corporation with its principal place of business at 100 City Square, Boston, Massachusetts 02129 ("Keane" or the "Company"), and Brian T. Keane (the "Executive"). Keane and the Executive are referred to together herein as the "Parties." WHEREAS, the Executive is currently employed as President and Chief Executive Officer of the Company; and WHEREAS, the Compensation Committee of the Board of Directors of the Company has authorized certain severance provisions in respect of senior executives of the Company following the occurrence of a change of control in order to assist in the retention of the Company's executives; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Executive agree as follows: 1. TERM OF EMPLOYMENT. Subject to the benefits described in paragraph 2, the Company retains the right to terminate the employment of the Executive at any time, including, without limitation, with or without notice and with or without Cause. 2. SEVERANCE BENEFITS UPON TERMINATION AFTER CORPORATE CHANGE IN CONTROL. If within one year after a Change in Control (as defined in Exhibit A to this Agreement) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, both as defined below (the effective date of any such termination being hereinafter referred to as the "Termination Date") the Executive shall be entitled to the following severance benefits (and no others): a. For a period of thirty-six months following the Termination Date (the "Salary Continuation Period"), (on the normal payroll schedule for the Executive in effect immediately prior to the Termination Date) the Company shall continue to pay the Executive the base salary and targeted annual bonus (monthly on a pro rata basis), both at the rate in effect immediately before the Termination Date, EXCEPT THAT in the case of a termination by the Executive for Good Reason, disregarding any reduction thereof that was the basis for such termination. b. Upon the Termination Date, all stock options, restricted stock and other equity awards previously granted to the Executive shall become vested immediately and shall be exercisable in full in accordance with the applicable stock option, restricted stock or other form of equity agreement and the terms of any applicable stock or equity plan. c. The Termination Date shall be treated as a qualifying event under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"). Under COBRA, if the Executive is covered by the group medical and/or dental plan offered by Keane, the Executive and his or her spouse and dependents are entitled to elect a temporary extension of health and/or dental coverage at group rates in certain instances where coverage under the plan would otherwise end ("Continuation Coverage"). If the Executive elects Continuation Coverage under COBRA, during the period of such Continuation Coverage, the Executive will be responsible for any contribution required from active employees of the Company under the applicable group medical and/or dental plan. If and to the extent this Section 2.c does not apply, as where the Executive is not resident in or of the United States, the Executive shall receive a monthly stipend to offset medical and/or dental benefits lost following the Termination Date. d. For 18 months, the Executive shall be entitled to continue participation in the executive financial planning benefit in effect as of the Termination Date. e. Neither the Executive nor Keane shall have the right to accelerate or to defer the delivery of the payments to be made under this Section 2; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the "Code"), and any of the payments to be made to the Executive under this Section 2 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. 3. DEFINITIONS. a. "GOOD REASON". "Good Reason" means termination at the Executive's initiative within one year after a Change in Control (as defined in Exhibit A to this Agreement) if: (i) The Executive's title, duties, status, reporting relationship, authority or responsibilities have been materially and adversely affected; or (ii) The Executive's compensation, including base salary and target annual bonus, has been reduced by 10% or greater; or (iii) The Executive's principal place of employment immediately prior to the Change of Control is relocated to a location more than 25 miles from such place of employment. The Executive shall give the Company Notice of termination specifying which of the foregoing provisions is applicable and the factual basis therefor, and if the Company fails to remedy such material failure, the Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. b. "CAUSE". For purposes of this Agreement only, "Cause" means and shall be limited to: (i) wrongful misappropriation of the funds or property of the Company; (ii) use of alcohol or illegal drugs interfering with the performance of the Executive's obligations, continuing after written warning of such actions; (iii) admission, confession, or plea bargain to, or conviction of, a felony, or of any crime involving moral turpitude, dishonesty, or unethical conduct; (iv) commission of any willful, intentional or grossly negligent act which would reasonably be expected to materially injure the reputation, business or business relationships of the Company or which would bring the Executive or the Company into disrepute, or the willful commission of any act which is a breach of the Executive's fiduciary duties to the Company; (v) the deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability) to substantially perform his duties with the Company and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of Notice specifying the scope and nature of such failure and the Company's intention to terminate the Executive for Cause; or (vi) commission of any act which constitutes a material breach of the policies of the Company, including but not limited to the disclosure of any confidential information or trade secrets pertaining to the Company or any of its clients. For purposes of this Section, any act or failure to act of the Executive shall not be considered "willful" unless done or omitted to be done by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. The Company shall give the Executive Notice of termination specifying which of the foregoing provisions is applicable. The effective Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. 4. GROSS-UP PAYMENT. a. In the event an Executive becomes entitled to any benefits or payments under this Agreement or under any other agreement, plan or arrangement to which the Company and the Executive are parties, including any non-cash benefit or deferred payment or benefit (the "Total Benefits"), (i) where such payment or benefit is contingent on a Change in Control (as defined in Exhibit A to this Agreement), and (ii) in the event that any of the Total Benefits will be subject to a tax imposed by Section 4999 of the Code (the "Excise Tax"), due to classification as an excess parachute payment in accordance with Section 280G of the Code, the Company shall pay to him an additional amount (the "Gross-Up Payment") such that the net amount retained by him, after reduction of any Excise Tax on the Total Benefits and any federal, state and local income tax, Excise Tax and FICA and Medicare withholding taxes upon the payment provided for by this Section, shall be equal to the Total Benefits. For purposes of this Gross-Up Payment, the amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by the Company, after consultation with its legal and tax advisors. b. For purposes of determining the amount of the Gross-Up Payment, an Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of his residence on the Termination Date, net of the reduction in federal income taxes which could be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Code in the amount of itemized deductions allowable to him applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by him). c. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, the Executive shall promptly repay to the Company the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the portion of the Gross-Up Payment being repaid by him to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or federal, state or local income taxes) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. d. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder, the Company shall make an additional Gross-Up Payment to him in respect of such excess (plus any interest, penalties or additions payable by him with respect to such excess) at the time that the amount of such excess is finally determined. e. The Gross Up Payment shall be made within two and a half months after the Termination Date; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of Code and any of the payments to be made to the Executive under this Section 4 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. f. The intent of this Section 4 is to make the Executive whole, to the extent allowed under applicable laws and regulations, such that he is not detrimentally impacted by the imposition of a tax over and above the marginal rate applicable to his Keane-related earnings as a result of a Change In Control. To the extent the Executive is subject to income tax laws of a country other than the United States, the Company shall use its best efforts to implement the intent of this Section 4 in accordance with applicable laws and regulations. 5. OBLIGATIONS AND RESTRICTIVE COVENANTS. All obligations and restrictive covenants as set forth in any existing or future Employment Agreements, Stock Option Agreements, or the like, shall remain in full force and effect notwithstanding this Agreement, including but not limited to, provisions and/or restrictions relating to trade secrets, confidential information, works made for hire and inventions, competition, solicitation, hiring, Company property, et cetera, EXCEPT THAT any and all such obligations and restrictive covenants shall remain in full force and effect for the entire Salary Continuation Period notwithstanding any shorter period set forth therein. 6. NOTICES a. Each notice, demand, consent or communication (hereinafter "Notice") which is or may be required to be given by any party to the other party in connection with this Agreement shall be in writing and given by facsimile, personal delivery, receipted delivery services, or by certified mail, return receipt requested, prepaid and properly addressed to the other party as shown below. b. Notices shall be effective on the date sent via facsimile, the date delivered personally or by receipted delivery service, or three (3) days after the date mailed: (i) To the Company: Legal Department Attn: Corporate Counsel Keane, Inc. 100 City Square Charlestown, MA 02129 (ii) To the Executive: At the residence address most recently filed with the Company. 7. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Party; provided, that Keane may assign its rights, interests or obligations hereunder to: (a) a subsidiary, subdivision or affiliate, provided that Keane shall remain responsible to the Executive for such obligations in the event they are not met by such assignee; or (b) to a person, corporation, organization or other entity that acquires (whether by stock purchase or merger or otherwise) all or substantially all of the business or assets of Keane. 8. MISCELLANEOUS. a. This Agreement may be amended or modified only by a written instrument executed by Keane and the Executive. Notwithstanding anything herein to the contrary, to the extent that the Executive or Keane reasonably believe that Section 409A of the Code will result in adverse tax consequences to the Executive as a result of this Agreement, then the Executive and Keane shall renegotiate this Agreement in good faith in order to minimize or eliminate such tax consequences and retain the basic economics of this Agreement to the extent possible. b. This Agreement shall be governed by and construed in accordance with the internal laws (and not the laws of conflicts) of the Commonwealth of Massachusetts. c. Except in the case of Section 7 above, the term "Keane" or the "Company" shall include Keane, Inc. and any of its subsidiaries, subdivisions and affiliates. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. d. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. e. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. f. The Executive's or the Company's failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. g. Keane shall have the right to withhold all applicable income and employment taxes due with respect to any payment made to the Executive under this Agreement. Executed this 11th day of March, 2005. By: /s/ Mary T. Converse -------------------- Mary T. Converse Keane, Inc. By: /s/ Brian T. Keane ------------------ Brian T. Keane EXHIBIT A DEFINITION OF "CHANGE IN CONTROL" "Change in Control" shall mean any of the following: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act") (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board ("Voting Securities") or (B) the then outstanding shares of Company's common stock ("Common Stock") (other than as a result of an acquisition of securities directly from the Company); or (b) During any period of two years or less, persons who at the beginning of such period (the "Commencement Date") constitute the Company's Board (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the Commencement Date shall be considered an Incumbent Director if such person's election was approved by or such person was nominated for election by a vote of at least a majority of the Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate fifty percent (50%) or more of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities outstanding, increases the proportionate number of shares beneficially owned by any person to fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities or Common Stock (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock, then a "Change of Control" shall be deemed to have occurred for purposes of the foregoing clause (a). EX-10.24 9 a2153146zex-10_24.txt EXHIBIT 10.24 Exhibit 10.24 CHANGE-IN-CONTROL AGREEMENT THIS AGREEMENT ("Agreement") is entered into as of March 11, 2005, by and between Keane, Inc., a Massachusetts corporation with its principal place of business at 100 City Square, Boston, Massachusetts 02129 ("Keane" or the "Company"), and John J. Leahy (the "Executive"). Keane and the Executive are referred to together herein as the "Parties." WHEREAS, the Executive is currently employed as Senior Vice President and Chief Financial Officer of the Company; and WHEREAS, the Compensation Committee of the Board of Directors of the Company has authorized certain severance provisions in respect of senior executives of the Company following the occurrence of a change of control in order to assist in the retention of the Company's executives; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Executive agree as follows: 1. TERM OF EMPLOYMENT. Subject to the benefits described in paragraph 2, the Company retains the right to terminate the employment of the Executive at any time, including, without limitation, with or without notice and with or without Cause. 2. SEVERANCE BENEFITS UPON TERMINATION AFTER CORPORATE CHANGE IN CONTROL. If within one year after a Change in Control (as defined in Exhibit A to this Agreement) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, both as defined below (the effective date of any such termination being hereinafter referred to as the "Termination Date") the Executive shall be entitled to the following severance benefits (and no others): a. For a period of thirty-six months following the Termination Date (the "Salary Continuation Period"), (on the normal payroll schedule for the Executive in effect immediately prior to the Termination Date) the Company shall continue to pay the Executive the base salary and targeted annual bonus (monthly on a pro rata basis), both at the rate in effect immediately before the Termination Date, EXCEPT THAT in the case of a termination by the Executive for Good Reason, disregarding any reduction thereof that was the basis for such termination. b. Upon the Termination Date, all stock options, restricted stock and other equity awards previously granted to the Executive shall become vested immediately and shall be exercisable in full in accordance with the applicable stock option, restricted stock or other form of equity agreement and the terms of any applicable stock or equity plan. c. The Termination Date shall be treated as a qualifying event under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"). Under COBRA, if the Executive is covered by the group medical and/or dental plan offered by Keane, the Executive and his or her spouse and dependents are entitled to elect a temporary extension of health and/or dental coverage at group rates in certain instances where coverage under the plan would otherwise end ("Continuation Coverage"). If the Executive elects Continuation Coverage under COBRA, during the period of such Continuation Coverage, the Executive will be responsible for any contribution required from active employees of the Company under the applicable group medical and/or dental plan. If and to the extent this Section 2.c does not apply, as where the Executive is not resident in or of the United States, the Executive shall receive a monthly stipend to offset medical and/or dental benefits lost following the Termination Date. d. For 18 months, the Executive shall be entitled to continue participation in the executive financial planning benefit in effect as of the Termination Date. e. Neither the Executive nor Keane shall have the right to accelerate or to defer the delivery of the payments to be made under this Section 2; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the "Code"), and any of the payments to be made to the Executive under this Section 2 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. 3. DEFINITIONS. a. "GOOD REASON". "Good Reason" means termination at the Executive's initiative within one year after a Change in Control (as defined in Exhibit A to this Agreement) if: (i) The Executive's title, duties, status, reporting relationship, authority or responsibilities have been materially and adversely affected; or (ii) The Executive's compensation, including base salary and target annual bonus, has been reduced by 10% or greater; or (iii) The Executive's principal place of employment immediately prior to the Change of Control is relocated to a location more than 25 miles from such place of employment. The Executive shall give the Company Notice of termination specifying which of the foregoing provisions is applicable and the factual basis therefor, and if the Company fails to remedy such material failure, the Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. b. "CAUSE". For purposes of this Agreement only, "Cause" means and shall be limited to: (i) wrongful misappropriation of the funds or property of the Company; (ii) use of alcohol or illegal drugs interfering with the performance of the Executive's obligations, continuing after written warning of such actions; (iii) admission, confession, or plea bargain to, or conviction of, a felony, or of any crime involving moral turpitude, dishonesty, or unethical conduct; (iv) commission of any willful, intentional or grossly negligent act which would reasonably be expected to materially injure the reputation, business or business relationships of the Company or which would bring the Executive or the Company into disrepute, or the willful commission of any act which is a breach of the Executive's fiduciary duties to the Company; (v) the deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability) to substantially perform his duties with the Company and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of Notice specifying the scope and nature of such failure and the Company's intention to terminate the Executive for Cause; or (vi) commission of any act which constitutes a material breach of the policies of the Company, including but not limited to the disclosure of any confidential information or trade secrets pertaining to the Company or any of its clients. For purposes of this Section, any act or failure to act of the Executive shall not be considered "willful" unless done or omitted to be done by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. The Company shall give the Executive Notice of termination specifying which of the foregoing provisions is applicable. The effective Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. 4. GROSS-UP PAYMENT. a. In the event an Executive becomes entitled to any benefits or payments under this Agreement or under any other agreement, plan or arrangement to which the Company and the Executive are parties, including any non-cash benefit or deferred payment or benefit (the "Total Benefits"), (i) where such payment or benefit is contingent on a Change in Control (as defined in Exhibit A to this Agreement), and (ii) in the event that any of the Total Benefits will be subject to a tax imposed by Section 4999 of the Code (the "Excise Tax"), due to classification as an excess parachute payment in accordance with Section 280G of the Code, the Company shall pay to him an additional amount (the "Gross-Up Payment") such that the net amount retained by him, after reduction of any Excise Tax on the Total Benefits and any federal, state and local income tax, Excise Tax and FICA and Medicare withholding taxes upon the payment provided for by this Section, shall be equal to the Total Benefits. For purposes of this Gross-Up Payment, the amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by the Company, after consultation with its legal and tax advisors. b. For purposes of determining the amount of the Gross-Up Payment, an Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of his residence on the Termination Date, net of the reduction in federal income taxes which could be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Code in the amount of itemized deductions allowable to him applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by him). c. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, the Executive shall promptly repay to the Company the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the portion of the Gross-Up Payment being repaid by him to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or federal, state or local income taxes) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. d. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder, the Company shall make an additional Gross-Up Payment to him in respect of such excess (plus any interest, penalties or additions payable by him with respect to such excess) at the time that the amount of such excess is finally determined. e. The Gross Up Payment shall be made within two and a half months after the Termination Date; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of Code and any of the payments to be made to the Executive under this Section 4 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. f. The intent of this Section 4 is to make the Executive whole, to the extent allowed under applicable laws and regulations, such that he is not detrimentally impacted by the imposition of a tax over and above the marginal rate applicable to his Keane-related earnings as a result of a Change In Control. To the extent the Executive is subject to income tax laws of a country other than the United States, the Company shall use its best efforts to implement the intent of this Section 4 in accordance with applicable laws and regulations. 5. OBLIGATIONS AND RESTRICTIVE COVENANTS. All obligations and restrictive covenants as set forth in any existing or future Employment Agreements, Stock Option Agreements, or the like, shall remain in full force and effect notwithstanding this Agreement, including but not limited to, provisions and/or restrictions relating to trade secrets, confidential information, works made for hire and inventions, competition, solicitation, hiring, Company property, et cetera, EXCEPT THAT any and all such obligations and restrictive covenants shall remain in full force and effect for the entire Salary Continuation Period notwithstanding any shorter period set forth therein. 6. NOTICES a. Each notice, demand, consent or communication (hereinafter "Notice") which is or may be required to be given by any party to the other party in connection with this Agreement shall be in writing and given by facsimile, personal delivery, receipted delivery services, or by certified mail, return receipt requested, prepaid and properly addressed to the other party as shown below. b. Notices shall be effective on the date sent via facsimile, the date delivered personally or by receipted delivery service, or three (3) days after the date mailed: (i) To the Company: Legal Department Attn: Corporate Counsel Keane, Inc. 100 City Square Charlestown, MA 02129 (ii) To the Executive: At the residence address most recently filed with the Company. 7. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Party; provided, that Keane may assign its rights, interests or obligations hereunder to: (a) a subsidiary, subdivision or affiliate, provided that Keane shall remain responsible to the Executive for such obligations in the event they are not met by such assignee; or (b) to a person, corporation, organization or other entity that acquires (whether by stock purchase or merger or otherwise) all or substantially all of the business or assets of Keane. 8. MISCELLANEOUS. a. This Agreement may be amended or modified only by a written instrument executed by Keane and the Executive. Notwithstanding anything herein to the contrary, to the extent that the Executive or Keane reasonably believe that Section 409A of the Code will result in adverse tax consequences to the Executive as a result of this Agreement, then the Executive and Keane shall renegotiate this Agreement in good faith in order to minimize or eliminate such tax consequences and retain the basic economics of this Agreement to the extent possible. b. This Agreement shall be governed by and construed in accordance with the internal laws (and not the laws of conflicts) of the Commonwealth of Massachusetts. c. Except in the case of Section 7 above, the term "Keane" or the "Company" shall include Keane, Inc. and any of its subsidiaries, subdivisions and affiliates. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. d. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. e. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. f. The Executive's or the Company's failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. g. Keane shall have the right to withhold all applicable income and employment taxes due with respect to any payment made to the Executive under this Agreement. Executed this 11th day of March, 2005. By: /s/ Brian T. Keane ------------------ Brian T. Keane Keane, Inc. By: /s/ John Leahy -------------- John Leahy EXHIBIT A DEFINITION OF "CHANGE IN CONTROL" "Change in Control" shall mean any of the following: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act") (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board ("Voting Securities") or (B) the then outstanding shares of Company's common stock ("Common Stock") (other than as a result of an acquisition of securities directly from the Company); or (b) During any period of two years or less, persons who at the beginning of such period (the "Commencement Date") constitute the Company's Board (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the Commencement Date shall be considered an Incumbent Director if such person's election was approved by or such person was nominated for election by a vote of at least a majority of the Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate fifty percent (50%) or more of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities outstanding, increases the proportionate number of shares beneficially owned by any person to fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities or Common Stock (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock, then a "Change of Control" shall be deemed to have occurred for purposes of the foregoing clause (a). EX-10.25 10 a2153146zex-10_25.txt EXHIBIT 10.25 Exhibit 10.25 CHANGE-IN-CONTROL AGREEMENT THIS AGREEMENT ("Agreement") is entered into as of March 12, 2005, by and between Keane, Inc., a Massachusetts corporation with its principal place of business at 100 City Square, Boston, Massachusetts 02129 ("Keane"), and Laurence D. Shaw (the "Executive"). Keane and the Executive are referred to together herein as the "Parties." WHEREAS, the Executive is currently employed as Senior Vice President, International Operations, of the Company; and WHEREAS, the Compensation Committee of the Board of Directors of the Company has authorized certain severance provisions in respect of senior executives of the Company following the occurrence of a change of control in order to assist in the retention of the Company's executives; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Executive agree as follows: 1. TERM OF EMPLOYMENT. Subject to the benefits described in paragraph 2, the Company retains the right to terminate the employment of the Executive at any time, including, without limitation, with or without notice and with or without Cause. 2. SEVERANCE BENEFITS UPON TERMINATION AFTER CORPORATE CHANGE IN CONTROL. If within one year after a Change in Control (as defined in Exhibit A to this Agreement) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, both as defined below (the effective date of any such termination being hereinafter referred to as the "Termination Date") the Executive shall be entitled to the following severance benefits (and no others): a. For a period of twenty-four months following the Termination Date (the "Salary Continuation Period"), (on the normal payroll schedule for the Executive in effect immediately prior to the Termination Date) the Company shall continue to pay the Executive the base salary and targeted annual bonus (monthly on a pro rata basis), both at the rate in effect immediately before the Termination Date, EXCEPT THAT in the case of a termination by the Executive for Good Reason, disregarding any reduction thereof that was the basis for such termination. b. Upon the Termination Date, all stock options, restricted stock and other equity awards previously granted to the Executive shall become vested immediately and shall be exercisable in full in accordance with the applicable stock option, restricted stock or other form of equity agreement and the terms of any applicable stock or equity plan. c. The Termination Date shall be treated as a qualifying event under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"). Under COBRA, if the Executive is covered by the group medical and/or dental plan offered by Keane, the Executive and his or her spouse and dependents are entitled to elect a temporary extension of health and/or dental coverage at group rates in certain instances where coverage under the plan would otherwise end ("Continuation Coverage"). If the Executive elects Continuation Coverage under COBRA, during the period of such Continuation Coverage, the Executive will be responsible for any contribution required from active employees of the Company under the applicable group medical and/or dental plan. If and to the extent this Section 2.c does not apply, as where the Executive is not resident in or of the United States, the Executive shall receive a monthly stipend to offset medical and/or dental benefits lost following the Termination Date. d. For 12 months, the Executive shall be entitled to continue participation in the executive financial planning benefit in effect as of the Termination Date. e. Neither the Executive nor Keane shall have the right to accelerate or to defer the delivery of the payments to be made under this Section 2; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the "Code"), and any of the payments to be made to the Executive under this Section 2 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. 3. DEFINITIONS. a. "GOOD REASON". "Good Reason" means termination at the Executive's initiative within one year after a Change in Control (as defined in Exhibit A to this Agreement) if: (i) The Executive's title, duties, status, reporting relationship, authority or responsibilities have been materially and adversely affected; or (ii) The Executive's compensation, including base salary and target annual bonus, has been reduced by 10% or greater; or (iii) The Executive's principal place of employment immediately prior to the Change of Control is relocated to a location more than 25 miles from such place of employment. The Executive shall give the Company Notice of termination specifying which of the foregoing provisions is applicable and the factual basis therefor, and if the Company fails to remedy such material failure, the Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. b. "CAUSE". For purposes of this Agreement only, "Cause" means and shall be limited to: (i) wrongful misappropriation of the funds or property of the Company; (ii) use of alcohol or illegal drugs interfering with the performance of the Executive's obligations, continuing after written warning of such actions; (iii) admission, confession, or plea bargain to, or conviction of, a felony, or of any crime involving moral turpitude, dishonesty, or unethical conduct; (iv) commission of any willful, intentional or grossly negligent act which would reasonably be expected to materially injure the reputation, business or business relationships of the Company or which would bring the Executive or the Company into disrepute, or the willful commission of any act which is a breach of the Executive's fiduciary duties to the Company; (v) the deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability) to substantially perform his duties with the Company and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of Notice specifying the scope and nature of such failure and the Company's intention to terminate the Executive for Cause; or (vi) commission of any act which constitutes a material breach of the policies of the Company, including but not limited to the disclosure of any confidential information or trade secrets pertaining to the Company or any of its clients. For purposes of this Section, any act or failure to act of the Executive shall not be considered "willful" unless done or omitted to be done by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. The Company shall give the Executive Notice of termination specifying which of the foregoing provisions is applicable. The effective Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. 4. GROSS-UP PAYMENT. a. In the event an Executive becomes entitled to any benefits or payments under this Agreement or under any other agreement, plan or arrangement to which the Company and the Executive are parties, including any non-cash benefit or deferred payment or benefit (the "Total Benefits"), (i) where such payment or benefit is contingent on a Change in Control (as defined in Exhibit A to this Agreement), and (ii) in the event that any of the Total Benefits will be subject to a tax imposed by Section 4999 of the Code (the "Excise Tax"), due to classification as an excess parachute payment in accordance with Section 280G of the Code, the Company shall pay to him an additional amount (the "Gross-Up Payment") such that the net amount retained by him, after reduction of any Excise Tax on the Total Benefits and any federal, state and local income tax, Excise Tax and FICA and Medicare withholding taxes upon the payment provided for by this Section, shall be equal to the Total Benefits. For purposes of this Gross-Up Payment, the amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by the Company, after consultation with its legal and tax advisors. b. For purposes of determining the amount of the Gross-Up Payment, an Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of his residence on the Termination Date, net of the reduction in federal income taxes which could be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Code in the amount of itemized deductions allowable to him applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by him). c. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, the Executive shall promptly repay to the Company the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the portion of the Gross-Up Payment being repaid by him to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or federal, state or local income taxes) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. d. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder, the Company shall make an additional Gross-Up Payment to him in respect of such excess (plus any interest, penalties or additions payable by him with respect to such excess) at the time that the amount of such excess is finally determined. e. The Gross Up Payment shall be made within two and a half months after the Termination Date; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of Code and any of the payments to be made to the Executive under this Section 4 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. f. The intent of this Section 4 is to make the Executive whole, to the extent allowed under applicable laws and regulations, such that he is not detrimentally impacted by the imposition of a tax over and above the marginal rate applicable to his Keane-related earnings as a result of a Change In Control. To the extent the Executive is subject to income tax laws of a country other than the United States, the Company shall use its best efforts to implement the intent of this Section 4 in accordance with applicable laws and regulations. 5. OBLIGATIONS AND RESTRICTIVE COVENANTS. All obligations and restrictive covenants as set forth in any existing or future Employment Agreements, Stock Option Agreements, or the like, shall remain in full force and effect notwithstanding this Agreement, including but not limited to, provisions and/or restrictions relating to trade secrets, confidential information, works made for hire and inventions, competition, solicitation, hiring, Company property, et cetera, EXCEPT THAT any and all such obligations and restrictive covenants shall remain in full force and effect for the entire Salary Continuation Period notwithstanding any shorter period set forth therein. 6. NOTICES a. Each notice, demand, consent or communication (hereinafter "Notice") which is or may be required to be given by any party to the other party in connection with this Agreement shall be in writing and given by facsimile, personal delivery, receipted delivery services, or by certified mail, return receipt requested, prepaid and properly addressed to the other party as shown below. b. Notices shall be effective on the date sent via facsimile, the date delivered personally or by receipted delivery service, or three (3) days after the date mailed: (i) To the Company: Legal Department Attn: Corporate Counsel Keane, Inc. 100 City Square Charlestown, MA 02129 (ii) To the Executive: At the residence address most recently filed with the Company. 7. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Party; provided, that Keane may assign its rights, interests or obligations hereunder to: (a) a subsidiary, subdivision or affiliate, provided that Keane shall remain responsible to the Executive for such obligations in the event they are not met by such assignee; or (b) to a person, corporation, organization or other entity that acquires (whether by stock purchase or merger or otherwise) all or substantially all of the business or assets of Keane. 8. MISCELLANEOUS. a. This Agreement may be amended or modified only by a written instrument executed by Keane and the Executive. Notwithstanding anything herein to the contrary, to the extent that the Executive or Keane reasonably believe that Section 409A of the Code will result in adverse tax consequences to the Executive as a result of this Agreement, then the Executive and Keane shall renegotiate this Agreement in good faith in order to minimize or eliminate such tax consequences and retain the basic economics of this Agreement to the extent possible. b. This Agreement shall be governed by and construed in accordance with the internal laws (and not the laws of conflicts) of the Commonwealth of Massachusetts. c. Except in the case of Section 7 above, the term "Keane" or the "Company" shall include Keane, Inc. and any of its subsidiaries, subdivisions and affiliates. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. d. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. e. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. f. The Executive's or the Company's failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. g. Keane shall have the right to withhold all applicable income and employment taxes due with respect to any payment made to the Executive under this Agreement. Executed this 12th day of March, 2005. By: /s/ John J. Leahy ------------------ John J. Leahy Keane, Inc. By: /s/ Laurence Shaw ----------------- Laurence Shaw EXHIBIT A DEFINITION OF "CHANGE IN CONTROL" "Change in Control" shall mean any of the following: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act") (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board ("Voting Securities") or (B) the then outstanding shares of Company's common stock ("Common Stock") (other than as a result of an acquisition of securities directly from the Company); or (b) During any period of two years or less, persons who at the beginning of such period (the "Commencement Date") constitute the Company's Board (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the Commencement Date shall be considered an Incumbent Director if such person's election was approved by or such person was nominated for election by a vote of at least a majority of the Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate fifty percent (50%) or more of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities outstanding, increases the proportionate number of shares beneficially owned by any person to fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities or Common Stock (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock, then a "Change of Control" shall be deemed to have occurred for purposes of the foregoing clause (a). EX-10.26 11 a2153146zex-10_26.txt EXHIBIT 10.26 Exhibit 10.26 CHANGE-IN-CONTROL AGREEMENT THIS AGREEMENT ("Agreement") is entered into as of March 12, 2005, by and between Keane, Inc., a Massachusetts corporation with its principal place of business at 100 City Square, Boston, Massachusetts 02129 ("Keane"), and Raymond Paris (the "Executive"). Keane and the Executive are referred to together herein as the "Parties." WHEREAS, the Executive is currently employed as Senior Vice President, Healthcare Solutions Division, of the Company; and WHEREAS, the Compensation Committee of the Board of Directors of the Company has authorized certain severance provisions in respect of senior executives of the Company following the occurrence of a change of control in order to assist in the retention of the Company's executives; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Executive agree as follows: 1. TERM OF EMPLOYMENT. Subject to the benefits described in paragraph 2, the Company retains the right to terminate the employment of the Executive at any time, including, without limitation, with or without notice and with or without Cause. 2. SEVERANCE BENEFITS UPON TERMINATION AFTER CORPORATE CHANGE IN CONTROL. If within one year after a Change in Control (as defined in Exhibit A to this Agreement) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, both as defined below (the effective date of any such termination being hereinafter referred to as the "Termination Date") the Executive shall be entitled to the following severance benefits (and no others): a. For a period of twenty-four months following the Termination Date (the "Salary Continuation Period"), (on the normal payroll schedule for the Executive in effect immediately prior to the Termination Date) the Company shall continue to pay the Executive the base salary and targeted annual bonus (monthly on a pro rata basis), both at the rate in effect immediately before the Termination Date, EXCEPT THAT in the case of a termination by the Executive for Good Reason, disregarding any reduction thereof that was the basis for such termination. b. Upon the Termination Date, all stock options, restricted stock and other equity awards previously granted to the Executive shall become vested immediately and shall be exercisable in full in accordance with the applicable stock option, restricted stock or other form of equity agreement and the terms of any applicable stock or equity plan. c. The Termination Date shall be treated as a qualifying event under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"). Under COBRA, if the Executive is covered by the group medical and/or dental plan offered by Keane, the Executive and his or her spouse and dependents are entitled to elect a temporary extension of health and/or dental coverage at group rates in certain instances where coverage under the plan would otherwise end ("Continuation Coverage"). If the Executive elects Continuation Coverage under COBRA, during the period of such Continuation Coverage, the Executive will be responsible for any contribution required from active employees of the Company under the applicable group medical and/or dental plan. If and to the extent this Section 2.c does not apply, as where the Executive is not resident in or of the United States, the Executive shall receive a monthly stipend to offset medical and/or dental benefits lost following the Termination Date. d. For 12 months, the Executive shall be entitled to continue participation in the executive financial planning benefit in effect as of the Termination Date. e. Neither the Executive nor Keane shall have the right to accelerate or to defer the delivery of the payments to be made under this Section 2; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the "Code"), and any of the payments to be made to the Executive under this Section 2 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. 3. DEFINITIONS. a. "GOOD REASON". "Good Reason" means termination at the Executive's initiative within one year after a Change in Control (as defined in Exhibit A to this Agreement) if: (i) The Executive's title, duties, status, reporting relationship, authority or responsibilities have been materially and adversely affected; or (ii) The Executive's compensation, including base salary and target annual bonus, has been reduced by 10% or greater; or (iii) The Executive's principal place of employment immediately prior to the Change of Control is relocated to a location more than 25 miles from such place of employment. The Executive shall give the Company Notice of termination specifying which of the foregoing provisions is applicable and the factual basis therefor, and if the Company fails to remedy such material failure, the Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. b. "CAUSE". For purposes of this Agreement only, "Cause" means and shall be limited to: (i) wrongful misappropriation of the funds or property of the Company; (ii) use of alcohol or illegal drugs interfering with the performance of the Executive's obligations, continuing after written warning of such actions; (iii) admission, confession, or plea bargain to, or conviction of, a felony, or of any crime involving moral turpitude, dishonesty, or unethical conduct; (iv) commission of any willful, intentional or grossly negligent act which would reasonably be expected to materially injure the reputation, business or business relationships of the Company or which would bring the Executive or the Company into disrepute, or the willful commission of any act which is a breach of the Executive's fiduciary duties to the Company; (v) the deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability) to substantially perform his duties with the Company and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of Notice specifying the scope and nature of such failure and the Company's intention to terminate the Executive for Cause; or (vi) commission of any act which constitutes a material breach of the policies of the Company, including but not limited to the disclosure of any confidential information or trade secrets pertaining to the Company or any of its clients. For purposes of this Section, any act or failure to act of the Executive shall not be considered "willful" unless done or omitted to be done by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. The Company shall give the Executive Notice of termination specifying which of the foregoing provisions is applicable. The effective Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. 4. GROSS-UP PAYMENT. a. In the event an Executive becomes entitled to any benefits or payments under this Agreement or under any other agreement, plan or arrangement to which the Company and the Executive are parties, including any non-cash benefit or deferred payment or benefit (the "Total Benefits"), (i) where such payment or benefit is contingent on a Change in Control (as defined in Exhibit A to this Agreement), and (ii) in the event that any of the Total Benefits will be subject to a tax imposed by Section 4999 of the Code (the "Excise Tax"), due to classification as an excess parachute payment in accordance with Section 280G of the Code, the Company shall pay to him an additional amount (the "Gross-Up Payment") such that the net amount retained by him, after reduction of any Excise Tax on the Total Benefits and any federal, state and local income tax, Excise Tax and FICA and Medicare withholding taxes upon the payment provided for by this Section, shall be equal to the Total Benefits. For purposes of this Gross-Up Payment, the amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by the Company, after consultation with its legal and tax advisors. b. For purposes of determining the amount of the Gross-Up Payment, an Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of his residence on the Termination Date, net of the reduction in federal income taxes which could be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Code in the amount of itemized deductions allowable to him applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by him). c. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, the Executive shall promptly repay to the Company the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the portion of the Gross-Up Payment being repaid by him to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or federal, state or local income taxes) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. d. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder, the Company shall make an additional Gross-Up Payment to him in respect of such excess (plus any interest, penalties or additions payable by him with respect to such excess) at the time that the amount of such excess is finally determined. e. The Gross Up Payment shall be made within two and a half months after the Termination Date; provided, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of Code and any of the payments to be made to the Executive under this Section 4 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. f. The intent of this Section 4 is to make the Executive whole, to the extent allowed under applicable laws and regulations, such that he is not detrimentally impacted by the imposition of a tax over and above the marginal rate applicable to his Keane-related earnings as a result of a Change In Control. To the extent the Executive is subject to income tax laws of a country other than the United States, the Company shall use its best efforts to implement the intent of this Section 4 in accordance with applicable laws and regulations. 5. OBLIGATIONS AND RESTRICTIVE COVENANTS. All obligations and restrictive covenants as set forth in any existing or future Employment Agreements, Stock Option Agreements, or the like, shall remain in full force and effect notwithstanding this Agreement, including but not limited to, provisions and/or restrictions relating to trade secrets, confidential information, works made for hire and inventions, competition, solicitation, hiring, Company property, et cetera, EXCEPT THAT any and all such obligations and restrictive covenants shall remain in full force and effect for the entire Salary Continuation Period notwithstanding any shorter period set forth therein. 6. NOTICES a. Each notice, demand, consent or communication (hereinafter "Notice") which is or may be required to be given by any party to the other party in connection with this Agreement shall be in writing and given by facsimile, personal delivery, receipted delivery services, or by certified mail, return receipt requested, prepaid and properly addressed to the other party as shown below. b. Notices shall be effective on the date sent via facsimile, the date delivered personally or by receipted delivery service, or three (3) days after the date mailed: (i) To the Company: Legal Department Attn: Corporate Counsel Keane, Inc. 100 City Square Charlestown, MA 02129 (ii) To the Executive: At the residence address most recently filed with the Company. 7. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Party; provided, that Keane may assign its rights, interests or obligations hereunder to: (a) a subsidiary, subdivision or affiliate, provided that Keane shall remain responsible to the Executive for such obligations in the event they are not met by such assignee; or (b) to a person, corporation, organization or other entity that acquires (whether by stock purchase or merger or otherwise) all or substantially all of the business or assets of Keane. 8. MISCELLANEOUS. a. This Agreement may be amended or modified only by a written instrument executed by Keane and the Executive. Notwithstanding anything herein to the contrary, to the extent that the Executive or Keane reasonably believe that Section 409A of the Code will result in adverse tax consequences to the Executive as a result of this Agreement, then the Executive and Keane shall renegotiate this Agreement in good faith in order to minimize or eliminate such tax consequences and retain the basic economics of this Agreement to the extent possible. b. This Agreement shall be governed by and construed in accordance with the internal laws (and not the laws of conflicts) of the Commonwealth of Massachusetts. c. Except in the case of Section 7 above, the term "Keane" or the "Company" shall include Keane, Inc. and any of its subsidiaries, subdivisions and affiliates. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. d. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. e. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. f. The Executive's or the Company's failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. g. Keane shall have the right to withhold all applicable income and employment taxes due with respect to any payment made to the Executive under this Agreement. Executed this 12th day of March, 2005. By: /s/ John J. Leahy ------------------ John J. Leahy Keane, Inc. By: /s/ Raymond Paris ------------------ Raymond Paris EXHIBIT A DEFINITION OF "CHANGE IN CONTROL" "Change in Control" shall mean any of the following: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act") (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board ("Voting Securities") or (B) the then outstanding shares of Company's common stock ("Common Stock") (other than as a result of an acquisition of securities directly from the Company); or (b) During any period of two years or less, persons who at the beginning of such period (the "Commencement Date") constitute the Company's Board (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the Commencement Date shall be considered an Incumbent Director if such person's election was approved by or such person was nominated for election by a vote of at least a majority of the Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate fifty percent (50%) or more of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities outstanding, increases the proportionate number of shares beneficially owned by any person to fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities or Common Stock (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock, then a "Change of Control" shall be deemed to have occurred for purposes of the foregoing clause (a). EX-10.27 12 a2153146zex-10_27.txt EXHIBIT 10.27 Exhibit 10.27 CHANGE-IN-CONTROL AGREEMENT THIS AGREEMENT ("Agreement") is entered into as of March 11, 2005, by and between Keane, Inc., a Massachusetts corporation with its principal place of business at 100 City Square, Boston, Massachusetts 02129 ("Keane"), and Russell J. Campanello (the "Executive"). Keane and the Executive are referred to together herein as the "Parties." WHEREAS, the Executive is currently employed as Senior Vice President, Human Resources, of the Company; and WHEREAS, the Compensation Committee of the Board of Directors of the Company has authorized certain severance provisions in respect of senior executives of the Company following the occurrence of a change of control in order to assist in the retention of the Company's executives; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Executive agree as follows: 1. TERM OF EMPLOYMENT. Subject to the benefits described in paragraph 2, the Company retains the right to terminate the employment of the Executive at any time, including, without limitation, with or without notice and with or without Cause. 2. SEVERANCE BENEFITS UPON TERMINATION AFTER CORPORATE CHANGE IN CONTROL. If within one year after a Change in Control (as defined in Exhibit A to this Agreement) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, both as defined below (the effective date of any such termination being hereinafter referred to as the "Termination Date") the Executive shall be entitled to the following severance benefits (and no others): a. For a period of twenty-four months following the Termination Date (the "Salary Continuation Period"), (on the normal payroll schedule for the Executive in effect immediately prior to the Termination Date) the Company shall continue to pay the Executive the base salary and targeted annual bonus (monthly on a pro rata basis), both at the rate in effect immediately before the Termination Date, EXCEPT THAT in the case of a termination by the Executive for Good Reason, disregarding any reduction thereof that was the basis for such termination. b. Upon the Termination Date, all stock options, restricted stock and other equity awards previously granted to the Executive shall become vested immediately and shall be exercisable in full in accordance with the applicable stock option, restricted stock or other form of equity agreement and the terms of any applicable stock or equity plan. c. The Termination Date shall be treated as a qualifying event under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"). Under COBRA, if the Executive is covered by the group medical and/or dental plan offered by Keane, the Executive and his or her spouse and dependents are entitled to elect a temporary extension of health and/or dental coverage at group rates in certain instances where coverage under the plan would otherwise end ("Continuation Coverage"). If the Executive elects Continuation Coverage under COBRA, during the period of such Continuation Coverage, the Executive will be responsible for any contribution required from active employees of the Company under the applicable group medical and/or dental plan. If and to the extent this Section 2.c does not apply, as where the Executive is not resident in or of the United States, the Executive shall receive a monthly stipend to offset medical and/or dental benefits lost following the Termination Date. d. For 12 months, the Executive shall be entitled to continue participation in the executive financial planning benefit in effect as of the Termination Date. e. Neither the Executive nor Keane shall have the right to accelerate or to defer the delivery of the payments to be made under this Section 2; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the "Code"), and any of the payments to be made to the Executive under this Section 2 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. 3. DEFINITIONS. a. "GOOD REASON". "Good Reason" means termination at the Executive's initiative within one year after a Change in Control (as defined in Exhibit A to this Agreement) if: (i) The Executive's title, duties, status, reporting relationship, authority or responsibilities have been materially and adversely affected; or (ii) The Executive's compensation, including base salary and target annual bonus, has been reduced by 10% or greater; or (iii) The Executive's principal place of employment immediately prior to the Change of Control is relocated to a location more than 25 miles from such place of employment. The Executive shall give the Company Notice of termination specifying which of the foregoing provisions is applicable and the factual basis therefor, and if the Company fails to remedy such material failure, the Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. b. "CAUSE". For purposes of this Agreement only, "Cause" means and shall be limited to: (i) wrongful misappropriation of the funds or property of the Company; (ii) use of alcohol or illegal drugs interfering with the performance of the Executive's obligations, continuing after written warning of such actions; (iii) admission, confession, or plea bargain to, or conviction of, a felony, or of any crime involving moral turpitude, dishonesty, or unethical conduct; (iv) commission of any willful, intentional or grossly negligent act which would reasonably be expected to materially injure the reputation, business or business relationships of the Company or which would bring the Executive or the Company into disrepute, or the willful commission of any act which is a breach of the Executive's fiduciary duties to the Company; (v) the deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability) to substantially perform his duties with the Company and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of Notice specifying the scope and nature of such failure and the Company's intention to terminate the Executive for Cause; or (vi) commission of any act which constitutes a material breach of the policies of the Company, including but not limited to the disclosure of any confidential information or trade secrets pertaining to the Company or any of its clients. For purposes of this Section, any act or failure to act of the Executive shall not be considered "willful" unless done or omitted to be done by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. The Company shall give the Executive Notice of termination specifying which of the foregoing provisions is applicable. The effective Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. 4. GROSS-UP PAYMENT. a. In the event an Executive becomes entitled to any benefits or payments under this Agreement or under any other agreement, plan or arrangement to which the Company and the Executive are parties, including any non-cash benefit or deferred payment or benefit (the "Total Benefits"), (i) where such payment or benefit is contingent on a Change in Control (as defined in Exhibit A to this Agreement), and (ii) in the event that any of the Total Benefits will be subject to a tax imposed by Section 4999 of the Code (the "Excise Tax"), due to classification as an excess parachute payment in accordance with Section 280G of the Code, the Company shall pay to him an additional amount (the "Gross-Up Payment") such that the net amount retained by him, after reduction of any Excise Tax on the Total Benefits and any federal, state and local income tax, Excise Tax and FICA and Medicare withholding taxes upon the payment provided for by this Section, shall be equal to the Total Benefits. For purposes of this Gross-Up Payment, the amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by the Company, after consultation with its legal and tax advisors. b. For purposes of determining the amount of the Gross-Up Payment, an Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of his residence on the Termination Date, net of the reduction in federal income taxes which could be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Code in the amount of itemized deductions allowable to him applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by him). c. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, the Executive shall promptly repay to the Company the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the portion of the Gross-Up Payment being repaid by him to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or federal, state or local income taxes) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. d. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder, the Company shall make an additional Gross-Up Payment to him in respect of such excess (plus any interest, penalties or additions payable by him with respect to such excess) at the time that the amount of such excess is finally determined. e. The Gross Up Payment shall be made within two and a half months after the Termination Date; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of Code and any of the payments to be made to the Executive under this Section 4 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. f. The intent of this Section 4 is to make the Executive whole, to the extent allowed under applicable laws and regulations, such that he is not detrimentally impacted by the imposition of a tax over and above the marginal rate applicable to his Keane-related earnings as a result of a Change In Control. To the extent the Executive is subject to income tax laws of a country other than the United States, the Company shall use its best efforts to implement the intent of this Section 4 in accordance with applicable laws and regulations. 5. OBLIGATIONS AND RESTRICTIVE COVENANTS. All obligations and restrictive covenants as set forth in any existing or future Employment Agreements, Stock Option Agreements, or the like, shall remain in full force and effect notwithstanding this Agreement, including but not limited to, provisions and/or restrictions relating to trade secrets, confidential information, works made for hire and inventions, competition, solicitation, hiring, Company property, et cetera, EXCEPT THAT any and all such obligations and restrictive covenants shall remain in full force and effect for the entire Salary Continuation Period notwithstanding any shorter period set forth therein. 6. NOTICES a. Each notice, demand, consent or communication (hereinafter "Notice") which is or may be required to be given by any party to the other party in connection with this Agreement shall be in writing and given by facsimile, personal delivery, receipted delivery services, or by certified mail, return receipt requested, prepaid and properly addressed to the other party as shown below. b. Notices shall be effective on the date sent via facsimile, the date delivered personally or by receipted delivery service, or three (3) days after the date mailed: (i) To the Company: Legal Department Attn: Corporate Counsel Keane, Inc. 100 City Square Charlestown, MA 02129 (ii) To the Executive: At the residence address most recently filed with the Company. 7. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Party; provided, that Keane may assign its rights, interests or obligations hereunder to: (a) a subsidiary, subdivision or affiliate, provided that Keane shall remain responsible to the Executive for such obligations in the event they are not met by such assignee; or (b) to a person, corporation, organization or other entity that acquires (whether by stock purchase or merger or otherwise) all or substantially all of the business or assets of Keane. 8. MISCELLANEOUS. a. This Agreement may be amended or modified only by a written instrument executed by Keane and the Executive. Notwithstanding anything herein to the contrary, to the extent that the Executive or Keane reasonably believe that Section 409A of the Code will result in adverse tax consequences to the Executive as a result of this Agreement, then the Executive and Keane shall renegotiate this Agreement in good faith in order to minimize or eliminate such tax consequences and retain the basic economics of this Agreement to the extent possible. b. This Agreement shall be governed by and construed in accordance with the internal laws (and not the laws of conflicts) of the Commonwealth of Massachusetts. c. Except in the case of Section 7 above, the term "Keane" or the "Company" shall include Keane, Inc. and any of its subsidiaries, subdivisions and affiliates. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. d. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. e. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. f. The Executive's or the Company's failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. g. Keane shall have the right to withhold all applicable income and employment taxes due with respect to any payment made to the Executive under this Agreement. Executed this 11th day of March, 2005. By: /s/ John J. Leahy ------------------ John J. Leahy Keane, Inc. By: /s/ Russell Campanello ---------------------- Russell Campanello EXHIBIT A DEFINITION OF "CHANGE IN CONTROL" "Change in Control" shall mean any of the following: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act") (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board ("Voting Securities") or (B) the then outstanding shares of Company's common stock ("Common Stock") (other than as a result of an acquisition of securities directly from the Company); or (b) During any period of two years or less, persons who at the beginning of such period (the "Commencement Date") constitute the Company's Board (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the Commencement Date shall be considered an Incumbent Director if such person's election was approved by or such person was nominated for election by a vote of at least a majority of the Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate fifty percent (50%) or more of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities outstanding, increases the proportionate number of shares beneficially owned by any person to fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities or Common Stock (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock, then a "Change of Control" shall be deemed to have occurred for purposes of the foregoing clause (a). EX-10.28 13 a2153146zex-10_28.txt EXHIBIT 10.28 Exhibit 10.28 CHANGE-IN-CONTROL AGREEMENT THIS AGREEMENT ("Agreement") is entered into as of March 11, 2005, by and between Keane, Inc., a Massachusetts corporation with its principal place of business at 100 City Square, Boston, Massachusetts 02129 ("Keane"), and Georgina L. Fisk (the "Executive"). Keane and the Executive are referred to together herein as the "Parties." WHEREAS, the Executive is currently employed as Vice President, Marketing, of the Company; and WHEREAS, the Compensation Committee of the Board of Directors of the Company has authorized certain severance provisions in respect of senior executives of the Company following the occurrence of a change of control in order to assist in the retention of the Company's executives; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Executive agree as follows: 1. TERM OF EMPLOYMENT. Subject to the benefits described in paragraph 2, the Company retains the right to terminate the employment of the Executive at any time, including, without limitation, with or without notice and with or without Cause. 2. SEVERANCE BENEFITS UPON TERMINATION AFTER CORPORATE CHANGE IN CONTROL. If within one year after a Change in Control (as defined in Exhibit A to this Agreement) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason, both as defined below (the effective date of any such termination being hereinafter referred to as the "Termination Date") the Executive shall be entitled to the following severance benefits (and no others): a. For a period of twenty-four months following the Termination Date (the "Salary Continuation Period"), (on the normal payroll schedule for the Executive in effect immediately prior to the Termination Date) the Company shall continue to pay the Executive the base salary and targeted annual bonus (monthly on a pro rata basis), both at the rate in effect immediately before the Termination Date, EXCEPT THAT in the case of a termination by the Executive for Good Reason, disregarding any reduction thereof that was the basis for such termination. b. Upon the Termination Date, all stock options, restricted stock and other equity awards previously granted to the Executive shall become vested immediately and shall be exercisable in full in accordance with the applicable stock option, restricted stock or other form of equity agreement and the terms of any applicable stock or equity plan. c. The Termination Date shall be treated as a qualifying event under the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"). Under COBRA, if the Executive is covered by the group medical and/or dental plan offered by Keane, the Executive and his or her spouse and dependents are entitled to elect a temporary extension of health and/or dental coverage at group rates in certain instances where coverage under the plan would otherwise end ("Continuation Coverage"). If the Executive elects Continuation Coverage under COBRA, during the period of such Continuation Coverage, the Executive will be responsible for any contribution required from active employees of the Company under the applicable group medical and/or dental plan. If and to the extent this Section 2.c does not apply, as where the Executive is not resident in or of the United States, the Executive shall receive a monthly stipend to offset medical and/or dental benefits lost following the Termination Date. d. For 12 months, the Executive shall be entitled to continue participation in the executive financial planning benefit in effect as of the Termination Date. e. Neither the Executive nor Keane shall have the right to accelerate or to defer the delivery of the payments to be made under this Section 2; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the "Code"), and any of the payments to be made to the Executive under this Section 2 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. 3. DEFINITIONS. a. "GOOD REASON". "Good Reason" means termination at the Executive's initiative within one year after a Change in Control (as defined in Exhibit A to this Agreement) if: (i) The Executive's title, duties, status, reporting relationship, authority or responsibilities have been materially and adversely affected; or (ii) The Executive's compensation, including base salary and target annual bonus, has been reduced by 10% or greater; or (iii) The Executive's principal place of employment immediately prior to the Change of Control is relocated to a location more than 25 miles from such place of employment. The Executive shall give the Company Notice of termination specifying which of the foregoing provisions is applicable and the factual basis therefor, and if the Company fails to remedy such material failure, the Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. b. "CAUSE". For purposes of this Agreement only, "Cause" means and shall be limited to: (i) wrongful misappropriation of the funds or property of the Company; (ii) use of alcohol or illegal drugs interfering with the performance of the Executive's obligations, continuing after written warning of such actions; (iii) admission, confession, or plea bargain to, or conviction of, a felony, or of any crime involving moral turpitude, dishonesty, or unethical conduct; (iv) commission of any willful, intentional or grossly negligent act which would reasonably be expected to materially injure the reputation, business or business relationships of the Company or which would bring the Executive or the Company into disrepute, or the willful commission of any act which is a breach of the Executive's fiduciary duties to the Company; (v) the deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability) to substantially perform his duties with the Company and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of Notice specifying the scope and nature of such failure and the Company's intention to terminate the Executive for Cause; or (vi) commission of any act which constitutes a material breach of the policies of the Company, including but not limited to the disclosure of any confidential information or trade secrets pertaining to the Company or any of its clients. For purposes of this Section, any act or failure to act of the Executive shall not be considered "willful" unless done or omitted to be done by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. The Company shall give the Executive Notice of termination specifying which of the foregoing provisions is applicable. The effective Termination Date shall be the 30th business day after such Notice is given or such other date as the Company and the Executive shall agree. 4. GROSS-UP PAYMENT. a. In the event an Executive becomes entitled to any benefits or payments under this Agreement or under any other agreement, plan or arrangement to which the Company and the Executive are parties, including any non-cash benefit or deferred payment or benefit (the "Total Benefits"), (i) where such payment or benefit is contingent on a Change in Control (as defined in Exhibit A to this Agreement), and (ii) in the event that any of the Total Benefits will be subject to a tax imposed by Section 4999 of the Code (the "Excise Tax"), due to classification as an excess parachute payment in accordance with Section 280G of the Code, the Company shall pay to him an additional amount (the "Gross-Up Payment") such that the net amount retained by him, after reduction of any Excise Tax on the Total Benefits and any federal, state and local income tax, Excise Tax and FICA and Medicare withholding taxes upon the payment provided for by this Section, shall be equal to the Total Benefits. For purposes of this Gross-Up Payment, the amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by the Company, after consultation with its legal and tax advisors. b. For purposes of determining the amount of the Gross-Up Payment, an Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of his residence on the Termination Date, net of the reduction in federal income taxes which could be obtained from deduction of such state and local taxes (calculated by assuming that any reduction under Section 68 of the Code in the amount of itemized deductions allowable to him applies first to reduce the amount of such state and local income taxes that would otherwise be deductible by him). c. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, the Executive shall promptly repay to the Company the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax, federal, state and local income taxes and FICA and Medicare withholding taxes imposed on the portion of the Gross-Up Payment being repaid by him to the extent that such repayment results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or federal, state or local income taxes) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. d. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder, the Company shall make an additional Gross-Up Payment to him in respect of such excess (plus any interest, penalties or additions payable by him with respect to such excess) at the time that the amount of such excess is finally determined. e. The Gross Up Payment shall be made within two and a half months after the Termination Date; PROVIDED, HOWEVER, that if the Executive is a "specified employee" as defined in Section 409A(a)(2)(B)(i) of Code and any of the payments to be made to the Executive under this Section 4 constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code, then the commencement of the delivery of any such payments will be delayed to the date that is six months after the Termination Date. f. The intent of this Section 4 is to make the Executive whole, to the extent allowed under applicable laws and regulations, such that he is not detrimentally impacted by the imposition of a tax over and above the marginal rate applicable to his Keane-related earnings as a result of a Change In Control. To the extent the Executive is subject to income tax laws of a country other than the United States, the Company shall use its best efforts to implement the intent of this Section 4 in accordance with applicable laws and regulations. 5. OBLIGATIONS AND RESTRICTIVE COVENANTS. All obligations and restrictive covenants as set forth in any existing or future Employment Agreements, Stock Option Agreements, or the like, shall remain in full force and effect notwithstanding this Agreement, including but not limited to, provisions and/or restrictions relating to trade secrets, confidential information, works made for hire and inventions, competition, solicitation, hiring, Company property, et cetera, EXCEPT THAT any and all such obligations and restrictive covenants shall remain in full force and effect for the entire Salary Continuation Period notwithstanding any shorter period set forth therein. 6. NOTICES a. Each notice, demand, consent or communication (hereinafter "Notice") which is or may be required to be given by any party to the other party in connection with this Agreement shall be in writing and given by facsimile, personal delivery, receipted delivery services, or by certified mail, return receipt requested, prepaid and properly addressed to the other party as shown below. b. Notices shall be effective on the date sent via facsimile, the date delivered personally or by receipted delivery service, or three (3) days after the date mailed: (i) To the Company: Legal Department Attn: Corporate Counsel Keane, Inc. 100 City Square Charlestown, MA 02129 (ii) To the Executive: At the residence address most recently filed with the Company. 7. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Party; provided, that Keane may assign its rights, interests or obligations hereunder to: (a) a subsidiary, subdivision or affiliate, provided that Keane shall remain responsible to the Executive for such obligations in the event they are not met by such assignee; or (b) to a person, corporation, organization or other entity that acquires (whether by stock purchase or merger or otherwise) all or substantially all of the business or assets of Keane. 8. MISCELLANEOUS. a. This Agreement may be amended or modified only by a written instrument executed by Keane and the Executive. Notwithstanding anything herein to the contrary, to the extent that the Executive or Keane reasonably believe that Section 409A of the Code will result in adverse tax consequences to the Executive as a result of this Agreement, then the Executive and Keane shall renegotiate this Agreement in good faith in order to minimize or eliminate such tax consequences and retain the basic economics of this Agreement to the extent possible. b. This Agreement shall be governed by and construed in accordance with the internal laws (and not the laws of conflicts) of the Commonwealth of Massachusetts. c. Except in the case of Section 7 above, the term "Keane" or the "Company" shall include Keane, Inc. and any of its subsidiaries, subdivisions and affiliates. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. d. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. e. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. f. The Executive's or the Company's failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. g. Keane shall have the right to withhold all applicable income and employment taxes due with respect to any payment made to the Executive under this Agreement. Executed this 11th day of March, 2005. By: /s/ Brian T. Keane ------------------ Brian T. Keane Keane, Inc. By: /s/ Georgina Fisk ----------------- Georgina Fisk EXHIBIT A DEFINITION OF "CHANGE IN CONTROL" "Change in Control" shall mean any of the following: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Act") (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the Act) of such person, shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of either (A) the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board ("Voting Securities") or (B) the then outstanding shares of Company's common stock ("Common Stock") (other than as a result of an acquisition of securities directly from the Company); or (b) During any period of two years or less, persons who at the beginning of such period (the "Commencement Date") constitute the Company's Board (the "Incumbent Directors") cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the Commencement Date shall be considered an Incumbent Director if such person's election was approved by or such person was nominated for election by a vote of at least a majority of the Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or (c) the stockholders of the Company shall approve (A) any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate fifty percent (50%) or more of the voting shares of the Company issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company or (C) any plan or proposal for the liquidation or dissolution of the Company. Notwithstanding the foregoing, a "Change of Control" shall not be deemed to have occurred for purposes of the foregoing clause (a) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Common Stock or other Voting Securities outstanding, increases the proportionate number of shares beneficially owned by any person to fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities or Common Stock (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns fifty percent (50%) or more of either (A) the combined voting power of all of the then outstanding Voting Securities or (B) Common Stock, then a "Change of Control" shall be deemed to have occurred for purposes of the foregoing clause (a). EX-21.1 14 a2153146zex-21_1.htm EXHIBIT 21.1
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Exhibit 21.1

SUBSIDIARIES

        THE FOLLOWING IS A LIST OF THE COMPANY'S SUBSIDIARIES:

NAME

ORGANIZED UNDER LAWS OF

Dataskills, Inc. Massachusetts

Keane Federal Systems, Inc. Delaware

Keane Canada, Inc. Canada

169963 Canada, Inc. Canada

Keane Securities Corporation Massachusetts

Keane UK Ltd. United Kingdom

Keane Ltd. United Kingdom

Keane Care, Inc Washington

Keane India Holdings, Inc. Delaware

Keane Mauritius Ltd. One Mauritius

Keane Mauritius Ltd. Two Mauritius

Keane India Ltd. India

Keane Worldzen, Inc. Delaware

Keane Inc. PAC Delaware

Keane Foundation, Inc. Massachusetts

Keane Delaware Corporation Delaware

Keane General Partnership Massachusetts

Keane Massachusetts, LLC Massachusetts

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Exhibit 21.1
SUBSIDIARIES

EX-23.1 15 a2153146zex-23_1.htm EXHIBIT 23.1
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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

        We consent to the incorporation by reference in the Registration Statements (Forms S-8 Nos. 33-00175, 33-16187, 33-00176, 2-76657, 2-91931, 33-16188, 33-38361, 2-40012, 2-87193, 2-61721, 2-89418, 33-38360, 33-38361, 33-52760, 33-52758, 33-52756, 33-52762, 333-16113, 333-56119, 333-56752, 333-62759, 333-68566, 333-100436, 333-104066, 333-104067 and 333-118039 and Forms S-3 Nos. 333-46329 and 333-108626), of Keane, Inc. and in the related Prospectuses of our reports dated March 11, 2005, with respect to the consolidated financial statements of Keane, Inc., Keane, Inc. management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Keane, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2004.

/s/ Ernst and Young LLP

Boston, Massachusetts
March 11, 2005

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm
EX-31.1 16 a2153146zex-31_1.htm EXHIBIT 31.1
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Exhibit 31.1

CERTIFICATIONS

I, Brian T. Keane, certify that:

1.
I have reviewed this Annual Report on Form 10-K 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.

Date: March 15, 2005 /s/  BRIAN T. KEANE
Brian T. Keane
President and Chief Executive Officer

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Exhibit 31.1

CERTIFICATIONS
EX-31.2 17 a2153146zex-31_2.htm EXHIBIT 31.2
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Exhibit 31.2

CERTIFICATIONS

I, John J. Leahy, certify that:

1.
I have reviewed this Annual Report on Form 10-K 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.

Date: March 15, 2005 /s/  JOHN J. LEAHY
John J. Leahy
Senior Vice President of Finance and Administration and Chief Financial Officer

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Exhibit 31.2

CERTIFICATIONS
EX-32.1 18 a2153146zex-32_1.htm EXHIBIT 32.1
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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 Annual Report on Form 10-K of Keane, Inc. for the period ended December 31, 2004 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.

Date: March 15, 2005 /s/  BRIAN T. KEANE
Brian T. Keane
President and Chief Executive Officer

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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
EX-32.2 19 a2153146zex-32_2.htm EXHIBIT 32.2
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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 Annual Report on Form 10-K of Keane, Inc. for the period ended December 31, 2004 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.

Date: March 15, 2005 /s/  JOHN J. LEAHY
John J. Leahy
Senior Vice President of Finance and Administration and Chief Financial Officer

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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
~~-----END PRIVACY-ENHANCED MESSAGE-----~~

NAME		ORGANIZED UNDER LAWS OF
Dataskills, Inc.		Massachusetts
Keane Federal Systems, Inc.		Delaware
Keane Canada, Inc.		Canada
169963 Canada, Inc.		Canada
Keane Securities Corporation		Massachusetts
Keane UK Ltd.		United Kingdom
Keane Ltd.		United Kingdom
Keane Care, Inc		Washington
Keane India Holdings, Inc.		Delaware
Keane Mauritius Ltd. One		Mauritius
Keane Mauritius Ltd. Two		Mauritius
Keane India Ltd.		India
Keane Worldzen, Inc.		Delaware
Keane Inc. PAC		Delaware
Keane Foundation, Inc.		Massachusetts
Keane Delaware Corporation		Delaware
Keane General Partnership		Massachusetts
Keane Massachusetts, LLC		Massachusetts