<PAGE>
 
                                   FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                      the Securities Exchange Act of 1934

For the fiscal year ended December 31, 1996        Commission File Number 1-7516
                          -----------------                               ------

                                  Keane, Inc.
                                  -----------

             (Exact name of registrant as specified in its charter)

Massachusetts                                      04-2437166
-------------                                      ----------
(State or other jurisdiction                       (I.R.S. Employer
of incorporation or organization)                  Identification Number)

Ten City Square, Boston, Massachusetts             02129
--------------------------------------             -----
(Address of principal executive offices)           (Zip Code)

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

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

Common Stock $.10 par value          Registered on the American Stock Exchange
---------------------------          ------------------------------------------
     (Title of Class)                         (Name of Exchange)

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

Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes  X   No    
    ---     ---      

Indicate by checkmark 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.  (x)

The aggregate market value determined by the closing prices reported by AMEX of
the voting stock held by nonaffiliates of the registrant as of March 14, 1997:
                   Common Stock $.10 par value - $839,136,063
                   ------------------------------------------
         Class B Common Stock $.10 par value - No Public Trading Market
         --------------------------------------------------------------
   Number of shares outstanding of each of the registrant's classes of common
                                     stock,
                             as of March 14, 1997:
                Common Stock $.10 Par Value - 32,618,432 shares
              Class B Common Stock $.10 Par Value - 287,367 shares
              ----------------------------------------------------
                        Index to Exhibits is on Page 37



                              Page 1 of 41 Pages
<PAGE>
 
DOCUMENTS INCORPORATED BY REFERENCE

The Company 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 Company's Annual Meeting of Stockholders to be held
on May 28, 1997.  The information required in response to Items 10-13 of Part
III of this Form 10-K is hereby incorporated by reference to such proxy
statement.

PART I
------

ITEM 1.  BUSINESS

Keane, Inc., a Massachusetts corporation (together with its subsidiaries, unless
the context otherwise requires "Keane" or the "Company"), provides software
design, development, integration and management services for corporations,
government agencies and healthcare facilities.  Keane's services and
methodologies enable clients to leverage their existing information systems
("IS") capability and more rapidly and cost-effectively develop and manage
mission-critical software applications.  The Company serves its clients through
two operating divisions: the Information Services Division ("ISD") and the
Healthcare Services Division ("HSD").  ISD, which accounted for approximately
94% of the Company's revenues in 1996, provides software design, development,
outsourcing and integration services to corporations and government agencies
with large and recurring software development needs.  HSD develops, markets and
supports financial, patient care and clinical application software for hospitals
and long-term care facilities.  The Company provides services primarily to
Fortune 1,000 companies, including AT&T Corporation, Eastman Kodak Company,
General Electric Company, International Business Machines Corporation,
McDonald's Corporation and Procter & Gamble Company.

INFORMATION SERVICES DIVISION:  ISD provides custom application software design,
development and management services for corporations with large and recurring
outsourcing needs.  Keane delivers (i) Application Development Projects, which
include IS planning and assessment, client-server planning and development, and
systems migration services, (ii) Outsourcing services, which include application
outsourcing and help desk outsourcing, (iii) Year 2000 Compliance services, and
(iv) Project Management Training, through which Keane delivers professional
training on the Company's project management, estimating and risk management
processes. In all of its assignments, Keane strives to use its proprietary best
practices and methodologies to reduce development time, improve system
reliability and quality, and decrease costs.  Keane believes these
methodologies, which include Keane's Application Management Methodology,
Productivity Management and Frameworks for Software Development and Resolve
2000, enable it to provide clients with consistent, high quality results and
give it a competitive advantage in winning large projects.

The Company believes that the following factors drive market growth in the
software services business served by ISD:

 .    The Rise in Technology-dependent Business Strategies.  Globalization,
     deregulation and the rapid pace of change have increased reliance on
     information technology.  Companies are applying technology to bring
     products to market first or faster, integrate key business processes to
     improve quality and reduce costs, and improve customer service.

 .    Organizational Focus on Core Competencies.  The intense competition and
     rapid change characteristic of many industries have led senior management
     to concentrate on their core competencies in order to compete more
     effectively.  Businesses are consequently outsourcing more frequently,
     especially IS services.

 .    The Growing Challenges of Managing Corporate IS Organizations. The IS
     environment has grown increasingly complex, costly and burdensome as a
     result of the challenges of deploying new technology, maintaining older
     systems and meeting staffing requirements in a market with a shrinking pool
     of

Page 2
<PAGE>
 
     qualified IS professionals.  Outsourcing enables companies to bring in
     the required expertise to gain control over existing software assets and
     strategic development initiatives.

As a result of these and other factors, the Company believes that there are
significant opportunities for growth in the software services industry,
particularly in the application management, Year 2000 Compliance, application
development and help desk markets.  Companies are increasingly finding that
outsourcing to software services providers can assist them in effectively
meeting their strategic information technology objectives.  Dataquest
Incorporated, a market research firm, estimated that in 1996, companies in the
U.S. would spend approximately $56 billion on software services with independent
software services firms.  Moreover, according to Dataquest Incorporated, the
rate of IS professional services spending is projected to grow at approximately
15% per year to reach nearly $97 billion in 2000.

HEALTHCARE SERVICES DIVISION:  HSD develops, markets and supports patient care
and clinical software for large teaching hospitals, hospital chains, community
hospitals and long-term care facilities.  In addition, HSD provides facilities
management services for many of its hospital clients.  Currently, HSD's products
are used by more than 385 hospitals and 625 long-term care facilities.

Hospitals and long-term care facilities are increasingly challenged to enhance
productivity and cut costs by reducing hospital stay length and insurance
reimbursement cycle times without sacrificing patient care.  Keane believes that
effective information systems and greater access to and exchange of information
are essential for achieving these goals and that the need for implementing
improved information technology is intensifying.

Keane believes that its vertical expertise in the healthcare industry may
provide a significant opportunity as healthcare reform issues are resolved,
creating new markets and opportunities.  HSD's strategic objectives are to
continue to grow to obtain critical mass and to provide a full range of
integrated, open information systems to hospitals and long-term care facilities.
HSD's product line includes Infinet, a clinical and financial data repository,
Patcom Plus and Threshold, comprehensive UNIX-based applications, and Leadership
Plus, a UNIX-based financial system for long-term care facilities.  In 1996,
Keane acquired the LabFUSION product, a laboratory system, which Keane intends
to integrate into its current product line.  HSD targets hospitals, long-term
care facilities and other sectors of the healthcare field, and seeks to increase
the breadth of its healthcare applications through ongoing product development
efforts and strategic alliances.

BUSINESS STRATEGY:  Keane believes that the pressure companies are experiencing
to reduce costs, decrease cycle times and adapt quickly to changing market
dynamics is changing the basis of competition in the software services industry.
In order to achieve profitable growth in this environment, Keane is increasing
market share with both new and existing clients while deriving an increasing
portion of its business from large-scale, multiyear projects with large
organizations.  Keane believes the following strengths allow it to compete
effectively against both national and local competitors: (i) long-term client
relationships, which create greater opportunities for recurring revenues; (ii)
full range of value-added services, which differentiates the Company from many
of its competitors; (iii) strong branch office network, which enables it to
deliver services proactively and cost-effectively; and (iv) disciplined
methodologies and best practices, which replicate organizational experience and
enable the Company to achieve more reliable and predictable deliverables.  The
key elements of the Company's strategy are to:

Increase Concentration of Project and Outsourcing Business-The Company is
focusing on large, Keane-managed business. These opportunities include
application development, application outsourcing, year 2000 compliance and help
desk outsourcing. These IS services represent the areas most demanded by the
markets Keane serves. Keane believes its comprehensive capabilities, supported
by proprietary methodologies, differentiate it from many competitors . To
improve its ability to manage large projects and increase the value of its
outsourcing solutions, Keane seeks to continuously improve its methodologies and
identify and apply best practices.

                                                                          Page 3
<PAGE>
 
Build Long-Term Strategic Partnerships with Clients-The Company also seeks to
build long-term strategic partnerships with its clients.  Sales representatives
are assigned to a limited number of target accounts in order to develop an in-
depth understanding of each client's particular needs.  This approach enables
the Company to build long-term relationships with clients based on
knowledgeable, highly responsive and cost-effective service. During 1996, the
Company's Information Services Division derived 88% of its revenues from clients
to which it had provided services in the prior year (excluding revenues
generated from businesses acquired during the year).

Another critical element to building long-term client relationships is Keane's
use of its local branch office network to fulfill customer needs.  Keane's
extensive network of branch offices allows the Company to stay close to targeted
clients and be responsive to their needs.  A strong corporate infrastructure
supports the branches, gathers and replicates best practices, and assures
uniform quality and a consistent business approach.

Achieve Critical Mass through a Strong Branch Office Network-Growing market
share and achieving critical mass in each market it serves are fundamental to
the Company's strategy.  Keane defines critical mass in a particular location as
being one of the two largest software services firms in that market and having
the depth and breadth of managerial, sales and technical capability to deliver
complex solutions locally.  Critical mass and increased market share enable the
Company to spread indirect costs over a larger revenue base and achieve
important economies of scale, thereby enabling it to be more cost-effective.
Keane believes that it is increasingly important to be cost-effective in order
to compete effectively for large scale projects as its clients seek to drive
down their costs.  In addition, as clients continue to outsource their IS
operations and buy larger and more complex solutions, it is critical that Keane
invest in the development of standardized delivery methodologies, best practices
and tool sets.  Keane believes that critical mass in its branches will enable it
to make necessary investments in capabilities and methodologies while remaining
cost competitive.

The Company believes that, given its present size and organizational structure,
the most effective plan for achieving and maintaining critical mass is to use
its resources to service large accounts and sell strategic business.  In 1996,
Keane realized revenues of at least $1 million as a result of engagements with
83 different accounts, which was more than double the number of comparable
accounts in 1995.  Keane plans to continue to focus on targeting accounts with
large and recurring software development and management needs.  As part of this
strategy, Keane seeks to position itself as a provider of large application
development projects and IS application outsourcing.  Examples of such
application outsourcing contracts in 1996 include a $66 million contract with
Fieldcrest Cannon, a $50 million contract with J.D. Edwards, and a $19 million
contract with Public Service Electric and Gas.

Historically, Keane has found acquisitions to be a valuable and important means
of achieving critical mass, enhancing market share, increasing capabilities to
deliver large, complex solutions and supplementing internal growth. The Company
has demonstrated a capacity to complete acquisitions and to successfully
integrate the acquired companies into its operations. Keane believes this
ability is a competitive advantage in a consolidating market and will continue
to evaluate appropriate acquisition opportunities. Since July 1986, Keane has
completed 17 acquisitions of companies with annual revenues at the time of
acquisition ranging from approximately $1 million to approximately $170 million.
In identifying potential acquisition candidates, the Company seeks firms with
client profiles, geographic markets and technical capabilities similar or
complementary to its own. Because the software services industry is highly
fragmented, the Company expects that there will continue to be attractive
acquisition opportunities.

The Company's ability to expand successfully by acquisitions depends on many
factors, including the successful identification and acquisition of businesses
and management's ability to integrate and operate the new businesses
effectively.  The anticipated benefits from any acquisition may not be achieved
unless the operations of the acquired business are successfully combined with
those of the Company in a timely manner.  The integration of the Company's
acquisitions requires substantial attention from management.  The diversion of
the attention of management, and any difficulties encountered in the transition
process, could have an adverse impact on Keane's revenues and operating results.
In addition, the process of integrating the various businesses could cause the

Page 4
<PAGE>
 
interruption of, or a loss of momentum in, the activities of some or all of
these businesses, which could have an adverse effect on the Company's operations
and financial results.

Continuously Strengthen Keane's Infrastructure-A strong infrastructure is
required to successfully sell and execute large and complex projects.  Keane's
infrastructure encompasses the Company's delivery methodologies and such
internal processes as sales, recruiting and management operations.
 
To ensure its services meet client needs, Keane strives to continuously improve
its suite of internally developed methodologies and train its professionals in
these methodologies.  Methodologies enable the Company to improve productivity
and predictability in its software services.  On application development
projects, Keane has an integrated approach which addresses processes for project
management, the software development life cycle, project estimating, risk
management and quality assurance.  In application outsourcing projects, Keane
uses its Application Management Methodology, which incorporates project
management disciplines, process improvement procedures and performance metrics.
Year 2000 compliance projects are driven by Keane's full life cycle methodology,
Resolve 2000, and Help Desk services are delivered according to its Help Desk
Methodology.  At the foundation of all of Keane's methodologies is Keane's
project management approach, Productivity Management.

Keane also seeks to establish and apply similar discipline and rigor to key
internal processes such as sales, recruiting, training, and financial and
operational processes.  Keane believes that the investment made in all of these
processes, combined with its emphasis on accumulating and disseminating
organizational experience, enhances the ability of the Company to accommodate
aggressive growth, attract and retain superior technical and managerial talent,
and consistently deliver high quality solutions to its clients.

MARKETING, SALES AND CLIENTS:  Keane markets its software services and software
products through its direct sales force, which is based in each branch office.
Keane's sales representatives are assigned to a limited number of accounts in
order to develop an in-depth understanding of each client's individual needs and
form strong client relationships.  These representatives are responsible for
providing highly responsive service and ensuring that Keane's software solutions
achieve client objectives.

Keane focuses its marketing efforts on large corporations and healthcare
entities with significant IS budgets and recurring software development needs.
While Keane performs work for companies, most major industries, and state and
federal governments, most of the Company's revenue is derived from organizations
within the following industry groups serviced by ISD: manufacturing, financial
services and insurance services businesses, and transportation and public
utilities.  All of HSD's clients are in the healthcare industry.  ISD projects
and services for manufacturing may involve factory floor operations, materials
management, order processing, accounting and computer operating systems
development and support.  Typical development projects for financial services
firms include applications for mutual fund analysis, fund tracking, stock
transfer, customer information, commercial and consumer loans, cash
distribution, accounting and human resource systems.  Insurance company projects
include such applications as claims processing, agency management, coordination
of benefits and subrogation, pension, premium and loss reporting, accounting,
compensation and benefits systems.  Projects for HSD's healthcare clients
include applications for accounting, patient registration and scheduling, and
other patient care and clinical functions.  Organizations in each of these
industries are highly information dependent and use mission-critical information
systems as a competitive advantage.

                                                                          Page 5
<PAGE>
 
The following table sets forth a list of selected clients for which the Company
provided services in 1996:
<TABLE> 
<CAPTION> 

<S>                                     <C>   
3M Company                                  GTE Data Service Incorporated
Aldus Corp.                                 Guardian Life Insurance
American Express Co., Inc.                  Hoffmann-La Roche, Inc
Ameritech                                   International Business Machines Corporation
AT&T Corporation                            J.D. Edwards
Bose Corporation                            Jewel Food Stores, Inc.
Bank of Boston Corporation                  Johns Hopkins Hospital
Baxter Healthcare Corporation               Liberty Mutual Insurance Co.
Bell Atlantic                               McDonald's Corporation
Cargill                                     McKesson Corporation
Carrier                                     Microsoft Corporation
CIGNA Corporation                           Miller Brewing
Cincinnati Bell Telephone                   National Assn. of Security Dealers
Department of Justice                       Northern Mutual Life Insurance
Discover Card                               Northern Telecom, Inc.
Eastman Kodak Company                       The Pillsbury Company
Elf Atochem North America                   Procter & Gamble Company
Exxon Corporation                           The Putnam Companies, Inc.
Fidelity                                    Reader's Digest Association, Inc.
Farmers Insurance Group                     Robert Wood Johnson Hospital
First Bank                                  SD Warren
General Electric Company                    Transquest
                                            U.S. Customs
                                            Whirlpool Corporation

</TABLE> 

The Company has historically derived, and may in the future derive, a
significant percentage of its total revenue from a relatively small number of
clients.  Keane's five largest clients accounted for approximately 33% and 29%
of the Company's total revenues during the years ended December 31, 1995 and
1996, respectively.  The Company's two largest clients during these periods have
been IBM and General Electric.  During the year ended December 31, 1996, IBM and
General Electric accounted for approximately 11.7% and 6.0%, respectively, of
the Company's total revenues.  The Company provides services to multiple General
Electric (GE) and International Business Machines (IBM) locations.  The Company
believes that each GE and IBM location served by the Company is essentially
autonomous.  Each location contracts separately for its services and each
contract involves different projects.  A significant decline in revenues from
IBM or General Electric could have a material adverse effect upon the Company's
total revenues.  With the exception of IBM and General Electric, no single
client accounted for more than 5% of the Company's revenues during the three
years ended December 31, 1996.

In accordance with industry practice, nearly all of the Company's orders are
terminable by either the client or the Company on short notice.  The Company
does not believe that backlog is material to the business.  The Company had
orders at December 31, 1996 of approximately $202.1 million, in comparison to
orders of approximately $131.0 million at December 31, 1995.

BRANCH OFFICES: Keane provides custom software services through its headquarters
in Boston, Massachusetts, and a network of ISD branch offices located in major
metropolitan areas throughout the United States and in the province of Ontario.
Branch offices are responsible for providing marketing, software planning,
analysis, design, implementation and maintenance services for clients within
assigned geographic territories. Each of these offices has the necessary
technical resources and management depth to service its targeted area. Each
office is led by a resident branch manager and has one or more client sales
representatives, consulting managers and personnel recruiters. In 1996, the
average revenues generated by each of Keane's Information Services branches was
$12.2 million, which is up 20% from 1995. Keane

Page 6
<PAGE>
 
believes a strong local presence and capability enable it to provide its
clients with highly responsive and cost-effective service, as well as dependable
results. Keane also maintains HSD branches and satellite offices located in
California, Iowa, Maryland, New York, Texas and Arizona.

The size and diversity of client projects at Keane's branch offices and hospital
sites enable it to learn from its experience and refine and leverage that
experience at other locations.  Keane's infrastructure is designed to capture
and then continuously improve the software development and maintenance process.
Keane's branch offices are afforded the benefits of being part of a large
organization with many resources.  Frequently branches transfer personnel from
other branches with expertise within a specific technology, application or
industry.  Each branch office is linked electronically so that experiences can
be shared and continuous process improvements can be realized.

EMPLOYEES:  On December 31, 1996, Keane had 6,018 employees, including 5,473
technical staff whose services are billable to clients.  At such date, 5,642
individuals were employed by ISD and 268 individuals were employed by HSD, with
the remaining 108 individuals providing Company-wide services at the Company's
corporate headquarters.

The Company believes that its future success will depend in part upon its
continued ability to attract and retain highly skilled managerial, technical,
sales and support personnel.  Accordingly, Keane devotes significant resources
to its Human Resources Department, including a staff of 90 recruiters.  The
Company's current employees are also a valuable recruiting tool.  During 1996,
approximately 23% of the Company's new employees were referred to the Company by
existing personnel.

The Company does not have employment contracts with its key employees.  None of
the Company's employees is subject to a collective bargaining agreement.  The
Company believes that its relations with its employees are good.

COMPETITION:  The custom software services market is highly competitive and
characterized by continual change and improvement in technology.  The market is
fragmented, and no company holds a dominant position.  Consequently, the
Company's competition varies significantly from city to city.  The Company
believes it is among the ten largest custom software services firms serving the
commercial market in the United States.

The Company's competition also varies by the type of service provided.  For
large application development and outsourcing projects, the Company competes
with consulting divisions of large public accounting firms, such as Andersen
Consulting, as well as companies such as Electronic Data Systems Corporation and
IBM Global Services.  For systems implementation and maintenance, the Company
often competes with small, local firms, as well as large national firms,
including Analysts International Corp., Cap Gemini America, Computer Horizons
Corporation, Computer Sciences Corporation, and Computer Task Group, Inc.  Some
of these competitors are larger and have greater financial resources than the
Company.  In addition, clients may elect to increase their internal IS resources
to satisfy their custom software development needs.

The Company believes that the bases for competition in the software services
industry include the ability to compete cost-effectively, develop strong client
relationships, generate recurring revenues, utilize comprehensive delivery
methodologies and achieve organizational learning by implementing standardized
operational processes.  The Company believes that it competes favorably with
respect to these factors.

In the healthcare software systems market, Keane competes with such companies as
SMS Corp., HBO and Company, and MEDITECH, Inc.  Some of these competitors are
larger in the healthcare market and have greater financial resources than Keane.
The Company believes that significant competitive factors in the healthcare
software systems market include size and a demonstrated ability to provide
service to targeted healthcare markets.

ITEM 2.  PROPERTIES

The principal executive office of the Company is located at Ten City Square,
Boston, Massachusetts 02129, in an approximate 34,000 square foot office
building which is owned by City Square Limited Partnership.  Several of the

                                                                          Page 7
<PAGE>
 
Company's officers, directors and shareholders are limited partners of this
partnership.  See Item 13 -- "Certain Relationships and Related Transactions."
At December 31, 1996 the Company leased and maintained sales and support offices
in 54 locations in the United States.  The aggregate annual rental expense for
the Company's sales and service offices was approximately $8,507,000 in 1996.
The aggregate annual rental expense for all of the Company's facilities was
approximately $10,722,000 in 1996.  For additional information regarding the
Company's lease obligations, see Note K of Notes to Consolidated Financial
Statements.

The Company believes that its facilities are adequate for its current needs and
that suitable additional space will be available as needed.

ITEM 3.  LEGAL PROCEEDINGS

On December 31, 1992, Four Star Capital Corporation ("Four Star") commenced a
civil action against AGS Computers, Inc. ("AGS"), NYNEX Corporation ("NYNEX")
and Derek Proctor, a former employee of AGS, in Superior Court of California,
County of Marin, alleging among other things breach of contract with respect to
the solicitation of business for NYNEX and AGS in China.  The case was
subsequently removed to the United States District Court for the Northern
District of California and transferred to the United States District Court for
the Southern District of New York.  Four Star originally sought damages in the
amount of $5,600,000.  However, on May 3, 1994, Four Star amended its complaint
to provide for a claim seeking relief in the amount of $25,000,000.  Keane
acquired all of the outstanding capital stock of AGS in January 1994.  Motions
for summary judgment have been pending since May 1996.  Rccently, the case was
transferred to a new judge, an event which likely will lead to further delays.

On August 29, 1994, Marketing and Management Information, Inc. ("MAMI")
commenced a civil action against the Company, General Electric Consulting
Services Corporation ("GECON") and General Electric Company (General Electric
Information Service) ("GEIS") in the Circuit Court for Montgomery County,
Maryland, Case Number 123797.  The Complaint alleges claims for breach of
contract, fraud and negligent misrepresentation in connection with a consulting
contract for computer development work between MAMI and GECON.  The Company
assumed this contract as part of its acquisition of certain assets of GECON in
January 1993.  The contract price for the consulting work alleged in the
Complaint totaled approximately $425,000.  Despite the limitation on recoverable
damages contained in the contract, MAMI has alleged damages in excess of
$50,000,000 and has claimed punitive damages in an amount more than double the
compensatory claim.

The Company denied the allegations of the Complaint and asserted a number of
affirmative defenses, including the defense that the claims of damages asserted
in the Complaint are barred by the terms of the underlying contract.  The
Company was granted summary judgment on certain of MAMI's claims.  After a trial
before a judge without a jury, on September 24, 1996, the court entered a
judgment in favor of the Company.  On MAMI's remaining claim of negligent
misrepresentation against GECON, the court awarded MAMI the sum of
$1,261,276.36.  At this time, various post-judgment motions have been filed
pertaining to the award as it relates to damages against GECON.  The motions
suspend the time for filing of an appeal.

The Company is also involved in other litigation and various legal matters which
have arisen in the ordinary course of business.  The Company does not believe
that the ultimate resolution of any existing matter will have a material adverse
effect on its financial condition, results of operations, or cash flows.

The Company believes these litigation matters are without merit and intends to
defend these matters vigorously.

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

No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the year ended December 31, 1996.

Page 8
<PAGE>
 
EXECUTIVE OFFICERS OF THE COMPANY:  The executive officers and directors of the
Company are as follows:

<TABLE>
<CAPTION>
NAME                            AGE                     POSITION
----                            ---                     --------
<S>                             <C>  <C>
John F. Keane(1)                 66  Chief Executive Officer, President and Director
John F. Keane, Jr.               37  Senior Vice President
Brian T. Keane                   36  Senior Vice President
Edward H. Longo                  53  Senior Vice President
Raymond W. Paris                 59  Vice President - Healthcare Services Division
Wallace A. Cataldo               47  Vice President - Finance and Administration
Philip J. Harkins(1)(2)          49  Director
Winston R. Hindle, Jr.(1)(2)     66  Director
John F. Rockart(1)(2)            65  Director
Robert A. Shafto(1)(2)           61  Director
</TABLE>
     __________________________________

     (1) Member of Audit Committee.
     (2) Member of Compensation Committee.

All Directors hold office until the next annual meeting of the stockholders and
until their successors have been elected and qualified.  The Company has no
standing nominating committee.  Officers of the Company serve at the discretion
of the Board of Directors.

Mr. John Keane, the founder of the Company, has been Chief Executive Officer,
President and a director of the Company since the Company's incorporation in
March 1967.  Prior to joining the Company, Mr. Keane worked for IBM's Data
Processing Division and was employed as a consultant by Arthur D.  Little, Inc.,
a Cambridge, Massachusetts, management consulting firm.

Mr. John Keane, Jr. joined the Company in 1987, was promoted to Area Vice
President in the Information Services Division in December 1994 and was promoted
to Senior Vice President in December 1996.  From January 1994 to December 1994,
Mr. Keane served as an ISD 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, Chief Executive Officer and a director of the
Company, and a brother of Brian Keane, Senior Vice President of the Company.

Mr. Brian Keane joined the Company in 1986, was promoted to Area Vice President
in the Information Services Division in December 1994 and was promoted to Senior
Vice President in December 1996.  From July 1992 to December 1994, Mr. Keane
served as an ISD Business Area Manager and from January 1990 to July 1992, he
served as an ISD Branch Manager.  Brian Keane is a son of John Keane, the
founder, Chief Executive Officer and a director of the Company and a brother of
John Keane, Jr., Senior Vice President of the Company.

Mr. Longo joined the Company in March 1980 and has been Senior Vice President --
Information Services Division since December 1994.  From January 1993 to
December 1994, he was Vice President -- Information Services Division, Eastern

                                                                          Page 9
<PAGE>
 
Region.  From May 1987 to January 1993, he was Vice President of the New England
area of the Information Services Division.  From June 1986 to May 1987, he was
an Area Manager of the Information Services Division.

Mr. Paris joined the Company in November 1976.  Mr. Paris became Area Manager of
the Healthcare Systems Division in 1981 and has served as Vice President and
General Manager of HSD since August 1986.

Mr. Cataldo joined the Company in June 1975 and has been Vice President --
Finance since October 1985.  Mr. Cataldo served as Chief Financial Officer from
November 1983 to October 1985 and as Controller from November 1978 to November
1983.

Mr. Harkins has been a director 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 the Company.

Mr. Hindle has been a director 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. Mr. Hindle is also a director of CP Clare Corporation and Mestech,
Inc.

Dr. Rockart has been a director since the Company's incorporation in March 1967.
From September 1972 to July 1994, Dr. Rockart has been a Senior Lecturer at the
Alfred J. Sloan School of Management of the Massachusetts Institute of
Technology since 1974, and has been the Director of The Center for Information
Systems Research since 1976.  Dr. Rockart is also a director of ComShare Inc.
and Renaissance Solutions, Inc.

Mr. Shafto has been a director since July 1994. Mr. Shafto is Chairman, Chief
Executive Officer and President of New England Life Insurance Company, an
insurance and investment firm which he joined in 1972 as Second Vice President
for Computer Systems Development and Information Systems. Mr. Shafto was named
President and Chief Operating Officer of New England Life Insurance Company in
1989 and assumed the position of Chief Executive Officer in January 1992. He was
elected to the office of Chairman of New England Life Insurance Company
effective July 1, 1993. Mr. Shafto is also a director of Fleet Bank of
Massachusetts, N.A.

Compensation of the nonemployee directors currently consists of an annual
director's fee of $4,000 plus $1,000 and expenses for each meeting of the Board
of Directors attended.  Directors who are officers or employees of the Company
do not receive any additional compensation for their services as directors.

PART II
-------

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS

The Company's authorized capital stock consists of 50,000,000 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 14, 1997, there were no shares of Preferred Stock
outstanding; 32,618,432 shares of Common Stock outstanding and held by
approximately 1,843 stockholders; and 287,367 shares of Class B Common Stock
outstanding and held by approximately 159 stockholders.

COMMON STOCK AND CLASS B COMMON STOCK:

Voting.  Each share of Common Stock is entitled to one vote on all matters
submitted to stockholders and each share of Class B Common Stock is entitled to
ten votes on all such matters.  The holders of Common Stock and Class B Common
Stock vote as a single class on all actions submitted to a vote of the Company's
stockholders, except that separate class votes of the holders of Common Stock
and Class B Common Stock are required to authorize further issuances of Class B
Common Stock and certain charter amendments.  Voting for directors is
noncumulative.

As of March 14, 1997, the Class B Common Stock represented 0.9% of the Company's
outstanding equity, but had 8.1% of the combined voting power of the Company's
outstanding Common Stock and Class B Common Stock.  The

Page 10
<PAGE>
 
substantial voting rights of the Class B Common Stock may make the Company less
attractive as the potential target of a hostile tender offer or other proposal
to acquire the stock or business of the Company and render merger proposals more
difficult, even if such actions would be in the best interests of the holders of
the Common Stock.

Dividend and Other Distributions.  The holders of Common Stock and Class B
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors, out of funds legally available, except that
the Board of Directors may not declare and pay a regular quarterly cash dividend
on the shares of Class B Common Stock unless a noncumulative per share dividend
which is $.05 per share greater is paid at the same time on the shares of Common
Stock.  In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock and Class B Common Stock have the right to ratable
portions of the net assets of the Company available after the payment of all
debts and other liabilities.

Trading Markets.  The Company's Common Stock is traded on the American Stock
Exchange.  The Common Stock is also registered pursuant to the Securities
Exchange Act of 1934, as amended.  The Company furnishes to the holders of its
Common Stock and Class B Common Stock the same information and reports
concerning the Company.  Shares of Class B Common Stock are not transferable by
a stockholder except for transfers (i) by gift, (ii) in the event of the death
of a stockholder, or (iii) by a trust to a person who is the grantor or a
principal beneficiary of such trust (individuals or entities receiving Class B
Common Stock pursuant to such transfers being referred to as "Permitted
Transferees").  The Class B Common Stock is not listed or traded on any exchange
or in any market and no trading market exists for shares of the Class B Common
Stock.  The Class B Common Stock is, however, convertible at all times, and
without cost to the stockholder, into shares of Common Stock on a share-for-
share basis.  Shares of Class B Common Stock are automatically converted into an
equal number of such shares of Common Stock in connection with any transfer of
such shares other than to a Permitted Transferee.  In addition, all of the
outstanding shares of Class B Common Stock are convertible into shares of Common
Stock upon a majority vote of the Board of Directors.

Future Issuances of Class B Common Stock; Retirement of Class B Common Stock
Upon Conversion into Common Stock. The Company may not issue any additional
shares of Class B Common Stock without the approval of a majority of the votes
of the outstanding shares of Common Stock and Class B Common Stock voting as
separate classes.  The Board of Directors may issue shares of authorized but
unissued Common Stock and Preferred Stock without further stockholder action.
All shares of Class B Common Stock converted into Common Stock are retired and
may not be reissued.

Other Matters.  The holders of Common Stock and Class B Common Stock have no
preemptive rights or (except as described above) rights to convert their stock
into any other securities and are not subject to future calls or assessments by
the Company.  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 the Company may designate and
issue in the future.  See "Preferred Stock" below.

PREFERRED STOCK:  The Company's Articles of Organization authorize the issuance
of up to 2,000,000 shares of Preferred Stock, $.01 par value per share.
Preferred Stock may be issued from time to time in one or more series, and the
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 such series of Preferred Stock, and to fix the number of
shares of any such series without any further vote or action by the
stockholders.  The voting and other rights of the holders of Common Stock and
Class B 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.
Issuance 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 the Company.  The
Company has no present plans to issue any shares of Preferred Stock.

                                                                         Page 11
<PAGE>
 
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY:  The Company's Common Stock is
traded on the American Stock Exchange under the symbol "KEA."  The following
table sets forth, for the periods indicated, the high and low closing prices per
share as reported by the American Stock Exchange.  All prices reflect the 2 for
1 stock split that was distributed on November 29, 1996 to shareholders of
record as of on November 14, 1996.

<TABLE>
<CAPTION>
                                                STOCK PRICE
                                             HIGH          LOW
                                             ---------  ------
<S>                                       <C>          <C>
                  1996
                  First Quarter              $14.94     $10.25
                  Second Quarter              20.44      14.69
                  Third Quarter               24.00      16.69
                  Fourth Quarter              31.75      22.88
 
                  1995
                  First Quarter              $12.75     $10.38
                  Second Quarter              12.88      11.32
                  Third Quarter               15.32      11.38
                  Fourth Quarter              14.75      11.07
</TABLE>

The closing price of the Common Stock on the American Stock Exchange on March
14, 1997 was $31.25.

The Company has not paid any cash dividend since June 1986.  The Company
currently intends to retain all of its earnings to finance future growth and
therefore does not anticipate paying any cash dividends in the foreseeable
future. The Company's Articles of Organization restrict the ability of the Board
of Directors to declare regular quarterly dividends on the Class B Common Stock.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

(ALL DOLLAR FIGURES IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                  FIRST     SECOND    THIRD     FOURTH
                                 QUARTER   QUARTER   QUARTER   QUARTER
                                 --------  --------  --------  --------
<S>                              <C>       <C>       <C>       <C>
 YEAR ENDED DECEMBER 31, 1996
 Total revenues                  $105,761  $113,075  $120,900  $127,354
 Pretax income                      9,276    11,109    11,404    12,543
 Net income                         5,380     6,443     6,500     7,035
*Net income per share                 .16       .19       .19       .21
 
 YEAR ENDED DECEMBER 31, 1995
 Total revenues                  $ 90,452  $ 94,647  $ 96,516  $101,124
 Pretax income                      9,037     9,429     8,171     5,948
 Net income                         5,151     5,375     4,943     3,788
*Net income per share                 .16       .16       .15       .12
 
</TABLE>

 * Adjusted to reflect the 2-for-1 stock split that was distributed on
 November 29, 1996 to shareholders of record as of November 14, 1996

Page 12
<PAGE>
 
ITEM 6.    SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
 
 
Year Ended December 31,       1992      1993       1994       1995       1996
-------------------------------------------------------------------------------
INCOME STATEMENT DATA:
<S>                         <C>       <C>        <C>        <C>        <C>
 Total revenues             $99,279   $175,808   $344,583   $382,739   $467,090
 Operating income             9,649     16,430     31,180     31,611     43,118
 Net income                   6,278      9,058     16,235     19,257     25,358
 Net income per share           .28        .38        .57        .59        .76
*Shares used in per          
    share calculation        22,068     23,796     28,322     32,696     33,227
------------------------------------------------------------------------------- 
BALANCE SHEET DATA:
 Total assets               $49,316   $ 99,615   $179,002   $194,398   $235,214
 Total debt                     206      4,323     12,317      9,146      6,593
 Stockholders' equity        43,408     83,114    144,387    167,221    196,630
 Book value per share          1.99       3.10       4.52       5.16       5.99
*Number of shares            
    outstanding              21,842     26,774     31,954     32,389     32,853
-------------------------------------------------------------------------------
FINANCIAL PERFORMANCE:
Total revenue growth            3.9%      77.1%      96.0%      11.1%      22.0%
Net margin                      6.3%       5.2%       4.7%       5.0%       5.4%
Return on average equity       15.8%      16.7%      16.1%      12.3%      14.0%
 
</TABLE>
*  All amounts have been adjusted to reflect the 2-for-1 stock split that was
   distributed on November 29, 1996 to shareholders of record as of November 14,
   1996.

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. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth below under the caption
"Certain Factors That May Affect Future Results."

RESULTS OF OPERATIONS, 1996 VS. 1995:  The Company's revenues for 1996 were
$467.1 million, up 22.0% over 1995 revenues of $382.7 million.  The Company's
operations are conducted through two divisions--the Information Services
Division (ISD), which accounted for 93.5% of Keane's revenues in 1996, and the
Healthcare Services Division (HSD), which accounted for the remaining 6.5% of
Keane's revenues.

ISD revenues for 1996 were $436.9 million, up 22.4% from 1995. ISD services are
delivered primarily in the areas of Application Development, Application
Outsourcing, Help Desk and Supplemental Staffing. The Division's revenue grew in
each of these areas in 1996, although Application Outsourcing and Application
Development accounted for over 50% of the Division's revenue growth. The Company
believes that demand for Application Outsourcing has increased

                                                                         Page 13
<PAGE>
 
primarily as a result of an economic climate in which companies are looking to
increase their MIS productivity while reducing costs, and that demand for
Application Development services has increased due to a strong economy in which
companies are investing in their management information systems and in Year 2000
compliance.

HSD revenues for 1996 were $30.2 million, an increase of $4.3 million or 16.6%
from revenues of $25.9 million in 1995. This increase is primarily attributable
to the acquisition of Source Data Systems in November, 1995.

Salaries, wages and other direct costs for 1996 were $315.9 million, or 67.6% of
revenues, compared to $256.5 million, or 67.0% of revenues, in 1995, a .6%
increase as a percentage of revenue. Of this increase in direct cost percentage,
 .4% is primarily attributable to low margin third-party business for IBM
performed pursuant to Keane's national contract with IBM. The balance of the
increase is primarily due to increased technical salaries which were not
completely offset by corresponding increases in the Company's direct billing
rates. This increase in direct cost is the lowest increase in the last three
years and was more than offset by reductions in Selling, General and
Administrative ("SG&A") expenses as a percentage of revenue. The lower increase
in direct cost is primarily due to the increases in revenues from Application
Outsourcing, Application Development and Help Desk business. Revenues from these
services typically command higher rates and are for a longer term with higher
employee productivity compared to traditional supplemental staffing services.

SG&A expenses for 1996 were $95.6 million, or 20.5% of revenues, compared
to $82.5 million, or 21.5% of revenues, in 1995, a 1.0% decrease as a percentage
of revenues.  The Company's objective is to continue to attempt to reduce SG&A
at the same or a greater rate than increases in direct costs.  The Company seeks
to achieve this objective by realizing the economies of scale associated with
increasing revenues through an aggressive internal growth plan without
proportionately increasing SG&A.

Amortization of goodwill and other intangible assets for 1996 was $12.5 million,
or 2.7% of revenues, compared to $12.2 million, or 3.2% of revenues, in 1995.

Interest and other related expenses for 1996 totaled $1.2 million compared to
$0.7 million in 1995. This increase in interest and other related expenses is
attributable to a $0.4 million forfeiture for interest expense on a notes
payable to G.E. in 1995. Interest and other related income for 1996 totaled $2.4
million, compared to $1.6 million in 1995.

Pretax income for 1996 was $44.3 million, or 9.5% of revenues, up 36.1% from
pretax income of $32.6 million, or 8.5% of revenues, in 1995.

The Company's effective tax rate for 1996 was 42.8% compared to 40.9% in 1995.
This increase is primarily attributable to a one-time reduction in state income
taxes in 1995.

Net income and earnings per share for 1996 were $25.4 million and $.76 per
share, respectively, up 31.7% from $19.3 million and $.59 per share,
respectively, in 1995.

RESULTS OF OPERATIONS, 1995 VS. 1994: The Company's revenues for 1995 were
$382.7 million, up 11.1% from $344.6 million in 1994. Revenues from the
Company's Information Services Division ("ISD") amounted to $356.8 million for
1995, up 11.2% from 1994. This increase in ISD revenues is primarily
attributable to a strong economy in which companies invested in their
information systems. In addition, the Company generated new revenues as a result
of its Microsoft Help Desk contract for Windows 95' and the opening of a new
office in Grand Rapids, Michigan. Revenues for the Company's Healthcare Services
Division ("HSD") were $25.9 million, up 9.3% from 1994. The increase in HSD
revenues is primarily attributable to the acquisition of Community Health
Computing Corporation in April 1995 and of Source Data Systems, Inc. in November
1995.

Salaries, wages and other direct costs for 1995 were $256.5 million, or 67.0% of
revenues, compared to $225.6 million, or 65.5% of revenues, in 1994, a 1.5%
increase as a percentage of revenues. The increase in direct cost, as a
percentage of revenues, is primarily attributable to the fact that large clients
are negotiating and obtaining competitive bids for high quality services at
lower costs. This results in the Company agreeing to lower rates to win new
business, large clients

Page 14
<PAGE>
 
negotiating for volume discounts and limitations on the Company's ability to
pass on salary increases for technical personnel to existing accounts. IBM,
Keane's largest account, accounted for approximately one-third of the Company's
direct cost increase, as a percentage of revenues, as a result of its new
National Vendor Agreement that the Company signed in July 1995. This Agreement,
in effect, is intended to eventually reduce the over 200 IBM professional
services vendors to eight, of which the Company is one. In exchange for expected
increases in IBM business, the Company agreed to IBM's new national rates which
at the time were approximately 15% lower than the rates the Company had been
charging. The Company's strategy to partially reduce the impact of higher
payroll costs on margins is to target project and strategic business, which,
because of limited competition, typically commands higher rates. In addition,
the Company has focused on the marketing of application outsourcing and help
desk support business which may result in larger and longer duration engagements
with higher productivity and lower selling expenses.

Selling, General & Administrative ("SG&A") expenses for 1995 were $82.5 million,
or 21.5% of revenues, compared to $76.4 million, or 22.2% of revenues, in 1994,
a 0.7% decrease as a percentage of revenues. The Company's objective is to
continue to attempt to reduce SG&A at the same or greater rate than increases in
direct costs. The Company seeks to achieve this objective by realizing the
economies of scale associated with increasing revenue without proportionately
increasing SG&A.

Amortization of goodwill and other intangible assets for 1995 was $12.2 million,
or 3.2% of revenues, compared to $11.5 million, or 3.3% of revenues, in 1994.

Interest and other related expenses for 1995 totaled $0.7 million compared to
$3.1 million in 1994. This decrease is primarily attributable to the Company's
secondary stock offering of 2.3 million shares of Common Stock in November of
1994, a portion of the proceeds of which were used by the Company to repay all
of its outstanding bank indebtedness. Interest and other related income for 1995
totalled $1.6 million, compared to $0.5 million in 1994. This increase is due to
the Company investing the net proceeds of the stock offering after paying down
the bank indebtedness.

Pretax income for 1995 was $32.6 million, or 8.5% of revenues, up 14.4% from
pretax income of $28.5 million, or 8.3% of revenues, in 1994.

The Company's effective tax rate for 1995 was 40.9% compared to 43.0% in 1994.
This decline is primarily attributable to a reduction in state income taxes and
the recognition of a research and development tax credit.

Net income and earnings per share for 1995 were $19.3 million and $.59 per
share, respectively, up 18.6% from $16.2 million and $.57 per share,
respectively, in 1994.

LIQUIDITY AND CAPITAL RESOURCES: The Company's cash and short-term investments
at December 31, 1996 increased to $69.1 million from $33.2 million at December
31, 1995. This increase is attributed to positive cash flow from operations in
1996. In addition, the Company maintains and has available a $20 million
unsecured demand line of credit split equally between two major Boston banks for
operations and acquisition opportunities. The Company's debt, including accrued
interest, as of December 31, 1996 was $6.6 million, which consisted primarily of
a $5.8 million non-interest bearing note discounted at 7% payable to NYNEX in
two installments in January 1997 and January 1998.

Based on its current operating plan, the Company believes that its cash and cash
equivalents on hand, cash flows from operations and current available lines of
credit will be sufficient to meet its working capital requirements during at
least the next twelve months.

IMPACT OF INFLATION AND CHANGING PRICES: Inflationary increases in costs have
not been material in recent years and, to the extent permitted by competitive
pressures, are passed on to clients through increased billing rates. Rates
charged by the Company are based on the cost of labor and market conditions
within the industry. The Company has continued to experience client pressures to
deliver high quality services at lower costs. This is resulting, in some cases,
in lower rates for new business and, at times, limits the Company's ability to
increase rates at existing accounts.

                                                                         Page 15
<PAGE>
 
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.

The Company has experienced and expects to continue to experience fluctuations
in its quarterly results. A variety of factors influence the level of the
Company's revenues in a particular quarter, including general economic
conditions which may influence its clients and potential clients to invest in
their information systems or to downsize their businesses, the number and
requirements of client engagements, employee utilization rates, changes in the
rates the Company is able to charge clients for its services, acquisitions by
the Company and other factors, many of which are beyond the Company's control.
Since a significant portion of the expenses of the Company do not vary relative
to the Company's level of revenues, if revenues in a particular quarter do not
meet expectations, operating results will be adversely affected, which may have
an adverse impact on the market price of the Company's Common Stock. In
addition, many of the Company's engagements are terminable without client
penalty. An unanticipated termination of a major project could result in an
increase in underutilized employees and a decrease in revenues and profits.
Finally, gross margins vary based on a variety of factors including employee
utilization rates and the number and type of services performed by the Company
during a particular period.

In the past five years, the Company has grown significantly through
acquisitions, and the Company's future growth may be based in part on selected
acquisitions. The Company's ability to expand successfully by acquisitions
depends on many factors, including the successful identification and acquisition
of businesses and management's ability to integrate and operate the new
businesses effectively. The anticipated benefits from any acquisition may not be
achieved unless the operations of the acquired business are successfully
combined with those of the Company in a timely manner. The integration of the
Company's acquisitions requires substantial attention from management. The
diversion of the attention of management, and any difficulties encountered in
the transition process, could have an adverse impact on Keane's revenues and
operating results. In addition, the process of integrating the various
businesses could cause the interruption of, or a loss of momentum in, the
activities of some or all of these businesses, which could have an adverse
effect on the Company's operations and financial results.

The custom software services market is highly competitive and characterized
by continual change and improvement in technology.  The market is fragmented,
and no company holds a dominant position.  Consequently, Keane's competition for
client assignments and experienced personnel varies significantly from city to
city and by the type of service provided. Some of Keane's competitors are larger
and have greater technical, financial and marketing resources and greater name
recognition in the markets they serve than does the Company.  In addition,
clients may elect to increase their internal information systems resources to
satisfy their custom software development needs.  The Company believes that the
bases for competition in the software services industry include the ability to
compete cost-effectively, develop strong client relationships, generate
recurring revenues, utilize comprehensive delivery methodologies and achieve
organizational learning by implementing standard operational processes.  In the
healthcare software systems market, Keane competes with some companies that are
larger in the healthcare market and have greater financial resources than Keane.
The Company believes that significant competitive factors in the healthcare
software systems market include size and demonstrated ability to provide service
to targeted healthcare markets.  There can be no assurance that the Company will
continue to compete successfully with its existing competitors or will be able
to compete successfully with any new competitors.

As a result of these and other factors, the Company's past financial
performance should not be relied on as an indication of future performance.
Keane believes that period-to-period comparisons of its financial results are
not necessarily meaningful and it expects that results of operations may
fluctuate from period to period in the future.

Page 16
<PAGE>
 
ITEM 8.  FINANCIAL HIGHLIGHTS:

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                   PAGE


Report of Independent Accountants..............................     18
                                                                   
                                                                   
Consolidated Balance Sheets as of December 31, 1995 and 1996...     19
                                                                   
                                                                   
                                                                   
Consolidated Statements of Income                                   
for the Years Ended December 31, 1994, 1995 and 1996...........     20
                                                                   
                                                                   
                                                                   
Consolidated Statements of Stockholders' Equity for the             
Years Ended December 31, 1994, 1995 and 1996...................     21
                                                                   
                                                                   
Consolidated Statements of Cash Flows for the Years                 
Ended December 31, 1994, 1995 and 1996.........................     22
                                                                   
                                                                   
                                                                   
Notes to Consolidated Financial Statements.....................  23-33

                                                                         Page 17
<PAGE>
 
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF KEANE, INC.:


We have audited the accompanying consolidated balance sheets of Keane, Inc. as
of December 31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. 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 generally accepted auditing
standards. 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. as of
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.


Boston, Massachusetts                   Coopers & Lybrand L.L.P.
February 28, 1997

Page 18
<PAGE>
 
KEANE, INC. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
 
DECEMBER 31,                                                           1995            1996
------------------------------------------------------------------------------------------------
<S>                                                           <C>              <C> 
ASSETS                                                
Current:                                              
   Cash and cash equivalents                                        $ 21,913,322    $ 38,837,183
   Investments                                                        11,331,228      30,242,498
   Accounts receivable, net:                                 
     Trade                                                            81,022,024      94,773,296
     Other                                                             1,432,141       2,447,302
   Prepaid expenses and other current assets                           4,506,196       5,534,113
                                                                    ------------    ------------
    Total current assets                                             120,204,911     171,834,392
                                                             
Property and equipment, net                                           12,425,542      10,658,205
Intangible assets, net                                                59,039,633      46,815,313
Other assets, net                                                      2,728,026       5,905,876
                                                                    ------------    ------------
                                                                    $194,398,112    $235,213,786
                                                                    ============    ============
LIABILITIES                                           
Current:                                               
   Accounts payable                                                 $  4,696,300    $  9,825,285
   Accrued expenses and other liabilities                              5,360,013       5,453,588
   Accrued compensation                                                7,925,786      11,034,456
   Notes payable                                                       3,177,922       3,191,204
   Income taxes payable                                                    --          5,677,435
   Capital lease obligations                                             433,963         236,384
                                                                    ------------    ------------
     Total current liabilities                                        21,593,984      35,418,352
                                                             
Notes payable                                                          5,427,000       2,807,004
Long-term portion of capital lease obligations                           107,448         357,982
Deferred income taxes                                                     49,000           --
                                                             
Commitments and contingencies (Note K)                
                                                             
STOCKHOLDERS' EQUITY                                  
Preferred stock, par value $.01, authorized           
   2,000,000 shares, none issued                                           --              --
Common stock, par value $.10, authorized              
   50,000,000 shares, issued and outstanding           
   32,404,722 in 1995 and 32,870,671 in 1996                           3,240,473       3,287,067
Class B common stock, par value $.10, authorized      
   503,797 shares, issued and outstanding              
   288,258 in 1995 and 287,613 in 1996                                    28,825          28,760
Additional paid-in capital                                            91,923,407      95,931,695
Cumulative translation adjustment                                        (42,542)        (45,547)
Retained earnings                                                     74,482,933      99,841,019
Less treasury stock at cost, 303,414 shares           
   in 1995 and 305,615 shares in 1996                                 (2,412,416)     (2,412,546)
                                                                    ------------    ------------
                                                             
           Total stockholders' equity                                167,220,680     196,630,448
                                                                    ------------    ------------
                                                                    $194,398,112    $235,213,786
                                                                    ============    ============
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

                                                                         Page 19
<PAGE>
 
KEANE, INC. CONSOLIDATED STATEMENTS OF INCOME   
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,                                    1994          1995          1996
---------------------------------------------------------------------------------------------------------
<S>                                                            <C>           <C>           <C>
Total revenues                                                   $344,582,663  $382,739,492  $467,090,357
                                                            
Salaries, wages and other direct costs                            225,550,990   256,474,275   315,920,823
Selling, general and administrative expenses                       76,361,573    82,470,444    95,552,534
Amortization of goodwill and other intangible assets               11,490,247    12,184,014    12,498,600
                                                                 ------------  ------------  ------------
                                                            
   Operating income                                                31,179,853    31,610,759    43,118,400
                                                            
Investment income                                                     451,110     1,635,953     2,404,037
Interest expense                                                    2,757,628       486,027       449,223
Other expenses, net                                                   392,843       175,832       741,128
                                                                 ------------  ------------  ------------
   Income before income taxes                                      28,480,492    32,584,853    44,332,086
                                                            
Provision for income taxes                                         12,245,000    13,328,000    18,974,000
                                                                 ------------  ------------  ------------
   NET INCOME                                                    $ 16,235,492  $ 19,256,853  $ 25,358,086
                                                                 ============  ============  ============
   NET INCOME PER SHARE                                          $        .57  $        .59  $       0.76
                                                                 ============  ============  ============
   WEIGHTED AVERAGE COMMON AND COMMON SHARE                      
   EQUIVALENTS OUTSTANDING                                         28,323,000    32,695,506    33,226,618
                                                                 ============  ============  ============
</TABLE>
The accompanying notes are an integral part of the 
  consolidated financial statements.

Page 20
<PAGE>
 
KEANE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1994, 1995 AND 1996
                                                                                 CLASS B                 
                                             COMMON STOCK                     COMMON STOCK                ADDITIONAL
                                     -------------------------            ----------------------           PAID-IN
                                     SHARES             AMOUNT            SHARES          AMOUNT           CAPITAL  
---------------------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>                <C>             <C>             <C>        
                                   26,786,521         $2,678,652         290,603         $29,060         $43,828,425
BALANCE DECEMBER 31, 1993                                                             
                                                                                      
Common Stock issued under:                                                            
 1982 Stock Option Plan               435,826             43,583                                           1,132,543
 1992 Employee Stock           
    Purchase Plan                     144,390             14,439                                           1,298,612
Conversions of Class B              
 Common Stock into Common Stock         1,638                164          (1,638)           (164)             
Proceeds from issuance of           
 Common Stock                       4,600,000            460,000                                          41,819,165
Income tax benefit from             
 stock option plans                                                                                          343,000
Foreign currency                                                                      
 translation adjustment   
Net income                
                                  ----------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1994          31,968,375          3,196,838         288,965          28,896          88,421,745
                                                                                      
Common Stock issued under:                                                            
 1982 Stock Option Plan               171,500             17,150                                             678,540
 1992 Stock Option Plan                88,450              8,846                                             490,937
 1992 Employee Stock                
    Purchase Plan                     158,090             15,808                                           1,657,007
 1983 Restricted Stock              
    Purchase Plan                      17,600              1,760                                             190,178
Conversions of Class B                  
 Common Stock into 
 Common Stock                             707                 71            (707)            (71)             
Income tax benefit from                 
 stock option plans                                                                                          485,000
Foreign currency                                                                      
 translation adjustment                                                                          
Treasury Stock purchase                                                               
Net income                                                                            
                                  ----------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1995          32,404,722          3,240,473         288,258          28,825          91,923,407
                                                                                      
Common Stock issued under:                                                            
 1982 Stock Option Plan               164,500             16,450                                             650,844
 1992 Stock Option Plan               173,217             17,321                                           1,071,227
 1992 Employee Stock                
    Purchase Plan                     128,888             12,888                                           1,703,217
 1983 Restricted Stock               
    Purchase Plan                      (1,301)              (130)                                 
Conversions of Class B                   
 Common Stock into 
 Common Stock                             645                 65            (645)            (65)             
Income tax benefit from  
 stock option plans                                                                                          583,000
Foreign currency                                                                      
 translation adjustment                                                                          
Treasury Stock purchase                                                               
Net income                                                                            
                                  ----------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996          32,870,671         $3,287,067         287,613         $28,760         $95,931,695
                                   ==========         ==========         =======         =======         ===========

</TABLE> 




























<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1994, 1995 AND 1996
                                     CUMULATIVE                       TREASURY STOCK AT COST
                                     TRANSLATION   RETAINED          -----------------------
                                     ADJUSTMENT    EARNINGS          SHARES           AMOUNT              TOTAL
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>               <C>             <C>                 <C>
                                                  $38,990,588       (303,414)       $ (2,412,326)       $ 83,114,399
BALANCE DECEMBER 31, 1993    
                             
Common Stock issued under:   
 1982 Stock Option Plan                                                                                    1,176,126
 1992 Employee Stock        
    Purchase Plan                                                                                          1,313,051
Conversions of Class B  
 Common Stock into 
 Common Stock                                                                                                     --
Proceeds from issuance of  
 Common Stock                                                                                             42,279,165
Income tax benefit from 
 stock option plans                                                                                          343,000
Foreign currency         
 translation adjustment              $ (74,114)                                                              (74,114)
Net income                                         16,235,492                                             16,235,492
                                 -----------------------------------------------------------------------------------
                             
BALANCE DECEMBER 31, 1994              (74,114)    55,226,080       (303,414)         (2,412,326)        144,387,119
                             
Common Stock issued under:   
 1982 Stock Option Plan                                                                                      695,690
 1992 Stock Option Plan                                                                                      499,783
 1992 Employee Stock    
    Purchase Plan                                                                                          1,672,815
 1983 Restricted Stock 
    Purchase Plan                                                                                            191,938
Conversions of Class B    
 Common Stock into 
 Common Stock                                                                                                     --
Income tax benefit from   
 stock option plans                                                                                          485,000
Foreign currency            
 translation adjustment                 31,572                                                                31,572
Treasury Stock purchase                                                 (900)                (90)                (90)
Net income                                         19,256,853                                             19,256,853
                                 -----------------------------------------------------------------------------------
                            
BALANCE DECEMBER 31, 1995              (42,542)    74,482,933       (304,314)         (2,412,416)        167,220,680
                             
Common Stock issued under:   
 1982 Stock Option Plan                                                                                      667,294
 1992 Stock Option Plan                                                                                    1,088,548
 1992 Employee Stock      
    Purchase Plan                                                                                          1,716,105
 1983 Restricted Stock   
    Purchase Plan                                                                                               (130)
Conversions of Class B   
 Common Stock into 
 Common Stock                                                                                                     --
Income tax benefit from     
 stock option plans                                                                                          583,000
Foreign currency             
 translation adjustment                 (3,005)                                                               (3,005)
Treasury Stock purchase                                               (1,301)               (130)               (130)
Net income                                         25,358,086                                             25,358,086
                                 -----------------------------------------------------------------------------------
                                      ($45,547)   $99,841,019       (305,615)        ($2,412,546)       $196,630,448
BALANCE DECEMBER 31, 1996             ========    ===========       ========         ============       ============
</TABLE>
 
The accompanying notes are an integral part of the consolidated financial
 statements.

                                                                         Page 21
<PAGE>
 
KEANE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
 
FOR THE YEARS ENDED DECEMBER 31,                                         1994           1995           1996
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                 <C>             <C>            <C>
  Net income                                                         $ 16,235,492    $19,256,853    $25,358,086
Adjustments to reconcile net income to net cash provided          
by operating activities:                                         
   Depreciation and amortization                                       16,321,231     17,767,554     19,281,800
   Deferred income taxes                                                1,660,000     (1,023,000)    (3,994,000)
   Provision for doubtful accounts                                        619,491        850,771      3,621,000
   Loss (gain) on sale of property and equipment                           74,565         72,657        (18,317)
   Accrued interest on long-term debt                                     656,005        134,740        380,004
   Tax benefit from stock options                                         343,000        485,000        583,000
   Changes in assets and liabilities, net of acquisitions:        
   (Increase) in accounts receivable                                  (14,073,680)   (11,285,320)   (18,487,433)
   (Increase) decrease in prepaid expenses and other assets              (870,013)    (3,255,602)      (237,164)
   Increase (decrease) in accounts payable and accrued                                                
     expenses and other liabilities                                    (9,720,942)    (4,011,861)     8,331,230
   Increase (decrease) in income taxes payable                         (2,779,966)         --         5,677,435
                                                                     ------------    -----------    -----------
                                                                  
  NET CASH PROVIDED BY OPERATING ACTIVITIES                             8,465,183     18,991,792     40,495,641
                                                                     ------------    -----------    -----------
                                                                  
CASH FLOWS FROM INVESTING ACTIVITIES:                             
  Purchase of investments                                                  --        (13,343,294)   (34,586,172)
  Sale of investments                                                   4,869,389      2,012,066     15,674,902
  Purchase of property and equipment                                   (3,581,214)    (5,675,206)    (4,098,030)
  Proceeds from the sale of property and equipment                        156,400        111,056        216,087
  Payments for acquisitions                                           (47,122,012)    (8,909,564)      (746,748)
                                                                     ------------    -----------    -----------
                                                                  
  NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES                (45,677,437)   (25,804,942)   (23,539,961)
                                                                     ------------    -----------    -----------
                                                                  
CASH FLOWS FROM FINANCING ACTIVITIES:                             
  Borrowings under long-term debt                                     122,000,000          --             --
  Payments under long-term debt                                      (122,000,000)         --        (2,982,274)
  Principal payments under capital lease obligations                     (511,994)      (430,377)      (521,233)
  Proceeds from issuance of common stock                               44,768,342      2,869,123      3,471,688
                                                                     ------------    -----------    -----------
                                                                  
NET CASH PROVIDED BY FINANCING ACTIVITIES                              44,256,348      2,438,746        (31,819)
                                                                  
  Net increase (decrease) in cash and cash equivalents                  7,044,094     (4,374,404)    16,923,861
  Cash and cash equivalents at beginning of year                       19,243,632     26,287,726     21,913,322
                                                                     ------------    -----------    -----------
  CASH AND CASH EQUIVALENTS AT END OF YEAR                           $ 26,287,726    $21,913,322    $38,837,183
                                                                     ============    ===========    ===========
                                                                  
Supplemental information:                                         
  Interest paid                                                      $  2,102,000    $      --      $     --
  Income taxes paid                                                    14,042,000     14,463,000     16,652,000
                                                         
</TABLE>
The accompanying notes are an integral part of the consolidated financial
 statements.


Page 22
<PAGE>
 
KEANE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION:  The consolidated financial statements include the
accounts of Keane, Inc. (the Company) and its wholly owned subsidiaries.  All
significant intercompany transactions have been eliminated.

Certain prior year amounts have been reclassified to conform with the current
year presentation.

NATURE OF OPERATIONS:  The Company provides software design, development,
integration and management services for corporations, government agencies and
healthcare facilities.  The Company serves its clients through two operating
divisions and a network over 50 branch offices and satellite offices located
across the United States and in Canada.  The Information Services Division
("ISD"), which accounted for approximately 94% of the Company's revenues in
1996, provides software design, development and management services to
corporations and government agencies with large and recurring software
development needs.  The Healthcare Services Division ("HSD") develops, markets
and supports financial, patient care and clinical application software for
hospitals and long-term care facilities.  The Company primarily provides
services to Fortune 1000 companies.

REVENUE RECOGNITION: The Company provides system design, implementation and
support services under contracts.  Revenues are recognized at contractually
determined rates based on hours incurred or, in the case of software application
sales, on the basis of customer acceptance over the period of software
implementation.

The Company provides services to multiple General Electric (GE) and
International Business Machines (IBM) locations.  The Company believes that each
GE and IBM location served by the Company is essentially autonomous.  Each
location contracts separately for its services and each contract involves
different projects. Aggregate revenues for GE totaled approximately $37,000,000,
$33,000,000 and $28,000,000 in 1994, 1995 and 1996, respectively.  Aggregate
revenues for IBM totaled approximately $57,000,000,  $51,000,000 and $55,000,000
in 1994, 1995 and 1996, respectively.

FOREIGN CURRENCY TRANSLATION: For the Company's Canadian subsidiary the U.S.
dollar is the functional currency.  All assets and liabilities of the Company's
Canadian subsidiary are translated at exchange rates in effect at the end of the
period.  Income and expenses are translated at rates that approximate those in
effect on transaction dates.  The translation differences are charged or
credited directly to the translation adjustment account included as part of
stockholders' equity.  Foreign exchange gains and losses are included in other
income (expense).

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 at December 31, 1996 include investments in commercial paper
($24.0 million), corporate bonds ($6.8 million) and money market funds ($1.1
million).  Cash equivalents at December 31, 1995 include investments in
commercial paper ($15.0 million) and money market funds ($3.5 million).

FINANCIAL INSTRUMENTS:  The carrying amounts of cash equivalents and investments
approximate their fair values.  Based on the borrowing rates currently available
to the Company for bank loans with similar terms and maturities, the fair value
of the Company's debt obligations approximates their carrying value.

INVESTMENTS:  Investments are stated at fair value as reported by the investment
custodian..  The Company determines the appropriate classification of debt and
equity securities at the time of purchase and re-evaluates such designations as
of each balance sheet date.  Investments are currently designated as available-
for-sale in accordance with the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and as such, unrealized gains and losses are reported in a separate
component of stockholders' equity.  At December 31, 1995 and 1996, the market
value of these investments approximated cost.

                                                                         Page 23
<PAGE>
 
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.  Repair and
maintenance costs are charged to expense.  Depreciation is computed on a
straight-line basis over estimated useful lives of 25 to 40 years for buildings
and improvements, and 3 to 5 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.  Upon
disposition, the cost and related accumulated depreciation are removed from the
accounts, and any gain or loss is included in income.

INTANGIBLE ASSETS: Intangible assets consist principally of goodwill, the excess
of the purchase price over the appraised fair value of assets acquired in
acquisitions, and acquired customer-based intangibles, noncompetition
agreements, and software initially recorded at appraised fair value.
Intangibles are amortized on a straight-line basis over 14 or 15 years for
goodwill and 3 to 15 years for other intangibles.  At each balance sheet date,
management assesses whether there has been a permanent impairment in the value
of goodwill and the amount of such impairment by comparing anticipated
undiscounted future operating income from acquired business units with the
carrying value of the related goodwill.  The factors considered by management in
performing this assessment include current operating results, trends and
prospects, as well as the effects of demand, competition and other economic
factors.

The Company capitalized approximately $500,000, $1,300,000 and $500,000 of
computer software development costs during 1994, 1995 and 1996, respectively.
Costs are amortized over the expected life of the product, approximately 5
years, upon release.

INCOME TAXES: The Company accounts for income taxes under the 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.

NET INCOME PER SHARE: Net income per share is based upon the weighted number of
shares of Common Stock, Class B Common Stock, and common share equivalents
outstanding during the year.

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.

B.  INVESTMENTS

At December 31, 1996, the Company's investments included obligations of the U.S.
Government ($8.0 million), municipal bonds ($4.7 million) and commercial paper
($17.5 million).  At December 31, 1995, the Company's investments include
obligations of the U.S. Government ($6.3 million) and commercial paper ($5.0
million). Contractual maturities at December 31, 1996 were $2.8 million due
within one year and $27.4 million due after one through three years.  Actual
maturities may differ from contractual maturities because the issuers of these
securities may have the right to prepay obligations without penalty.  There was
no gain or loss, based on a specific identification basis, realized on the sale
of available for sale securities during the years ended December 31, 1994, 1995
and 1996.

C.  ACCOUNTS RECEIVABLE

Accounts receivable are presented net of an allowance for doubtful accounts of
approximately $1,916,000 and $3,751,000 at December 31, 1995 and 1996,
respectively.  The provisions charged to the statement of operations were
$2,258,000, $1,051,000 and $3,621,000 in 1994, 1995, and 1996, respectively, and
write-offs against the allowances were $1,243,000, $1,618,000, and $1,786,000 in
1994, 1995, and 1996, respectively.

Page 24
<PAGE>
 
D.  PROPERTY AND EQUIPMENT

Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                     1995         1996
                                                  -----------  -----------
<S>                                               <C>          <C>
  Buildings and improvements                      $   893,065  $   849,588
  Office equipment                                 21,268,330   23,502,632
  Computer equipment and software                   4,121,648    4,896,677
  Leasehold improvements                            2,352,386    2,497,263
                                                  -----------  -----------
                                                   28,635,429   31,746,160
 
  Less accumulated depreciation and amortization   16,209,887   21,087,955
                                                  -----------  -----------
 
                                                  $12,425,542  $10,658,205
                                                  ===========  ===========
 
</TABLE>

Depreciation expense totaled $4,801,424, $5,583,539 and $6,783,200 in 1994, 1995
and 1996, respectively. Computer equipment and software includes assets arising
from capital lease obligations at a cost of $1,773,276 and $1,590,129 with
accumulated amortization totaling $1,116,436 and $951,904 at December 31, 1995
and 1996, respectively.
 
E.  INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                        DECEMBER 31, 
                                                     1995          1996
                                                  ------------------------
<S>                                             <C>             <C>
  Goodwill                                        $20,213,814  $20,360,094
  Noncompetition agreements                        22,135,000   22,203,000
  Customer-based intangibles                       37,855,336   37,915,336
  Software                                          8,088,789    8,088,789
  Other                                             1,208,077    1,208,077
                                                  -----------  -----------
                                                   89,501,016   89,775,296
  Less accumulated amortization                    30,461,383   42,959,983
                                                  -----------  -----------
                                                  $59,039,633  $46,815,313
                                                  ===========  ===========
</TABLE> 
 

F.  ACCRUED EXPENSES AND OTHER LIABILITIES
 
Accrued expenses and other liabilities consist of the following:

<TABLE> 
<CAPTION> 
                                                        DECEMBER 31, 
                                                     1995          1996
                                                  ------------------------
<S>                                               <C>          <C>
 Deferred savings and profit sharing plan         $ 1,664,738  $   705,024
 Health insurance costs                               301,510      472,052
 Accrued payroll taxes                                443,893      357,626
 Accrued rent obligations                             622,951      499,966
 Other                                              2,326,921    3,418,920
                                                  -----------  -----------
                                                  $ 5,360,013  $ 5,453,588
                                                  ===========  ===========
</TABLE>

                                                                         Page 25
<PAGE>
 
G.  CAPITAL LEASE OBLIGATIONS

The Company finances certain equipment through capital leases.  At December 31,
1996, future minimum lease payments under noncancelable capital leases, together
with the present value of minimum lease payments, are summarized below:

<TABLE>
<S>                                            <C>
 Year ending December 31, 1997                  $257,095
 Year ending December 31, 1998                   188,521
 Year ending December 31, 1999                   185,227
                                                --------
 
 Total minimum payments                          630,843
 Less amount representing future interest         36,477
                                                --------
 
 Present value of net minimum payments           594,366
 Less current portion                            236,384
                                                --------
 
 Long-term portion of capital lease payments    $357,982
                                                ========
</TABLE>

Equipment acquired under capital lease obligations for 1994, 1995 and 1996
totaled approximately $1,034,000, $162,000 and $570,000, respectively.

H.  NOTES PAYABLE

In conjunction with the Company's acquisition of General Electric Consulting
(see Note N), a $4 million note with interest of 5% was payable to General
Electric on December 29, 1995.  The note was subject to reduction to the extent
that the Company's average annual revenue from business with General Electric
and its affiliates during the three year period ending December 31, 1995 was
less than a specified amount.  The Company's revenue from business with General
Electric was less than the specified amount and, accordingly, the principal
amount was reduced to $324,750 which was paid in January 1996.  In addition, the
$400,010 of interest accrued in prior years was reduced to approximately
$52,000.  The reduction in the principal amount of the note resulted in a
commensurate reduction in goodwill.  The reduction in previously accrued
interest of approximately $348,000 was recorded as a reduction in interest
expense in 1995.

In conjunction with the AGS acquisition (see Note N), the Company and NYNEX also
executed a separate noncompetition agreement covering a four-year period in
exchange for a noninterest-bearing $12.0 million subordinated note due in four
equal annual installments of $3.0 million beginning in January 1995.
Subsequently, the Company made certain disbursements, totaling approximately
$2.9 million, on behalf of NYNEX.  In 1994, NYNEX reimbursed these amounts and
made certain other adjustments to the purchase price by offsetting $4.0 million
against the first two installments due under the subordinated note.  The Company
has recorded the note at its present value discounted at 7% which equaled
$7,427,000 at December 31, 1995 and $5,807,000 (of which $2,807,000 was
classified as long term) at December 31, 1996.

I.  CAPITAL STOCK

In May 1994, the stockholders approved an amendment to the Company's Articles of
Organization increasing the number of shares of Common Stock authorized for
issuance to 50,000,000 shares.  In September 1994, the Company distributed a
stock split effected in the form of a stock dividend of one share of Common
Stock for every two shares of Common Stock and one share of Common Stock for
every two shares of Class B Common Stock then outstanding.  All share and per
share data has been adjusted to reflect this stock split.  In November 1994, the
Company completed a secondary public offering resulting in the issuance of
4,600,000 shares of Common Stock at $19.50 per share, the proceeds of which
totaled $42,279,165, net of related commissions and other expenses.

In November 1996, the Company distributed a stock split effected in the form of
a stock dividend of one share of Common Stock for every one share of Common
Stock and one share of Common Stock for every one share of 

Page 26
<PAGE>
 
Class B Common Stock then outstanding. All share and per share data has been
adjusted to reflect this stock split.

The Company has three classes of share capital: Preferred Stock, Common Stock
and Class B Common Stock. Holders of Common Stock are entitled to one vote for
each share held.  Holders of Class B Common Stock generally vote as a single
class with holders of Common Stock but are entitled to 10 votes for each share
held. The Board of Directors is authorized to determine the rights, preferences,
privileges and restrictions, including the dividend rights, conversion rights,
voting rights, terms of redemption price or prices and liquidation preferences,
of any series of Preferred Stock, and to fix the number of shares of any such
series.  The Common Stock and Class B Common Stock have equal liquidation and
dividend rights except that any regular quarterly dividend declared shall be
$.05 per share less for holders of Class B Common Stock.  Class B Common Stock
is nontransferable, except under certain conditions, but may be converted into
Common Stock on a share-for-share basis at any time.  Conversions to common
stock totaled 1,638, 707 and 645 shares in 1994, 1995 and 1996, respectively.
Shares of common stock reserved for conversions totaled 287,613 at December 31,
1996.

J.  STOCK OPTION, STOCK PURCHASE, COMPENSATION AND RETIREMENT PLANS

STOCK OPTION PLANS: The Company has three stock-based compensation plans, which
are described below.  In October 1995, the FASB issued SFAS 123, "Accounting for
Stock-Based Compensation."  SFAS 123 is effective for periods beginning after
December 15, 1995.  SFAS 123 requires that companies either recognize
compensation expense for grants of stock options and other equity instruments
based on fair value, or provide pro forma disclosure of net income and earnings
per share in the notes to the financial statements.  The Company adopted the
disclosure provisions of SFAS 123 in 1996 and has continued to apply APB Opinion
25 and related Interpretations in accounting for its plans.  Had compensation
cost for the Company's stock-based compensation plans been determined based on
the fair value at the grant dates as calculated in accordance with SFAS 123, the
Company's net income and earnings per share for the years ended December 31,
1995 and 1996 would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                             1995                       1996
            -------------------------- -------------------------
            Net Income   Earnings Per  Net Income   Earnings Per
            -----------  ------------  -----------  ------------
                            Share                      Share
                         ------------               ------------
<S>         <C>          <C>           <C>          <C>
  As
Reported    $19,256,853     $.59       $25,358,086     $ .76
  Pro
Forma        18,901,810      .58        24,564,433       .74
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure are not likely to
be representative of effects on reported net income for future years.  SFAS 123
does not apply to awards prior to 1995 and additional awards in future years are
anticipated.

The fair market value of each stock option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:  an expected life of 4.5 years, expected volatility of 37%, a
dividend yield of 0% and risk-free interest rates between 5.5-7.5%.

The 1982 Incentive Stock Option Plan provides for grants of stock options of up
to 1,800,000 shares of the Company's Common Stock to be made to officers and key
employees.  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. Transactions under the plan for the three
years ended December 31, 1996 are as follows:

                                                                         Page 27
<PAGE>
 
<TABLE>
<CAPTION>
 
                                                  WEIGHTED
                                     COMMON       AVERAGE
                                      STOCK    EXERCISE PRICE
                                    -------------------------
<S>                                 <C>           <C>
Outstanding at December 31, 1993     771,828        $3.29
  Exercised                         (435,828)        2.10
                                    --------        
Outstanding at December 31, 1994     336,000         4.06
  Exercised                         (171,500)        4.06
                                    --------        
Outstanding at December 31, 1995     164,500         4.06
  Exercised                         (164,500)        4.06
                                    --------
Outstanding at December 31, 1996           0
                                    ========
 
</TABLE>

The 1992 Stock Option Plan provides for grants of stock options of up to
1,800,000 shares of the Company's Common Stock to employees, officers and
directors of, and consultants and advisors to, the Company.  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. The Company 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.  The number and weighted-average exercise price of
exercisable shares as of December 31, 1995 and 1996 was 75,550 shares at $5.56
and 109,750 shares at $6.00 per share, respectively. There were no shares
exercisable at the end of 1994.

The weighted-average fair value of options granted during the years ended
December 31, 1995 and 1996 was $ 4.42 and $ 4.90, respectively.

Transactions under the plan since the inception are as follows:
<TABLE>
<CAPTION>
                                                   WEIGHTED
                                      COMMON       AVERAGE
                                      STOCK     EXERCISE PRICE
<S>                                 <C>         <C>
Outstanding at December 31, 1993      629,250       $ 5.69
  Granted                             212,000         6.46
  Canceled/Expired                    (95,250)        7.99
                                    ---------       
Outstanding at December 31, 1994      746,000         6.41
  Granted                             373,000        10.56
  Exercised                           (88,450)        5.65
  Canceled/Expired                   (159,500)        7.51
                                    ---------       
Outstanding at December 31, 1995      871,050         8.06
  Granted                             378,000        12.48
  Exercised                          (173,217)        6.29
  Canceled/Expired                    (64,000)        8.58
                                    ---------       
Outstanding at December 31, 1996    1,011,833       $ 9.97
                                    =========
 
</TABLE>

Page 28
<PAGE>
 
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
 
                              Options Outstanding                   Options Exercisable
                ------------------------------------------  --------------------------------
                             Weighted Average
  Range of                    Remaining
  Exercise        Number     Contractual  Weighted Average    Number      Weighted Average
  Prices        Outstanding     Life       Exercise Price   Exercisable    Exercise Price
--------------  -----------  -----------  ----------------  -----------  -------------------
<S>             <C>          <C>          <C>               <C>          <C>
 $5.56-$7.67        255,000    1.3 years       $ 5.67            99,250         $5.80
  9.21-11.88        368,833    2.9 years        10.26            10,500          9.25
 12.00-14.69        368,000    4.1 years        12.13                 0         
 17.50-22.38         20,000    4.6 years        19.62                 0         
                  ---------                                     -------         
                                                                                
                                                                                
$5.56-$22.38      1,011,833                    $ 9.97           109,750         $6.00
 
</TABLE>

STOCK PURCHASE PLANS: The 1983 Restricted Stock Purchase Plan provides for
grants of 1,012,500 shares of Common Stock to be made to key employees at the
discretion of the compensation committee of the Board of Directors.  No grants
were issued during 1994 and 1996 with 17,600 shares issued during 1995.  At
December 31, 1996, 688,880 shares remained available for future grants.
Restrictions on the sale or transfer of shares lapse three years after the date
of grant.  As grants are issued, deferred compensation equivalent to the market
value at the date of grant, less $.10 per share of the purchase price, is
amortized to compensation expense over the three-year vesting period.  The
amount of amortization for 1995 and 1996 was $53,000 and $54,000, respectively.

The 1992 Employee Stock Purchase Plan provides for the purchase of 1,275,000
shares of Common Stock by qualifying employees at a purchase price of 85% of the
market value of the stock on the purchase date.  During 1994, 1995 and 1996,
participants in this plan purchased 144,390, 158,090 and 128,888 shares,
respectively. Shares available for future purchases totaled 721,782 at December
31, 1996.

COMPENSATION PLANS: During 1988, the Company 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 1994, 1995 and 1996 approximated $4,887,000,
$5,075,000 and $4,224,000, respectively.

DEFERRED SAVINGS AND PROFIT SHARING PLAN: During 1984, the Company 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 15% of their salary to the plan.  The Company makes
discretionary contributions to the plan based on a percentage of contributions
made by the eligible employees and profits of the Company.  The Company's
contributions vest after the employee has completed 42 months of service and for
1994, 1995 and 1996 amounted to approximately $1,682,000, $1,664,000 and
$705,000, respectively.

K.  COMMITMENTS AND CONTINGENCIES

The Company's corporate offices are located in Boston, Massachusetts.  The
building is leased from a partnership in which certain officers, directors and
shareholders of the Company are limited partners.  The lease is for a term of
twenty years at annual rentals of $682,000 through February 1996 and at
prevailing market rates in subsequent years through 2006.  The Company is also
required to pay specified percentages of annual increases in real estate taxes
and operating expenses.

                                                                         Page 29
<PAGE>
 
The Company leases additional office space and apartments under operating
leases, some of which may be renewed for periods up to five years, subject to
increased rentals.  Rental expense for all of the Company's facilities amounted
to approximately $8,100,000 in 1994, $8,880,000 in 1995 and $10,722,000 in 1996.
The Company is committed to minimum annual rental payments under all leases of
approximately $8,588,000 in 1997, $6,968,000 in 1998, $4,800,000 in 1999,
$2,905,000 in 2000, $1,607,000 in 2001 and an aggregate of $3,081,000 from 2002
to 2006.

On December 31, 1992, Four Star Capital Corporation ("Four Star") commenced a
civil action against AGS Computers, Inc. ("AGS"), NYNEX Corporation ("NYNEX")
and Derek Proctor, a former employee of AGS, in Superior Court of California,
County of Marin, alleging, among other matters, breach of contract with respect
to the solicitation of business for NYNEX and AGS in China.  The case was
subsequently removed to the United States District Court for the Northern
District of California and transferred to the United States District Court for
the Southern District of New York.  Four Star originally sought damages in the
amount of $5,600,000.  However, on May 3, 1994, Four Star amended its complaint
to provide for a claim seeking relief in the amount of $25,000,000.  Keane
acquired all of the outstanding capital stock of AGS in January 1994.  Motions
for summary judgment have been pending since May 1996.  Recently, the case was
transferred to a new judge, an event which likely will lead to further delays.

On August 29, 1994, Marketing and Management Information, Inc. ("MAMI")
commenced a civil action against the Company, General Electric Consulting
Services Corporation ("GECON") and General Electric Company (General Electric
Information Services) ("GEIS") in the Circuit Court for Montgomery County,
Maryland, Case Number 123797.  The Complaint alleges claims for breach of
contract, fraud and negligent misrepresentation in connection with a consulting
contract for computer development work between MAMI and GECON.  The Company
assumed this contract as part of its acquisition of certain assets of GECON in
January 1993.  The contract price for the consulting work alleged in the
Complaint totaled approximately $425,000.  Despite the limitation on recoverable
damages contained in the contract, MAMI has alleged damages in excess of
$50,000,000 and has claimed punitive damages in an amount more than double the
compensatory claim.

The Company denied the allegations of the Complaint and asserted a number of
affirmative defenses, including the defense that the claims of damages asserted
in the Complaint are barred by the terms of the underlying contract.  The
Company was granted summary judgment on certain of MAMI's claims.  After a trial
before a judge without a jury, on September 24, 1996, the court entered judgment
in favor of the Company.  On MAMI's remaining claim of negligent
misrepresentation against GECON, the court awarded MAMI the sum of
$1,261,276.36.  At this time, various post-judgment motions have been filed
pertaining to the award as it relates to damages against GECON.  The motions
suspend the time for filing of an appeal.

The Company is also involved in other litigation and various legal matters which
have arisen in the ordinary course of business.  The Company does not believe
that the ultimate resolution of any existing matter will have a material adverse
effect on its financial condition, results of operations, or cash flows.

The Company believes these litigation matters are without merit and intends to
defend these matters vigorously.

L.  INCOME TAXES

The provision for income taxes includes federal, state and foreign income taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax bases of assets and liabilities. The foreign tax
benefit recognized in 1994 represents the carryback of 1994 foreign losses to
recover foreign income taxes paid in previous years.

Page 30
<PAGE>
 
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
 
 
                                 Years Ended December 31,
                            1994           1995          1996
                       -------------------------------------------
Current:
<S>                   <C>               <C>           <C>
  Federal              $     8,315,000   $11,097,000   $18,111,000
  State                      2,617,000     3,185,000     4,793,000
  Foreign                     (347,000)       69,000        64,000
                       ---------------   -----------   -----------
   Total                    10,585,000    14,351,000    22,968,000
                       ---------------   -----------   -----------
                     
Deferred:            
  Federal                    1,260,000      (847,000)   (3,675,000)
  State                        400,000      (176,000)     (255,000)
  Foreign                           --            --       (64,000)
                       ---------------   -----------   -----------
   Total                     1,660,000    (1,023,000)   (3,994,000)
                       ---------------   -----------   -----------
                       $    12,245,000   $13,328,000   $18,974,000
                       ===============   ===========   ===========
 
</TABLE>
A reconciliation of the statutory income tax provision with the effective income
tax provision is as follows:

<TABLE>
<CAPTION>
 
                                          Years Ended December 31,
                                         1994        1995          1996
                                     --------------------------------------
<S>                                 <C>           <C>           <C>
Federal income taxes at 35%          $ 9,968,000  $11,405,000   $15,516,000
 State income taxes,                   1,961,000    2,127,000     2,949,000
   net of federal tax benefit          
 Tax credits                                  --     (241,000)     (130,000)
 Other, net                              316,000       37,000       639,000
                                     -----------  -----------   -----------
                                     $12,245,000  $13,328,000   $18,974,000
                                     ===========  ===========   ===========
 
</TABLE>
The components of the net deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                          12/31/95      12/31/96
                                       -----------   -----------
<S>                                    <C>           <C>
 Current:
  Allowance for doubtful accounts      $   754,000   $ 1,423,000
  Employee medical benefits               (352,000)      (57,000)
  Accrued expenses                         217,000       124,000
                                       -----------   -----------
   Total current assets                $   619,000   $ 1,490,000
                                       ===========   ===========
</TABLE> 

                                                                         Page 31
<PAGE>
 
<TABLE> 

<S>                                    <C>           <C>
Long-term:
  Customer based intangibles           $(6,654,000)  $(6,156,000)
  Amortization of intangible assets      6,495,000     8,523,000
  Accrued rents                            177,000       109,000
  Depreciation and other                   (67,000)      598,000
                                       -----------   -----------
   Long-term assets (liabilities)      $   (49,000)  $ 3,074,000
                                       ===========   ===========
 
</TABLE>
The current component is included in prepaid expenses and other current assets
on the balance sheet.  The long-term component is included in the other assets
on the balance sheet.

M.  RESEARCH AND DEVELOPMENT

Research and development expenses were approximately $2,842,000, $3,997,000 and
$4,112,000 in 1994, 1995 and 1996, respectively.

N.  BUSINESS ACQUISITIONS

On January 5, 1994, the Company purchased the stock of AGS from NYNEX Worldwide
Services Group, Inc. ("NYNEX"), a wholly owned subsidiary of NYNEX Corporation.
AGS provides information technology consulting services, including systems
integration and staff supplementation, to businesses and government agencies in
the United States and Canada.  The initial amount paid in connection with the
stock purchase was approximately $46.1 million which was financed by internal
cash and investments of $25.1 million and new bank borrowings of $21.0 million.
The Company and NYNEX also executed a separate noncompetition agreement covering
a four-year period in exchange for the Company's $12.0 million noninterest-
bearing subordinated note.  (Notes H and K)

The acquisition of AGS has been accounted for by the purchase method of
accounting.  Accordingly, the assets acquired, including primarily customer-
based intangibles, the noncompetition agreement and accounts receivable, have
been recorded at their fair values at the date of acquisition.  The customer-
based intangibles and noncompetition agreement are being amortized on a
straight-line basis over fifteen years and four years, respectively.  The excess
of the purchase price over the fair value of the net assets acquired has been
recorded as goodwill and is being amortized on a straight-line basis over a 15-
year period.

Effective April 1, 1994, the Company acquired specific assets and assumed
certain liabilities of The Geary Corporation at an estimated purchase price of
$3.2 million.  The Geary Corporation was based in Pittsfield, Massachusetts and
had been engaged in the business of providing software consulting services to
customers located primarily in western Massachusetts and the upper New York
state market.  The acquisition was financed through the Company's line of
credit.  During 1995, the Company paid the final balance due under the purchase
agreement of approximately $1.0 million.

During 1995, the Company completed three acquisitions.  The aggregate purchase
price of these acquisitions totaled $7.9 million.  These acquisitions were
accounted for by the purchase method of accounting.  Accordingly, the assets
acquired, including primarily customer-based intangibles, noncompetition
agreements and software, have been recorded at their fair values at the date of
acquisitions.  The customer-based intangibles, noncompetition agreements and
software are being amortized on a straight-line basis over periods ranging from
three to five years.  The excess of purchase price over the fair value of the
net assets acquired has been recorded as goodwill and is being amortized on a
straight-line basis over a 15-year period.

O.  BANK DEBT

In January 1994, the Company entered into $45,000,000 revolving credit agreement
replacing its existing line of credit.  The outstanding balance was repaid with
the proceeds of the 1994 offering described in Note I. Borrowings under the line
were at the bank's corporate rate.  In July 1995, the Company canceled the
revolving credit agreement and replaced it with a new $20,000,000 demand line of
credit from two banks.  Borrowings will 

Page 32
<PAGE>
 
bear interest at the bank's base rate (the prime rate). There were no borrowings
under either line during 1996 or 1995.


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

On October 30, 1996, the Company filed a Current Report on Form 8-K in
connection with its engagement of Ernst & Young LLP as independent auditors of
the Company and its dismissal of Coopers & Lybrand L.L.P. from such position.
On December 20, 1996, the Company filed a Current Report on Form 8-K in
connection with the resignation of Ernst & Young LLP as the Company's
independent auditors and the engagement of Coopers & Lybrand L.L.P. to fill such
position.

PART III
--------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The response to this Item is contained in part under the caption "Executive
Officers of the Company" in Part I hereof, and the remainder is incorporated
herein by reference to the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held May 28, 1997 (the "1997 Proxy Statement") under the
caption "Election of Directors."

ITEM 11.  EXECUTIVE COMPENSATION

The response to this Item is incorporated herein by reference to the Company's
1997 Proxy Statement under the caption "Executive Compensation."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The response to this Item is incorporated herein by reference to the Company's
1997 Proxy Statement under the caption "Stock Ownership of Certain Beneficial
Owners and Management."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The response to this Item is incorporated herein by reference to the Company's
1997 Proxy Statement under the caption "Certain Related Party Transactions."

PART IV
-------

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
(a)(1)    Financial Statements
          --------------------

The following consolidated financial statements are included in Part II, Item 8:
<TABLE>
<CAPTION>
 
                                                                 PAGE
<S>                                                               <C>
Report of Independent Accountants...............................   18
 
Consolidated Balance Sheets as of December 31, 1995 and 1996....   19
 
Consolidated Statements of Income
For the Years Ended December 31, 1994, 1995 and 1996............   20
 
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1994, 1995 and 1996............   21
</TABLE> 

                                                                         Page 33
<PAGE>
 
<TABLE> 

<S>                                                               <C>
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1994, 1995 and 1996............     22
 
Notes to Consolidated Financial Statements......................  23-33
</TABLE>

(2)       Financial Statement Schedules
          -----------------------------

          All schedules are omitted as they are either not required, not
          applicable, or are otherwise included in this Form 10-K.

(b)       Exhibits
          --------

          The Exhibits listed below are filed as part of this Annual Report.

          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).

          3.2 -- By-Laws of the Registrant, as amended, are incorporated herein
          by reference to Exhibit 3.2 to the Registrant's Quarterly Report on
          Form 10-Q for the fiscal quarter ended June 30, 1994.

          *10.1 -- Key Employees Deferred Compensation Plan is incorporated
          herein by reference to Exhibit 10.1 to the Company's Registration
          Statement on Form S-1 (File No. 33-33557), as filed with the
          Securities and Exchange Commission (the "Commission") on February 21,
          1990 and declared effective by the Commission on March 8, 1990 (as
          amended, the "Registration Statement").

          *10.2 -- Keane, Inc. 401(k) Deferred Savings and Profit Sharing Plan
          is incorporated herein by reference to Exhibit 10.2 to the
          Registration Statement.

          *10.3 -- 1982 Incentive Stock Option Plan (the "Option Plan") is
          incorporated herein by reference to Exhibit 10(c) to the Registrant's
          Annual Report on Form 10-K for the year ended December 31, 1988 (the
          "1988 Form 10-K"). On January 9, 1990, the Board of Directors of the
          Registrant adopted an Amendment to Section 4 of the Option Plan
          increasing the number of shares eligible for issuance thereunder to
          900,000.

          *10.4 -- Amendments to the Option Plan effective as of February 15,
          1990 and March 7, 1990 are incorporated herein by reference to Exhibit
          10.4 to the Registrant's Annual Report on Form 10-K for the year ended
          December 31, 1990 (the "1990 Form 10-K").

          *10.5 -- 1978 Employee Stock Purchase Plan (the "Stock Purchase Plan")
          is incorporated herein by reference to Exhibit 10(b) to the 1988 Form
          10-K.

          *10.6 -- Amendments to the Stock Purchase Plan effective as of
          February 15, 1990 are incorporated herein by reference to Exhibit 10.6
          to the Registrant's Annual Report on Form 10-K for the year ended
          December 31, 1992 (the "1992 Form 10-K"). 
 
          *10.7 -- 1983 Restricted Stock Plan (the "Restricted Stock Plan") is
          incorporated herein by reference to Exhibit 10.5 to the Registration
          Statement.
 
          *10.8 -- Amendment to the Restricted Stock Plan effective as of
          February 15, 1990 is incorporated herein by reference to Exhibit 10-4
          of the 1990 Form 10-K. 

          10.9 -- 1992 Stock Option Plan is incorporated herein by reference to
          Exhibit 10.9 to the 1992 Form 10-K.

Page 34

<PAGE>
 
          10.10 -- 1992 Employee Stock Purchase Plan is incorporated herein by
          reference to Exhibit 10.10 to the 1992 Form 10-K.

          10.11 -- 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.

* Management contract or compensatory plan or arrangement required to be
  filed as an exhibit to this form pursuant to Item 14(A) and (C) of this 
  report.

          10.12 -- 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.

          10.13 -- 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.

          10.14 -- Documents relating to the Lease for the property at 420
          Bedford Street, Lexington, Massachusetts, are incorporated herein by
          reference to Exhibit 10.9 to the Registration Statement.

                   (a) Lease dated December 15, 1982, between the Registrant
                   and Elandzee Trust.
            
                   (b) First Amendment of Lease dated May 6, 1983, between the
                   Registrant and Elandzee Trust.

                   (c) Second Amendment of Lease dated March 20, 1974, between
                   the Registrant and Elandzee Trust.

                   (d) Letter dated August 14, 1985 amending Lease, between
                   Registrant and Elandzee Trust.

                   (e) Letter dated September 2, 1987 amending Lease, between
                   the Registrant and Elandzee Trust.

                   (f) Third Amendment of Lease dated January 27, 1988, between
                   the Registrant and Elandzee Trust.

                   (g) Fourth Amendment of Lease dated April 18, 1989, between
                   the Registrant and Elandzee Trust.

          10.15 -- Documents relating to the acquisition of General Electric
          Consulting Services Corporation ("GECON") are incorporated herein by
          reference to Exhibit 10.26 to the 1992 Form 10-K:

                   (a) Asset Purchase Agreement dated as of December 18, 1992,
                   among the Registrant, GECON and General Electric Company
                   ("General Electric").

                   (b) Bill of Sale dated January 4, 1993, delivered by GECON
                   to the Registrant.

                   (c) Instrument of Assumption of Liabilities dated January 4,
                   1993, executed by the Registrant in favor of GECON.

                   (d) Agreement Not to Compete dated January 4, 1993, between
                   the Registrant and General Electric.


                                                                         Page 35
<PAGE>
 
                   (e) Purchase Money Promissory Note of the Registrant dated
                   January 4, 1993, in the original principal amount of
                   $5,000,000  in favor of GECON.

                   (f) Purchase Money Promissory Note of the Registrant dated
                   January 4, 1993, in the original principal amount of
                   $4,000,000 (subject to adjustment) in favor of GECON.

                   (g) Subordination Agreement dated as of January 4, 1993,
                   among the Registrant, the Banks and GECON.

          10.16 -- Documents relating to the acquisition of certain assets of
          Professional Healthcare Systems, Inc. ("PHS") are incorporated herein
          by reference to Exhibit 10.28 to the Registrant's Quarterly Report on
          Form 10-Q for the quarter ended September 30, 1993:

                   (a) Foreclosure Sale Agreement dated as of August 20, 1993,
                   between the Registrant and Chemical Bank ("Chemical").

                   (b) Agreement to Assume Liabilities dated as of August 20,
                   1993, between the Registrant and PHS.

                   (c) Foreclosure Bill of Sale dated August 27, 1993,
                   delivered by Chemical to the Registrant.

                   (d) Instrument of Assumption of Liabilities dated August 27,
                   1993, between the Registrant and PHS.

          10.17 -- Documents relating to the acquisition of AGS Computers, Inc.
          ("AGS") and Lamarian Systems, Inc. ("Lamarian"):

                   (a) Stock Purchase Agreement dated as of December 16, 1993
                   (the "Agreement"), with Exhibits, among the Registrant,
                   NYNEX Worldwide Services Group, Inc. ("NWSG"), NYNEX Network
                   Systems Company, AGS and Lamarian is incorporated herein by
                   reference to Exhibit 2(A) to the Registrant's Current Report
                   on Form 8-K dated January 19, 1994.

                   (b) Noncompetition Agreement dated as of January 5, 1994,
                   between the Registrant and NWSG is incorporated herein by
                   reference to Exhibit 27(A) to the Registrant's Current
                   Report on Form 8-K dated January 19, 1994.

                   (c) Tax Matters Agreement, dated December 16, 1993, between
                   NWSG, AGS and the Registrant is incorporated herein by
                   reference to Exhibit 27(B) to the Registrant's Current
                   Report on Form 8-K dated January 19, 1994.

                   (d) Promissory Note of the Registrant dated January 5, 1994,
                   in the original principal amount of up to $12,000,000 in
                   favor of NWSG is incorporated herein by reference to Exhibit
                   27(C) to the Registrant's Current Report on Form 8-K dated
                   January 19, 1994.

                   (e) Settlement Agreement with NYNEX for the purchase of AGS
                   is incorporated herein by reference to Exhibit 10.19 to the
                   Registrant's Quarterly Report on Form 10-Q for the quarter
                   ended September 30, 1994.

          10.18 -- Documents relating to the Demand Lines of Credit with
          Shawmut Bank, N.A. and the First National Bank of Boston (the "Banks")
          are incorporated herein by reference 

Page 36
<PAGE>
 
       to Exhibit 10.19 to the Registrant's Quarterly Report on Form 10-Q for
       the quarter ended June 30, 1995:

                    (a) Demand Money Market Promissory Note dated as of May 1,
                    1995, in the amount of $10,000,000, between the Registrant
                    and Shawmut Bank.

                    (b) Loan Agreement dated July 20, 1995, in the amount of
                    $10,000,000, between the Registrant and Bank of Boston.
<TABLE>
<CAPTION>
 
<S>                                                              <C>
       11.    Statement of Computation of Earnings Per Share....  38
 
       21.    Schedule of Subsidiaries of the Registrant........  39
 
       23.    Consent of Coopers & Lybrand L.L.P................  40
</TABLE>

(c)  Reports on Form 8-K

     On October 30, 1996, the Company filed a Current Report on Form 8-K in
     connection with its engagement of Ernst & Young LLP as independent auditors
     of the Company and its dismissal of Coopers & Lybrand L.L.P. from such
     position.

     On December 20, 1996, the Company filed a Current Report on Form 8-K in
     connection with the resignation of Ernst & Young LLP as the Company's
     independent auditors and the engagement of Coopers & Lybrand L.L.P. to fill
     such position.

                                                                         Page 37
<PAGE>
 
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/ John F. Keane
                                        ------------------------------------
                                        By:  John F.  Keane
                                        President
                                        (Principal Executive Officer)


Date:     March 28, 1997
                --  


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.

<TABLE>
 
<S>                            <C>      <C>                            <C>
/s/ John F. Keane              3/28/97  /s/ Wallace A. Cataldo         3/28/97
-----------------------------  -------  -----------------------------   ------
John F. Keane                  Date     Wallace A. Cataldo              Date
President,                              Vice President, Finance and
Principal Executive Officer             Principal Accounting Officer
and Director


                                        /s/ Robert A. Shafto           3/28/97
-----------------------------  -------  -----------------------------   ------
John F. Rockart                Date     Robert A. Shafto                Date
Director                                Director


                                        /s/ Winston R. Hindle, Jr.     3/28/97
-----------------------------  -------  -----------------------------   ------
Philip J. Harkins              Date     Winston R. Hindle, Jr.          Date
Director                                Director
</TABLE>