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KEYNOTE SYSTEMS, INC.
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[KEYNOTE LOGO]
Keynote Systems, Inc.
2855 Campus Drive
San Mateo, California 94403
January 19, 2000
To Our Shareholders:
You are cordially invited to attend the 2000 Annual Meeting of Shareholders
of Keynote Systems, Inc. to be held at the Hotel Sofitel, located at 223 Twin
Dolphin Drive in Redwood City, California, on Tuesday, February 22, 2000 at 10
a.m., Pacific Standard Time.
The matters expected to be acted upon at the meeting are described in detail
in the following Notice of the 2000 Annual Meeting of Shareholders and Proxy
Statement.
It is important that you use this opportunity to take part in the affairs of
Keynote Systems, Inc. by voting on the business to come before this meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING. Returning the
Proxy does not deprive you of your right to attend the meeting and to vote
your shares in person.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Umang Gupta
Umang Gupta
Chairman of the Board and Chief
Executive Officer
Keynote Systems, Inc.
2855 Campus Drive
San Mateo, California 94403
----------------
NOTICE OF THE 2000 ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Shareholders of
Keynote Systems, Inc. will be held at the Hotel Sofitel, located at 223 Twin
Dolphin Drive in Redwood City, California, on Tuesday, February 22, 2000 at 10
a.m., Pacific Standard Time, for the following purposes:
1. To elect directors of Keynote Systems, Inc., each to serve until his
successor has been elected and qualified or until his earlier
resignation or removal.
2. To approve a change in our state of incorporation from California to
Delaware.
3. To ratify the selection of KPMG LLP as independent auditors for Keynote
Systems, Inc. for the fiscal year ending September 30, 2000.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on December 27, 1999
are entitled to notice of and to vote at the meeting or any adjournment
thereof.
By Order of the Board of Directors
/s/ John Flavio
John Flavio
Secretary
San Mateo, California
January 19, 2000
Whether or not you expect to attend the meeting, please complete, date, sign
and promptly return the accompanying proxy in the enclosed postage-paid
envelope so that your shares may be represented at the meeting.
TABLE OF CONTENTS
Page
----
Proxy Statement for the 2000 Annual Meeting of Shareholders:
Proposal No. 1--Election of Directors................................... 2
Proposal No. 2--Change in State of Incorporation from California to
Delaware............................................................... 5
Proposal No. 3--Ratification of Selection of Independent Auditors....... 17
Security Ownership of Certain Beneficial Owners and Management.......... 18
Executive Compensation.................................................. 20
Summary Compensation Table............................................ 20
Option Grants in Fiscal 1999.......................................... 20
Aggregated Option Exercises in Fiscal 1999 and Option Values at
September 30, 1999................................................... 21
Employee Benefit Plans................................................ 22
Compensation Arrangements with Executive Officers....................... 24
Report of the Compensation Committee.................................... 26
Stock Price Performance Graph........................................... 28
Certain Relationships and Related Transactions.......................... 29
Shareholder Proposals for the 2001 Annual Meeting of Shareholders....... 31
Compliance Under Section 16(a) of the Securities Exchange Act of 1934... 31
Other Business.......................................................... 31
Appendix A--Amended and Restated Certificate of Incorporation of Keynote
Systems, Inc.
Appendix B--Bylaws of Keynote Systems, Inc.
Keynote Systems, Inc.
2855 Campus Drive
San Mateo, California 94403
----------------
PROXY STATEMENT
FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS
----------------
January 19, 2000
The accompanying proxy is solicited on behalf of the board of directors of
Keynote Systems, Inc., a California corporation, for use at the 2000 Annual
Meeting of Shareholders to be held at the Hotel Sofitel, located at 223 Twin
Dolphin Drive in Redwood City, California, on Tuesday, February 22, 2000 at 10
a.m., Pacific Standard Time. Only holders of record of our common stock at the
close of business on December 27, 1999, which is the record date, will be
entitled to vote at the Annual Meeting. At the close of business on the record
date, we had 23,608,756 shares of common stock outstanding and entitled to
vote. A majority of the shares outstanding on the record date will constitute
a quorum for the transaction of business. All proxies will be voted in
accordance with the instructions contained therein and, if no choice is
specified, the proxies will be voted in favor of the nominees and the
proposals presented in the accompanying Notice of Meeting and this proxy
statement. This proxy statement and the accompanying form of proxy were first
mailed to shareholders on or about January 24, 2000. Our annual report and
Form 10-K for the fiscal year ended September 30, 1999 are enclosed with this
proxy statement.
Voting Rights
Holders of our common stock are entitled to one vote for each share held as
of the record date, except that in the election of directors each shareholder
has cumulative voting rights and is entitled to a number of votes equal to the
number of shares held by such shareholder multiplied by the number of
directors to be elected. The shareholder may cast these votes all for a single
candidate or distribute the votes among any or all of the candidates. No
shareholder will be entitled to cumulate votes for a candidate, unless that
candidate's name has been placed in nomination prior to the voting and the
shareholder, or any other shareholder, has given notice at the Annual Meeting
prior to the voting of an intention to cumulate votes. In such an event, the
proxy holder may allocate among the board of directors' nominees the votes
represented by proxies in the proxy holder's sole discretion.
Vote Required to Approve the Proposals
With respect to Proposal No. 1, directors will be elected by a plurality of
the votes of the shares of common stock present in person or represented by
proxy at the Annual Meeting and voting together as a class on the election of
directors. Approval and adoption of Proposal No. 2 requires the affirmative
vote of the holders of a majority of the outstanding shares of common stock
entitled to vote at the Annual Meeting. Proposal No. 3 requires for approval
the affirmative vote of a majority of the shares of common stock present in
person or represented by proxy at the Annual Meeting.
The effectiveness of any of the Proposals is not conditioned upon the
approval of any of the other Proposals by the shareholders.
Vote Needed for a Quorum, Effect of Abstentions
A majority of the shares of common stock outstanding on the record date will
constitute a quorum for the transaction of business. Since the required vote
of holders of common stock for Proposal No. 2 is based upon the number of
outstanding shares of common stock rather than upon the shares actually voted
in person or by proxy at the Annual Meeting, abstentions or the failure of a
holder to submit a proxy or to vote in person at the
Annual Meeting (including abstentions and "broker non-votes") will have the
same effect as a vote against approval and adoption of Proposal No. 2. With
respect to each of the other proposals, broker non-votes will have no effect.
Adjournment of Meeting
In the event that sufficient votes in favor of the proposals are not
received by the date of the Annual Meeting, the persons named as proxies may
propose one or more adjournments of the Annual Meeting to permit further
solicitations of proxies. Any such adjournment would require the affirmative
vote of the majority of the outstanding shares present in person or
represented by proxy at the Annual Meeting.
Expenses of Soliciting Proxies
We will pay the expenses of soliciting proxies to be voted at the Annual
Meeting. Following the original mailing of the proxies and other soliciting
materials, we and/or our agents may also solicit proxies by mail, telephone,
telegraph or in person. Following the original mailing of the proxies and
other soliciting materials, we will request that brokers, custodians, nominees
and other record holders of the our common stock forward copies of the proxy
and other soliciting materials to persons for whom they hold shares of common
stock and request authority for the exercise of proxies. In such cases, we
will reimburse the record holders for their reasonable expenses if they ask us
to do so.
Revocability of Proxies
Any person signing a proxy in the form accompanying this proxy statement has
the power to revoke it prior to the Annual Meeting or at the Annual Meeting
prior to the vote pursuant to the proxy. A proxy may be revoked by any of the
following methods:
. a written instrument delivered to us stating that the proxy is revoked;
. a subsequent proxy that is signed by the person who signed the earlier
proxy and is presented at the Annual Meeting; or
. attendance at the Annual Meeting and voting in person.
Please note, however, that if a shareholder's shares are held of record by a
broker, bank or other nominee and that shareholder wishes to vote at the
Annual Meeting, the shareholder must bring to the Annual Meeting a letter from
the broker, bank or other nominee confirming the shareholder's beneficial
ownership of the shares.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, shareholders will elect directors to hold office
until the next Annual Meeting of Shareholders and until their respective
successors have been elected and qualified or until such directors' earlier
resignation or removal. The size of our board of directors is currently set at
five members. Accordingly, five nominees will be elected at the Annual Meeting
to be our five directors. If any nominee for any reason is unable to serve, or
for good cause, will not serve as a director, the proxies may be voted for
such substitute nominee as the proxy holder may determine. We are not aware of
any nominee who will be unable to or, for good cause, will not serve as a
director.
2
Directors/Nominees
The names of the nominees for election to our board of directors at the
Annual Meeting, and certain information about them, are included below.
Name Age Principal Occupation Director Since
---- --- -------------------- --------------
Umang Gupta....... 50 Chairman of the Board and Chief
Executive Officer of Keynote 1997
Eugene Shklar..... 49 Vice President of Public Services and
Director of Keynote 1997
David Cowan....... 33 General Partner of Bessemer Venture
Partners 1998
Mark Leslie....... 54 Chairman of the Board and Chief 1999
Executive Officer of VERITAS Software
Corporation
Stratton Sclavos.. 38 President, Chief Executive Officer and
Director of VeriSign, Inc. 1999
Umang Gupta has served as a director since September 1997 and as our chief
executive officer and chairman of the board of directors since December 1997.
From January 1996 to December 1997, he was a private investor and an advisor
to high-technology companies. From October 1984 to January 1996, he was the
founder and chairman of the board and chief executive officer of Centura
Software Corporation, formerly known as Gupta Corporation, a client/server
tools and database company. Prior to founding Gupta Corporation, from 1980 to
1984, he was with Oracle Corporation, a database company, where his last
position held was vice president and general manager of its Microcomputer
Products Division. From 1973 to 1980, he held various sales and marketing
positions at IBM. Mr. Gupta holds a B.S. degree in chemical engineering from
the Indian Institute of Technology, Kanpur, India, and has a M.B.A. degree
from Kent State University.
Eugene Shklar has served as our vice president of public services since
August 1999 and as one of our directors since September 1997. From August 1996
to August 1999, Mr. Shklar served as our vice president of marketing. From May
1994 to July 1996, he was a private investor and self-employed consultant to
several high-technology start-up companies in Silicon Valley. From July 1993
to April 1994, he was a founding employee and served as executive director of
product marketing of Siebel Systems, Inc., a supplier of web-based front-
office software systems. From April 1992 to April 1993, Mr. Shklar was vice
president of marketing of Gupta Corporation. Before that, he served for five
years at Oracle Corporation as director of marketing for both the PC Products
Division and the Networked Products Division, for two years at 3Com
Corporation, a networking company, as director of product marketing, and for
seven years as vice president of marketing and sales of Software House, Inc.,
a supplier of relational database software. Mr. Shklar studied applied
mathematics and computer science at Harvard University.
David Cowan has been one of our directors since March 1998. Since August
1996, Mr. Cowan has been a general partner of Bessemer Venture Partners, a
venture capital investment firm, where he now serves as the managing general
partner. Mr. Cowan was an associate at Bessemer Venture Partners from July
1992 to July 1996. From August 1996 to April 1997, he served as chief
executive officer of Visto Corporation, an Internet services company. From
January 1995 to June 1996, he served as chairman of the board, and from
January to June 1995, he served as chief financial officer, of VeriSign, Inc.,
a provider of digital certificates and related Internet trust services. Mr.
Cowan also serves as a director on the boards of VeriSign, Worldtalk
Communications Corporation, which recently agreed to be acquired by Tumbleweed
Communications Corp., and Flycast Communications Corporation, which was
recently acquired by CMGI, Inc., as well as the boards of several private
companies. Mr. Cowan holds an A.B. degree in mathematics and computer science
and a M.B.A. degree from Harvard University.
Mark Leslie has been one of our directors since June 1999. He has served as
chairman and chief executive officer of VERITAS Software Corporation, a
storage management software company, since 1990, and as a director since 1988.
He also serves on the boards of Brocade Communications Systems, Inc. and
Versant Object Technology Corporation. Mr. Leslie holds a B.A. degree in
physics and math from New York University, and he completed Harvard Business
School's program for management development.
3
Stratton Sclavos has been one of our directors since April 1999. Since July
1995, Mr. Sclavos has been the president, chief executive officer and a
director of VeriSign, Inc. From October 1993 to June 1995, he served as vice
president of worldwide marketing and sales of Taligent, Inc., a business
development software company that was a joint venture between Apple Computer,
IBM and Hewlett-Packard. Mr. Sclavos is also a director of Network Solutions,
Inc., and Marimba, Inc. Mr. Sclavos holds a B.S. degree in electrical and
computer engineering from the University of California, Davis.
Board Meetings and Board Committees
Board Meetings.
The board met nine times, including telephone conference meetings, and acted
by written consent one time, during 1999. No director attended fewer than 75%
of the aggregate of the total number of meetings of the board, held during the
period for which such director was a director, and the total number of
meetings held by all committees of the board on which such director served,
during the period that such director served.
Board Committees.
Our board of directors has a compensation committee and an audit committee.
Our board does not have a nominating committee or a committee performing
similar functions.
Compensation Committee. The current members of our compensation committee
are Messrs. Cowan and Leslie. The compensation committee reviews and makes
recommendations to our board concerning salaries and incentive compensation
for our officers and employees. The compensation committee also administers
our 1999 Equity Incentive Plan and 1999 Employee Stock Purchase Plan.
Audit Committee. The current members of our audit committee are Messrs.
Sclavos and Leslie. Our audit committee reviews and monitors our financial
statements and accounting practices, makes recommendations to our board
regarding the selection of independent auditors and reviews the results and
scope of audits and other services provided by our independent auditors.
Director Compensation
Cash Compensation. Our directors do not receive cash compensation for their
services as directors, but are reimbursed for their reasonable expenses in
attending board and board committee meetings.
Option Grants. Each eligible director who is not our employee and who was a
member of our board on September 24, 1999 or becomes a member of our board
after September 24, 1999, will be granted an option to purchase 50,000 shares
of common stock under our 1999 Equity Incentive Plan, at an exercise price to
be equal to the fair market value of our common stock on the date of grant,
unless that director has previously received an option grant before that date.
The options will have 10 year terms and will terminate three months following
the date the director ceases to be one of our directors or consultants or 12
months if the termination is due to death or disability. All options granted
under the plan will vest over three years. One-third of the shares subject to
these options will become exercisable on the earlier of one-year following the
director's appointment to our board of directors or the first annual meeting
of our shareholders following the grant of the option. The remaining shares
subject to this option will vest ratably monthly over the two years from the
date on which shares first become exercisable. Any unvested shares subject to
these options will become immediately exercisable upon a transaction that
results in a change of our control.
In June 1999, we granted Mr. Leslie an option to purchase 50,000 shares of
common stock at an exercise price of $8.00 per share. Mr. Leslie exercised
this option with respect to 30,000 shares in June 1999.
4
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee has at any time since our
formation been one of our officers or employees. None of our executive
officers currently serves or in the past has served as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving on our board or compensation committee. Prior to
the creation of our compensation committee, all compensation decisions were
made by our full board. Neither Mr. Gupta nor Mr. Shklar participated in
discussions by our board with respect to each of his own compensation.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF
EACH OF THE NOMINATED DIRECTORS.
PROPOSAL NO. 2
CHANGE IN STATE OF INCORPORATION FROM CALIFORNIA TO DELAWARE
Introduction
For the reasons set forth below, our board of directors believes that it is
in the best interests of Keynote and its shareholders to change the state of
incorporation of Keynote from California to Delaware, which we refer to in
this proxy statement as the Reincorporation. SHAREHOLDERS ARE URGED TO READ
CAREFULLY THIS SECTION OF THE PROXY STATEMENT, INCLUDING THE RELATED EXHIBITS
ATTACHED TO THIS PROXY STATEMENT, BEFORE VOTING ON THE REINCORPORATION.
Throughout this proxy statement, we refer to Keynote Systems, Inc., the
existing California company as "Keynote California", and the term "Keynote
Delaware" refers to the new Delaware corporation, a wholly-owned subsidiary of
Keynote California, which is the proposed successor to Keynote California in
the proposed Reincorporation.
As discussed below, the principal reasons for the proposed Reincorporation
are the greater flexibility of Delaware corporate law and the substantial body
of case law interpreting that law. We believe that our shareholders will
benefit from the well-established principles of corporate governance that
Delaware law affords. The proposed Delaware Certificate of Incorporation and
Bylaws are substantially similar to the Articles of Incorporation and Bylaws
currently in effect for Keynote California, with the exceptions that
. the ability of shareholders holding not less than 10% of the voting power
to call a special meeting will be eliminated,
. the authorized number of common stock will be increased from 50,000,000
to 100,000,000,
. the ability of shareholders to act by written consent will be eliminated,
and
. the procedures for the proposal of business to be considered at
shareholder meetings will be changed.
The Reincorporation is not being proposed in order to prevent an unsolicited
takeover attempt, and the board of directors is not aware of any present
attempt by any person to acquire control of us, obtain representation on the
board of directors or take any action that would materially affect our
governance.
If the proposed Reincorporation is adopted, Keynote California will merge
into and its business will be continued by Keynote Delaware under name Keynote
Systems, Inc. Upon completion of the Reincorporation, Keynote California, as a
corporate entity, will cease to exist.
Pursuant to an Agreement and Plan of Merger, each outstanding share of
Keynote California common stock, $0.001 par value per share, will be
automatically converted into one share of Keynote Delaware common stock,
$0.001 par value per share, upon the effective date of the Reincorporation.
Each stock certificate representing issued and outstanding shares of Keynote
California common stock will continue to represent the same number of shares
of common stock of Keynote Delaware. It will not be necessary for shareholders
to exchange their existing stock certificates for stock certificates of
Keynote Delaware. However, shareholders may exchange their certificates if
they so choose. The common stock of Keynote California is listed for trading
on the Nasdaq Stock
5
Market and, after the Reincorporation, Keynote Delaware's common stock will
continue to be traded on the Nasdaq Stock Market, without interruption, under
the same symbol ("KEYN") under which the shares of Keynote California common
stock are currently traded.
Under California law, the affirmative vote of a majority of the outstanding
shares of common stock of Keynote California is required for approval of the
Agreement and Plan of Merger and the other terms of the Reincorporation. The
Reincorporation has been unanimously approved by our board of directors. If
approved by the shareholders, it is anticipated that the Reincorporation will
become effective as soon as practicable following the Annual Meeting. However,
pursuant to the Agreement and Plan of Merger, the Reincorporation may be
abandoned or the Agreement and Plan of Merger may be amended by the board of
directors (except that the principal terms may not be amended without
shareholder approval) either before or after shareholder approval has been
obtained and prior to the effective date of the Reincorporation if, in the
opinion of the board, circumstances arise which make it inadvisable to proceed
under the original terms of the Agreement and Plan of Merger. Shareholders of
Keynote California will have no appraisal rights with respect to the
Reincorporation.
The discussion set forth below is qualified in its entirety by reference to
the Agreement and Plan of Merger and to the Amended and Restated Certificate
of Incorporation of Keynote Delaware and the Bylaws of Keynote Delaware,
copies of which are attached to this proxy statement as Appendices A and B,
respectively.
APPROVAL BY SHAREHOLDERS OF THE PROPOSED REINCORPORATION WILL CONSTITUTE
APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, THE CERTIFICATE OF INCORPORATION
AND THE BYLAWS OF KEYNOTE DELAWARE AND ALL PROVISIONS OF THOSE DOCUMENTS.
Vote Required For The Reincorporation
Approval of the Reincorporation, which will also constitute approval of
. the Agreement and Plan of Merger, the Certificate of Incorporation and
the Bylaws of Keynote Delaware, and
. the assumption of Keynote California's employee benefit plans, stock
option and employee stock purchase plans and outstanding warrants by
Keynote Delaware,
will require the affirmative vote of the holders of a majority of the
outstanding shares of common stock of Keynote California entitled to vote.
Principal Reasons for the Reincorporation
The board believes that it is in the best interests of Keynote to have the
principles of corporate governance provided by Delaware corporate law
available to it in making legal and business decisions. The prominence and
predictability of Delaware corporate law provide a reliable foundation on
which to base Keynote's governance decisions, and we believe that shareholders
will benefit from the responsiveness of Delaware corporate law to their needs
and to ours.
Predictability and Flexibility of Delaware Law. For many years Delaware has
followed a policy of encouraging incorporation in that state. In furtherance
of that policy, Delaware has adopted comprehensive corporate laws that are
revised regularly to address changing business circumstances. Many
corporations have chosen Delaware initially as their state of incorporation,
and in recent years a number of major public companies have obtained the
approval of their shareholders to reincorporate in Delaware. Because of
Delaware's prominence as the state of incorporation for many major
corporations, the Delaware legislature is particularly sensitive to issues
regarding corporate law and is especially responsive to developments in modern
corporate law. The Delaware courts have developed considerable expertise in
dealing with corporate issues as well as a substantial body of case law. As a
result of these factors, it is anticipated that Delaware law will provide
greater predictability in our legal affairs than is presently available under
California law.
6
Increased Ability to Attract and Retain Qualified Directors. Both California
and Delaware law permit a corporation to include a provision in its articles
of incorporation or its certificate of incorporation, as applicable, that
reduces or limits the monetary liability of directors for breaches of
fiduciary duty in certain circumstances. There has been an increasing
frequency of claims and litigation directed against directors and officers,
and the risks facing directors and officers of corporations in exercising
their respective duties has increased. The amount of time and money required
to respond to such claims and to defend such litigation can be substantial. It
is our desire to reduce these risks to our directors and officers and to limit
situations in which monetary damages can be recovered against directors so
that we may continue to attract and retain qualified directors who otherwise
might be unwilling to serve because of the risks involved. We believe that, in
general, Delaware law provides greater protection to directors than California
law and that Delaware case law regarding a corporation's ability to limit
director liability is more developed and provides more guidance than
California law.
Well-Established Principles of Corporate Governance. There is substantial
judicial precedent in the Delaware courts as to the legal principles
applicable to measures that may be taken by a corporation and as to the
conduct of the board of directors such as under the business judgment rule and
other standards. We believe that our shareholders will benefit from the well-
established principles of corporate governance that Delaware law affords.
No Change in Our Business and Operations
The Reincorporation will effect only a change in our state of incorporation
and certain other changes of a legal nature which are described in this proxy
statement. The Reincorporation will not result in any change in our name,
business, management, fiscal year, assets or liabilities or location of our
principal facilities. The five directors who will be elected at the Annual
Meeting will become the directors of Keynote Delaware. All employee benefit,
stock option and employee stock purchase plans of Keynote California will be
assumed and continued by Keynote Delaware, and each option or right issued
pursuant to such plans will automatically be converted into an option or right
to purchase the same number of shares of Keynote Delaware common stock, at the
same price per share, upon the same terms, and subject to the same conditions.
Shareholders should note that approval of the Reincorporation will also
constitute approval of the assumption of these plans by Keynote Delaware.
Other employee benefit arrangements of Keynote California will also be
continued by Keynote Delaware upon the terms and subject to the conditions
currently in effect. As noted above, after the Reincorporation the shares of
common stock of Keynote Delaware will continue to be traded, without
interruption, on the Nasdaq Stock Market under the same symbol ("KEYN") as the
shares of common stock of Keynote California are currently traded. We believe
that the Reincorporation will not affect any of our material contracts with
any third parties and that Keynote California's rights and obligations under
such material contractual arrangements will continue and be assumed by Keynote
Delaware.
Antitakeover Effects
Delaware, like many other states, permits a corporation to adopt a number of
measures designed to reduce a corporation's vulnerability to unsolicited
takeover attempts through amendment of the corporate charter or bylaws or
otherwise. The Reincorporation is not being proposed in order to prevent such
a change in control and the board is not aware of any present attempt to
acquire control of us or to obtain representation on our board.
However, the board believes that future unsolicited takeover attempts may be
unfair or disadvantageous to us and our shareholders because, among other
reasons:
. a non-negotiated takeover bid may be timed to take advantage of
temporarily depressed stock prices;
. a non-negotiated takeover bid may be designed to foreclose or minimize
the possibility of more favorable competing bids or alternative
transactions;
. a non-negotiated takeover bid may involve the acquisition of only a
controlling interest in the corporation's stock, without affording all
shareholders the opportunity to receive the same economic benefits; and
7
. certain of our contractual arrangements provide that we may not be
assigned pursuant to a transaction which results in a "change of control"
of us without the prior written consent of the licensor or other
contracting party.
By contrast, in a transaction in which a potential acquirer must negotiate
with an independent board of directors, the board can and should take account
of the underlying and long-term values of our business, technology and other
assets, the possibilities for alternative transactions on more favorable
terms, anticipated favorable developments in our business not yet reflected in
the stock price and equality of treatment of all shareholders.
Certain aspects of the Reincorporation may have the effect of deterring
hostile takeover attempts. Section 203 of the Delaware General Corporation
Law, from which Keynote Delaware does not intend to opt out, prevents certain
Delaware corporations, including those whose securities are listed on the
Nasdaq Stock Market, from engaging, under certain circumstances, in certain
"business combinations" with "interested stockholders" for three years
following the date that such persons become an interested stockholder, unless
certain conditions are met. See "Significant Differences Between the
Corporation Laws of California and Delaware--Stockholder Approval of Certain
Business Combinations."
Despite the board's belief that the Reincorporation will benefit us and our
shareholders, it may be disadvantageous to the extent that it has the effect
of discouraging a future takeover attempt which is not approved by the board,
but which a majority of the shareholders may deem to be in their best
interests or in which shareholders may receive a substantial premium for their
shares over the then current market value or over their cost basis in such
shares. As a result of such effects of the Reincorporation, shareholders that
might wish to participate in an unsolicited tender offer may not have an
opportunity to do so. In addition, to the extent that provisions of Delaware
law enable the board to resist a takeover or a change in control of us, such
provisions could make it more difficult to change the existing board and
management.
The Charters and Bylaws of Keynote California and Keynote Delaware
The provisions of the Keynote Delaware Certificate of Incorporation and
Bylaws are similar to those of the Keynote California Articles of
Incorporation and Bylaws in almost all respects. The only material differences
are:
. the elimination of the right of shareholders controlling at least 10% of
the voting shares to call a special meeting of shareholders;
. the increase in the authorized number of common stock from 50,000,000 to
100,000,000;
. the elimination of the ability of shareholders to act by written consent;
and
. the institution of procedures required for shareholders to propose
business to be considered at a meeting of shareholders.
However, while we have no present intention to do so, Keynote Delaware could
in the future implement certain other changes by amendment of its Certificate
of Incorporation or Bylaws. For a discussion of such changes, see "Significant
Differences Between the Corporation Laws of California and Delaware." This
discussion of the Certificate of Incorporation and Bylaws of Keynote Delaware
is qualified by reference to Appendices A and B, respectively, attached to
this proxy statement.
The Articles of Incorporation of Keynote California currently authorize us
to issue up to 50,000,000 shares of common stock, $0.001 par value per share,
and 5,000,000 shares of preferred stock, $0.001 par value per share. The
Certificate of Incorporation of Keynote Delaware provides that it will have
authorized 100,000,000 shares of common stock, $0.001 par value per share, and
5,000,000 shares of preferred stock, $0.001 par value per share. Like Keynote
California's Articles of Incorporation, Keynote Delaware's Certificate of
Incorporation provides that the board is entitled to determine the powers,
preferences and rights, and the qualifications, limitations or restrictions,
of the authorized and unissued preferred stock.
8
Monetary Liability of Directors. The Articles of Incorporation of Keynote
California and the Certificate of Incorporation of Keynote Delaware both
provide for the elimination of personal monetary liability of directors to the
fullest extent permissible under the laws of the respective states. The
provision eliminating monetary liability of directors set forth in the Keynote
Delaware Certificate of Incorporation is potentially more expansive than the
corresponding provision in the Keynote California Articles of Incorporation,
in that the former incorporates future amendments to Delaware law with respect
to the elimination of such liability. For a more detailed explanation of the
foregoing, see "Significant Differences Between the Corporation Laws of
California and Delaware--Indemnification and Limitation of Liability."
Cumulative Voting for Directors. The Keynote Delaware Certificate of
Incorporation does not provide for cumulative voting rights. Under Delaware
law, cumulative voting in the election of directors is not mandatory but is a
permitted option. Under California law, until such time that Keynote is a
"listed corporation" as defined under California law, if any shareholder has
given notice of an intention to cumulate votes for the election of directors,
such shareholder and any other shareholder of the corporation would be
entitled to cumulate his or her votes at such election. Cumulative voting
provides that each share of stock normally having one vote is entitled to a
number of votes equal to the number of directors to be elected. A shareholder
may then cast all such votes for a single candidate or may allocate them among
as many candidates as the shareholder may choose. In the absence of cumulative
voting, the holders of the majority of the shares present or represented at a
meeting in which directors are to be elected would have the power to elect all
the directors to be elected at such meeting, and no person could be elected
without the support of holders of the majority of shares present or
represented at such meeting. Elimination of cumulative voting could make it
more difficult for a minority shareholder adverse to a majority of the
shareholders to obtain representation on our board. A California corporation
whose stock is listed on the New York Stock Exchange or American Stock
Exchange or whose stock is listed on the Nasdaq Stock Market and which has at
least 800 holders of record of its equity securities as of such corporation's
most recent annual meeting of shareholders can also eliminate cumulative
voting with shareholder approval.
Power to Call Special Shareholders' Meetings. Under California law and
Keynote California's Bylaws, a special meeting of shareholders may be called
by the board or by two or more members thereof, the Chairman of the Board, the
President, the holders of shares entitled to cast not less than 10% of the
votes at such meeting and such additional persons as are authorized by the
Articles of Incorporation or the Bylaws. Under Delaware law, a special meeting
of stockholders may be called by the board of directors or any other person
authorized to do so in the certificate of incorporation or the bylaws. The
Bylaws of Keynote Delaware authorize the Chairman of the Board, the President,
the Chief Executive Officer or any three or more directors to call a special
meeting of stockholders. Therefore, holders of 10% or more of our voting
shares will no longer be able to call a special meeting of stockholders. We
believe this change is warranted as a prudent corporate governance measure to
prevent an inappropriately small number of stockholders from prematurely
forcing stockholder consideration of a proposal over the opposition of the
board by calling a special stockholders' meeting before
. the time that the board believes such consideration to be appropriate or
. the next annual meeting (provided that the holders meet the notice
requirements for consideration of a proposal).
Such special meetings would involve substantial expense and diversion of
board and management time that we believe to be inappropriate for an
enterprise of our size. Aside from the foregoing, no other change is
contemplated in the procedures to call a special stockholders' meeting,
although in the future the board could amend the Bylaws of Keynote Delaware
without stockholder approval.
Action Without a Meeting. Under California law and Keynote California's
Bylaws, any action that may be taken at an annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, shall be signed by
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Under Delaware
law, unless otherwise provided in a company's certificate of incorporation,
any action required or permitted to be taken at any annual
9
or special meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action to be so taken shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting and shall be properly delivered
to the corporation. The Keynote Delaware Certificate of Incorporation will
contain a provision eliminating the ability of stockholders to act by written
consent without a meeting.
Filling Vacancies on the Board of Directors. Under California law, any
vacancy on the board other than one created by removal of a director may be
filled by the board. If the number of directors is less than a quorum, a
vacancy may be filled by the unanimous written consent of the directors then
in office, by the affirmative vote of a majority of the directors at a meeting
held pursuant to notice or waivers of notice or by a sole remaining director.
A vacancy created by removal of a director may be filled by the board only if
so authorized by a corporation's articles of incorporation or by a bylaw
approved by the corporation's shareholders. Keynote California's Articles of
Incorporation and Bylaws do not permit directors to fill vacancies created by
removal of a director. Under Delaware law, vacancies and newly created
directorships may be filled by a majority of the directors then in office
(even though less than a quorum) or by a sole remaining director, unless
otherwise provided in the certificate of incorporation or bylaws (or unless
the certificate of incorporation directs that a particular class of stock is
to elect such director(s), in which case a majority of the directors elected
by such class, or a sole remaining director so elected, shall fill such
vacancy or newly created directorship). The Bylaws of Keynote Delaware provide
that any vacancy created by the removal of a director by the stockholders of
Keynote Delaware may be filled by the stockholders, by a majority of the
directors then in office (even though less than a quorum) or by a sole
remaining director.
Notice of Board Nominations and Other Shareholder Business--Annual Meetings.
The Bylaws of Keynote Delaware require that nominations of persons for
election to the board and the proposal of business to be considered at an
annual meeting of Stockholders must be made:
. pursuant to notice by Keynote Delaware of such meeting;
. by the board; or
. if by a stockholder, by advance written notice given to Keynote Delaware
between 60 to 90 days prior to the first anniversary of the preceding
year's annual meeting of stockholders.
However, if the date of the annual meeting at which such nomination or
business is proposed by a stockholder is more than 30 days before or more than
60 days after such anniversary, then such notice may be given by the
stockholder no earlier than the 90th day prior to such meeting and not later
than the later of 60 days prior to such meeting or the 10th day following the
first public announcement of such meeting. The above notice provisions are
subject to certain exceptions with respect to electing directors to fill board
seats resulting from increases in the size of the board not publicly announced
at least 70 days prior to the annual meeting. In addition, certain other
information regarding a board nominee or the business proposed for discussion
must be included in the stockholder's notice to Keynote Delaware.
Notice of Board Nominations and Other Shareholder Business--Special
Meetings. Keynote Delaware's Bylaws also provide that, at special meetings of
stockholders, the only business that can be conducted will be the items of
business set forth in the notice of such special meeting. The Bylaws also
provide that nominations of persons for election to the board at a special
meeting at which directors are go be elected pursuant to the notice of the
meeting shall be made:
. by the board; or
. if the board has determined that directors will be elected at the
meeting, by a stockholder of record meeting certain qualification who
gives Keynote Delaware advance written notice of such nominations
10
no earlier than 90 days prior to such special meeting and no later than
the later of 60 days before such special meeting, or the 10th day after
the first public announcement of such meeting and of the nominees
proposed by the board to be elected at such meeting.
By requiring advance notice of nominations by shareholders, the board is
afforded the opportunity to consider the qualifications of the proposed
nominees and, to the extent deemed necessary or desirable by the board, to
inform the stockholders about such qualifications. By requiring advance notice
of proposed business, the board is provided the opportunity to inform
stockholders of any business proposed to be conducted at a meeting and the
board's position on any such proposal, enabling stockholders to better
determine whether they desire to attend the meeting or grant a proxy to the
board as to the disposition of such business. Although the Keynote Delaware
Bylaws do not give the board any power to approve or disapprove stockholder
nominations for the election of directors or any other business desired by
stockholders to be conducted at a meeting, the Keynote Delaware Bylaws may
have the effect of precluding a nomination for the election of directors or of
precluding any other business at a particular meeting if the proper procedures
are not followed. In addition, the procedures may discourage or deter a third
party from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of us, even if the conduct
of such business or such attempt might be deemed to be beneficial to us and
our stockholders.
Significant Differences Between the Corporation Laws of California and
Delaware
The following provides a summary of the significant differences between the
Corporation Laws of California and Delaware. It is not an exhaustive
description of all differences between the two states' laws.
Stockholder Approval of Certain Business Combinations
Delaware. If the Reincorporation is approved by our shareholders, we will be
subject to the provisions of Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. Section 203 prevents certain Delaware
corporations, including those whose securities are listed on the Nasdaq Stock
Market, from engaging, under certain circumstances, in a "business
combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with any "interested stockholder" (a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of any such persons) for three years following the
date that such stockholder became an "interested stockholder" unless
. the transaction is approved by the board of directors prior to the date
the "interested stockholder" attained such status,
. upon consummation of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transactions commenced, excluding those shares owned by
. persons who are directors and also officers and
. employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or
. on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the "interested
stockholder."
A Delaware corporation may "opt out" of Section 203 with an express
provision in its original certificate of incorporation or bylaws resulting
from a stockholders' amendment approved by at least a majority of the
outstanding voting shares. Keynote Delaware does not intend to opt out of the
provisions of Section 203.
We believe that Section 203 will encourage any potential acquirer to
negotiate with our board. Section 203 also might have the effect of limiting
the ability of a potential acquirer to make a two-tiered bid for Keynote
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Delaware in which all stockholders would not be treated equally. Shareholders
should note, however, that the application of Section 203 to Keynote Delaware
will give the board the power to reject a proposed business combination in
certain circumstances, even though a potential acquirer may be offering a
substantial premium for Keynote Delaware's shares over the then-current market
price. Section 203 would also discourage certain potential acquirers unwilling
to comply with its provisions.
California. California law requires that holders of common stock receive
common stock in a merger of the corporation with the holder of more than 50%
but less than 90% of the target's common stock or its affiliate unless all of
the target company's shareholders consent to the transaction. This provision
of California law may have the effect of making a "cash-out" merger by a
majority shareholder more difficult to accomplish. Although Delaware law does
not parallel California law in this respect, under some circumstances Section
203 does provide similar protection to stockholders against coercive two-
tiered bids for a corporation in which the stockholders are not treated
equally.
Classified Board of Directors
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year.
Delaware. Delaware law permits, but does not require, a classified board of
directors, pursuant to which the directors can be divided into as many as
three classes with staggered terms of office, with only one class of directors
standing for election each year. The Keynote Delaware Certificate of
Incorporation and Bylaws do not provide for a classified board, and the
adoption of a classified board in the future would require stockholder
approval.
California. Under California law, a corporation generally may provide for a
classified board of directors by adopting amendments to its charter or bylaws,
which amendments must be approved by the shareholders. The Keynote California
Articles of Incorporation and Bylaws do not currently provide for a classified
board.
Removal of Directors
Delaware. Under Delaware law, any director or the entire board of directors
of a corporation that does not have a classified board of directors or
cumulative voting may be removed with or without cause with the approval of a
majority of the outstanding shares entitled to vote at an election of
directors. In the case of a Delaware corporation having cumulative voting, if
less than the entire board is to be removed, a director may not be removed
without cause if the number of shares voted against such removal would be
sufficient to elect the director under cumulative voting.
California. Under California law, any director or the entire board of
directors may be removed, with or without cause, with the approval of a
majority of the outstanding shares entitled to vote; however, no individual
director may be removed, unless the entire board is removed, if the number of
votes cast against such removal would be sufficient to elect the director
under cumulative voting.
Keynote California's Articles of Incorporation do not provide for a
classified board but under California law, Keynote California shareholders are
entitled to cumulative voting or for a classified board. The Keynote Delaware
Certificate of Incorporation will not provide for cumulative voting. As a
result, after the Reincorporation, our directors could be removed with or
without cause with the approval of a majority of the outstanding shares
entitled to vote at an election of directors.
Indemnification and Limitation of Liability
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws
of both states also permit, with certain exceptions, a corporation
12
to adopt charter provisions eliminating the liability of a director to the
corporation or its shareholders for monetary damages for breach of the
director's fiduciary duty. There are, however, certain differences between the
laws of the two states respecting indemnification and limitation of liability
which are summarized below.
Delaware. The Keynote Delaware Certificate of Incorporation would eliminate
the liability of directors to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permissible under Delaware law, as such law exists currently and as it may be
amended in the future. Under Delaware law, such provision may not eliminate or
limit director monetary liability for:
. breaches of the director's duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or involving intentional misconduct
or knowing violations of law;
. the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
. transactions in which the director received an improper personal benefit.
Such limitation of liability provisions also may not limit a director's
liability for violation of, or otherwise relieve us or our directors from the
necessity of complying with, federal or state securities laws, or affect the
availability of nonmonetary remedies such as injunctive relief or rescission.
California. The Keynote California Articles of Incorporation eliminate the
liability of directors to the corporation to the fullest extent permissible
under California law. California law does not permit the elimination of
monetary liability where such liability is based on:
. intentional misconduct or knowing and culpable violation of law;
. acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the
absence of good faith on the part of the director;
. receipt of an improper personal benefit by the director;
. acts or omissions that show reckless disregard for the director's duty to
the corporation or its shareholders, where the director was aware, or in
the ordinary course of performing a director's duties should be aware, of
a risk of serious injury to the corporation or its shareholders;
. acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the corporation
and its shareholders;
. transactions between the corporation and a director who has a material
financial interest in such transaction; and
. liability for improper distributions, loans or guarantees.
Indemnification Compared and Contrasted. California law requires
indemnification when the individual has defended successfully the action on
the merits while Delaware law requires indemnification whether there has been
successful or unsuccessful defense on the merits or otherwise. Delaware law
generally permits indemnification of expenses, including attorneys' fees,
actually and reasonably incurred in the defense or settlement of a derivative
or third-party action, provided there is a determination by a majority vote of
a disinterested quorum of the directors, by independent legal counsel or by a
majority vote of a quorum of the stockholders that the person seeking
indemnification acted in good faith and in a manner reasonably believed to be
in best interests of the corporation. Without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct in the performance of
his or her duty to the corporation. Delaware law requires indemnification of
expenses when the individual being indemnified has successfully defended any
action, claim, issue or matter therein, on the merits or otherwise.
Expenses incurred by an officer or director in defending an action may be
paid in advance, under Delaware law and California law, if such director or
officer undertakes to repay such amounts if it is ultimately determined
13
that he or she is not entitled to indemnification. In addition, the laws of
both states authorize a corporation's purchase of indemnity insurance for the
benefit of its officers, directors, employees and agents whether or not the
corporation would have the power to indemnify against the liability covered by
the policy.
California law permits a California corporation to provide rights to
indemnification beyond those provided therein to the extent such additional
indemnification is authorized in the corporation's Articles of Incorporation.
Thus, if so authorized, rights to indemnification may be provided pursuant to
agreements or bylaw provisions that make mandatory the permissive
indemnification provided by California law. Keynote California's Articles of
Incorporation permit indemnification beyond that expressly mandated by
California law and limit director monetary liability to the extent permitted
by California law. Delaware law also permits a Delaware corporation to provide
indemnification in excess of that provided by statute. By contrast to
California law, Delaware law does not require authorizing provisions in the
certificate of incorporation and does not contain express prohibitions on
indemnification in certain circumstances. Limitations on indemnification may
be imposed by a court, however, based on principles of public policy.
Inspection of Shareholder or Stockholder Lists
Both California and Delaware law allow any shareholder to inspect the
shareholder list for a purpose reasonably related to such person's interest as
a shareholder. California law provides that a shareholder or shareholders
holding 5% or more of a corporation's voting shares, or who hold 1% or more of
such shares after it is a public company and have filed a Schedule 14A with
the Securities and Exchange Commission relating to the election of directors,
have an absolute right to inspect and copy the corporation's shareholder list.
Delaware law permits a stockholder to inspect the stockholder list during the
ten-day period preceding a stockholders' meeting for any purpose germane to
the meeting, but does not contain a provision comparable to the absolute right
of inspection provided by California law to certain shareholders.
Payment of Dividends
California law does not use the concepts of par value of shares, capital or
surplus. The concepts of par value, capital and surplus are retained under
Delaware law.
Delaware. Delaware law permits the payment of dividends out of surplus,
generally defined as stockholders' equity less the par value of outstanding
stock, or, if there is no surplus, out of net profits for the current fiscal
year and/or the preceding fiscal year. Delaware law generally provides that a
corporation may redeem or repurchase its shares only if such redemption or
repurchase would not impair the capital of the corporation.
California. Under California law, any distribution of corporate assets to
shareholders, including dividends and repurchases of shares, are limited
either to:
. retained earnings, or
. an amount that would leave the corporation with assets, exclusive of
goodwill, capitalized research and development expenses and deferred
charges, equal to 1 1/4 times its liabilities, not including deferred
taxes, deferred income and other deferred credits, and with current
assets, as defined, at least equal to its current liabilities, or 1 1/4
times its current liabilities if the average pretax and pre-interest
earnings for the preceding two fiscal years were less than the average
interest expense for such years.
There are exceptions to the foregoing rules for repurchases pursuant to
employee stock plans. Additionally, a corporation cannot make a distribution
if, as a result of such distribution, the corporation would likely be unable
to meet its liabilities as they come due or if such distribution would impair
certain preference rights of the holders of preferred stock.
Shareholder Voting
Both California and Delaware law generally require that a majority of the
shareholders of both acquiring and target corporations approve statutory
mergers.
14
Delaware. Delaware law does not require a stockholder vote of the surviving
corporation in a merger, unless the corporation provides otherwise in its
certificate of incorporation, if:
. the merger agreement does not amend the existing certificate of
incorporation;
. each share of stock of the surviving corporation outstanding immediately
before the effective date of the merger is an identical outstanding share
after the merger and;
. either no shares of common stock of the surviving corporation and no
shares, securities or obligations convertible into such stock are to be
issued or delivered under the plan of merger, or the authorized unissued
shares or shares of common stock of the surviving corporation to be
issued or delivered under the plan of merger plus those initially
issuable upon conversion of any other shares, securities or obligations
to be issued or delivered under such plan do not exceed 20% of the shares
of common stock of such constituent corporation outstanding immediately
prior to the effective date of the merger.
California. California law contains a similar exception to its voting
requirements for reorganizations where shareholders or the corporation itself,
or both, immediately prior to the reorganization will own immediately after
the reorganization equity securities constituting more than 83.3%, or five-
sixths, of the voting power of the surviving or acquiring corporation or its
parent entity.
Appraisal Rights
Under both California and Delaware law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in
the transaction.
Delaware. Under Delaware law, such appraisal rights are not available:
. with respect to the sale, lease or exchange of all or substantially all
of the assets of a corporation;
. with respect to a merger or consolidation by a corporation the shares of
which are either listed on a national securities exchange or are held of
record by more than 2,000 holders if such stockholders receive only
shares of the surviving corporation or shares of any other corporation
that are either listed on a national securities exchange or held of
record by more than 2,000 holders, plus cash in lieu of fractional shares
of such corporations; or
. to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the
merger under Delaware law.
California. The limitations on the availability of appraisal rights under
California law are different from those under Delaware law. Shareholders of a
California corporation whose shares are listed on a national securities
exchange generally do not have such appraisal rights unless the holders of at
least 5% of the class of outstanding shares claim the right or the corporation
or any law restricts the transfer of such shares. Appraisal rights are also
unavailable if the shareholders of a corporation or the corporation itself, or
both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than 83.3%, or five-sixths,
of the voting power of the surviving or acquiring corporation or its parent
entity. California law generally affords appraisal rights in sale-of-asset
reorganizations.
Dissolution
Under California law, shareholders holding 50% or more of the total voting
power may authorize a corporation's dissolution, with or without the approval
of the corporation's board of directors, and this right may not be modified by
the articles of incorporation. Under Delaware law, unless the board of
directors approves the proposal to dissolve, the dissolution must be
unanimously approved by all the stockholders entitled to vote thereon. Only if
the dissolution is initially approved by the board of directors may the
dissolution be approved
15
by a simple majority of the outstanding shares of the corporation's stock
entitled to vote. In the event of such a board-initiated dissolution, Delaware
law allows a Delaware corporation to include in its certificate of
incorporation a supermajority, which is greater than a simple majority, voting
requirement in connection with dissolutions. Keynote Delaware's Certificate of
Incorporation contains no such supermajority voting requirement.
Interested Director Transactions
Under both California and Delaware law, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable because of such interest, provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain minor exceptions, the conditions
are similar under California and Delaware law.
Shareholder Derivative Suits
California law provides that a shareholder bringing a derivative action on
behalf of a corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. Under Delaware
law, a stockholder may bring a derivative action on behalf of the corporation
only if the stockholder was a stockholder of the corporation at the time of
the transaction in question or if his or her stock thereafter devolved upon
him or her by operation of law. California law also provides that the
corporation or the defendant in a derivative suit may make a motion to the
court for an order requiring the plaintiff shareholder to furnish a security
bond. Delaware does not have a similar bonding requirement.
Application of the General Corporation Law of California to Delaware
Corporations
Under Section 2115 of the California General Corporation Law, certain
corporations not organized under California law which have significant
contacts with California are subject to a number of key provisions of the
California General Corporation Law. An exemption from Section 2115 is provided
for corporations whose shares are listed on the New York Stock Exchange or the
American Stock Exchange or for corporations having at least 800 stockholders
of record whose shares are listed on the Nasdaq Stock Market. Following the
Reincorporation, the common stock of Keynote Delaware will continue to be
traded on the Nasdaq Stock Market; however, we do not expect to have greater
than 800 stockholders of record. Accordingly, it is expected that Keynote
Delaware will not be exempt from Section 2115.
Certain Federal Income Tax Consequences
The following is a discussion of certain federal income tax considerations
that may be relevant to holders of Keynote California common stock who receive
Keynote Delaware common stock in exchange for their Keynote California common
stock as a result of the Reincorporation. The discussion does not address all
of the tax consequences of the Reincorporation that may be relevant to
particular Keynote California shareholders, such as dealers in securities, or
those Keynote California shareholders who acquired their shares upon the
exercise of stock options, nor does it address the tax consequences to holders
of options or warrants to acquire Keynote California common stock.
Furthermore, no foreign, state, or local tax considerations are addressed
herein. IN VIEW OF THE VARYING NATURE OF SUCH TAX CONSEQUENCES, EACH
SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE PROPOSED REINCORPORATION, INCLUDING THE APPLICABILITY
OF FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS.
Subject to the limitations, qualifications and exceptions described herein,
and assuming the proposed Reincorporation qualifies as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, the following tax consequences generally should result:
. No gain or loss should be recognized by holders of Keynote California
common stock upon receipt of Keynote Delaware common stock pursuant to
the Reincorporation;
16
. The aggregate tax basis of the Keynote Delaware common stock received by
each shareholder in the Reincorporation should be equal to the aggregate
tax basis of the Keynote California common stock surrendered in exchange
for the Keynote Delaware common stock; and
. The holding period of the Keynote Delaware common stock received by each
shareholder of Keynote California should include the period for which
such shareholder held the Keynote California common stock surrendered in
exchange for the Keynote Delaware common stock, provided that such
Keynote California common stock was held by the shareholder as a capital
asset at the time of the Reincorporation.
We have not requested a ruling from the Internal Revenue Service or an
opinion of counsel with respect to the federal income tax consequences to our
shareholders of the Reincorporation under the Internal Revenue Code.
ACCORDINGLY, EACH SHAREHOLDER IS ENCOURAGED TO CONSULT A TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PROPOSED REINCORPORATION.
The Reincorporation is intended to qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
A successful IRS challenge to the reorganization status of the
Reincorporation, in consequence of a failure to satisfy the "continuity of
interest" requirement or otherwise, would result in a shareholder recognizing
a gain or loss with respect to each share of Keynote California common stock
exchanged in the Reincorporation equal to the difference between the
shareholder's basis in such share and the fair market value, as of the time of
the Reincorporation, of the Keynote Delaware common stock received in exchange
for Keynote California common stock. In such event, a shareholder's aggregate
basis in the shares of Keynote Delaware common stock received in the exchange
would equal their fair market value on such date, and the shareholder's
holding period for such shares would not include the period during which the
shareholder held Keynote California common stock. Even if the Reincorporation
qualifies as a reorganization under the Internal Revenue Code, a shareholder
would recognize a gain to the extent the shareholder received, either actually
or constructively, consideration other than Keynote Delaware common stock in
exchange for the shareholder's Keynote California common stock.
State, local or foreign income tax consequences to shareholders may vary
from the federal tax consequences described above.
We should not recognize a gain or loss for federal income tax purposes as a
result of the Reincorporation, and Keynote Delaware should succeed, without
adjustment, to the federal income tax attributes of Keynote California.
THE BOARD RECOMMENDS A VOTE FOR THE REINCORPORATION.
THE EFFECT OF AN ABSTENTION OR A BROKER NON-VOTE IS THE SAME
AS THAT OF A VOTE AGAINST THE PROPOSAL.
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The audit committee of board has selected KPMG LLP as its independent
auditors to perform the audit of our financial statements for the fiscal year
ending September 30, 2000, and the shareholders are being asked to ratify such
selection. Representatives of KPMG LLP are expected to be present at the
Annual Meeting, will have the opportunity to make a statement at the Annual
Meeting if they desire to do so and are expected to be available to respond to
appropriate questions.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE SELECTION OF KPMG LLP.
17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information as to the beneficial ownership of
our common stock as of December 31, 1999 by:
. each shareholder known by us to be the beneficial owner of more than 5%
of our common stock;
. each of our directors;
. our Chief Executive Officer and four other most highly compensated
executive officers whose salary and bonus for the fiscal year ending
September 30, 1999 was more than $100,000; and
. directors and executive officers as a group.
The percentage ownership is based on 23,608,756 shares of common stock
outstanding as of December 31, 1999. Shares of common stock that are subject
to options currently exercisable or exercisable within 60 days of December 31,
1999, are deemed outstanding for the purposes of computing the percentage
ownership of the person holding these options but are not deemed outstanding
for computing the percentage ownership of any other person. Beneficial
ownership is determined under the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Unless indicated below, to our knowledge, the persons and entities
named in the table have sole voting and sole investment power with respect to
all shares beneficially owned, subject to community property laws where
applicable.
Shares Beneficially Owned
------------------------------
Name of Beneficial Owner Number of Shares Percent
------------------------ ---------------- ----------
Entities and individuals associated
with Wheatley Partners II, L.P. (1)
80 Cuttermill Road, Suite 311
Great Neck, New York 11021............... 2,821,237 11.9%
Entities associated with
Bessemer Venture Partners (2)
535 Middlefield Road
Menlo Park, California 94025............. 2,672,398 11.3
VeriSign, Inc.
1350 Charleston Avenue
Mountain View, California 94043.......... 1,701,681 7.2
GE Capital Equity Investments, Inc. (3)
120 Long Ridge Road
Stamford, Connecticut 06927.............. 1,583,711 6.7
Umang Gupta (4)........................... 2,542,232 10.7
Roger Higgins (5)......................... 332,859 1.4
Donald Aoki (6)........................... 310,600 1.3
Eugene Shklar (7)......................... 2,023,139 8.5
Lloyd Taylor (8).......................... 150,000 0.6
David Cowan (9)........................... 2,672,398 11.3
Mark Leslie (10).......................... 50,000 0.2
Stratton Sclavos (11)..................... 1,701,681 7.2
All 12 directors and executive officers as
a group (12)............................. 9,895,825 41.6
- --------
(1) Represents 1,773,824 shares held by Wheatley Partners II, L.P., 150,000
shares held by Brookwood Partners, L.P., 362,394 shares held by Woodland
Partners, 512,395 shares held by Irwin Lieber and 22,624 shares held by
Barry Fingerhut.
(2) Represents 1,432,734 shares held by Bessemer Venture Partners IV, L.P.,
995,049 shares held by Bessec Ventures IV L.P. and 244,615 shares held by
Bessemer Venture Investors IV L.P.
18
(3) GE Capital Equity Investments, Inc., a wholly-owned subsidiary of General
Electric Capital Corporation, shares beneficial ownership with General
Electrical Capital Corporation with respect to all of the shares held of
record by GE Capital Equity Investments, Inc.
(4) Includes 80,000 shares held by the Gupta Family 1999 Irrevocable Trust.
Mr. Gupta disclaims beneficial ownership of the shares held by this
entity except to the extent of his pecuniary interest in it.
(5) Includes 125,000 shares held by the Roger W. Higgins and Priscilla
Higgins Revocable Trust. Mr. Higgins disclaims beneficial ownership of
the shares held by this entity except to the extent of his pecuniary
interest in it. Of the shares held by Mr. Higgins, 57,975 remained
subject to our right of repurchase as of December 31, 1999.
(6) Includes 5,000 shares held by Mr. Aoki as trustee for his minor children.
Includes 2,503 shares subject to an option exercisable within 60 days of
December 31, 1999. Of the shares held by Mr. Aoki, 59,522 remained
subject to our right of repurchase as of December 31, 1999.
(7) Of the shares held by Mr. Shklar, 57,939 remained subject to our right of
repurchase as of December 31, 1999.
(8) Of the shares held by Mr. Taylor, 150,000 remained subject to our right
of repurchase as of December 31, 1999.
(9) Represents 1,432,734 shares held by Bessemer Venture Partners IV, L.P.,
995,049 shares held by Bessec Ventures IV L.P. and 244,615 shares held by
Bessemer Venture Investors IV L.P. Mr. Cowan, one of our directors, is a
general partner of the general partner of these entities. Mr. Cowan
disclaims beneficial ownership of the shares held by these entities
except to the extent of his pecuniary interest in them.
(10) Represents 30,000 shares held by Leslie Investments, LLC. Mr. Leslie
disclaims beneficial ownership of the shares held by this entity except
to the extent of his pecuniary interest in them. Includes 20,000 shares
subject to an immediately exercisable option, none of which are subject
to our right of repurchase.
(11) Represents 1,701,681 shares held by VeriSign, Inc. Mr. Sclavos, one of
our directors, is president and chief executive officer of VeriSign. Mr.
Sclavos disclaims beneficial ownership of the shares held by VeriSign
except to the extent of his pecuniary interest in it.
(12) Includes 355,436 shares subject to our right of repurchase as of December
31, 1999, 85,419 share subject to options exercisable within 60 days of
December 31, 1999 and 20,000 shares subject to an immediately exercisable
option, none of which are subject to our right of repurchase.
19
EXECUTIVE COMPENSATION
The following table presents compensation information for the fiscal years
ending September 30, 1997, 1998 and 1999 paid or accrued to our Chief
Executive Officer and our four other most highly compensated executive
officers whose salary and bonus for fiscal 1999 was more than $100,000.
Summary Compensation Table
Long Term
Compensation
------------
Awards
------------
Annual Compensation Securities
Fiscal -------------------- Underlying
Name and Principal Position Year Salary Bonus Options
--------------------------- ------ ---------- ---------------------
Umang Gupta............................ 1999 $ 188,288 $ -- --
Chairman and Chief 1998 119,704 -- 1,750,000
Executive Officer 1997 -- -- 47,989
Roger Higgins.......................... 1999 185,479 88,145 --
Vice President 1998 181,466 61,034 --
of Worldwide Sales 1997 145,417 3,423 207,860
Donald Aoki............................ 1999 166,920 -- 50,000
Vice President 1998 144,748 -- --
of Engineering 1997 53,045 -- 193,514
Eugene Shklar.......................... 1999 122,271 -- --
Vice President 1998 58,184 -- --
of Public Services 1997 93,000 -- 161,100
Lloyd Taylor........................... 1999 114,001 -- 200,000
Vice President 1998 -- -- --
of Operations 1997 -- -- --
John Flavio, our Vice President of Finance and Chief Financial Officer,
joined us in July 1999 and is currently compensated at an annual salary of
$170,000.
Option Grants in Fiscal 1999
The following table presents the grants of stock options under our 1996
Stock Option Plan and 1999 Stock Option Plan during fiscal 1999 to our Chief
Executive Officer and our four other most highly compensated executive
officers.
All options granted under our 1996 Stock Option Plan and 1999 Stock Option
Plan are either incentive stock options or nonqualified stock options. Options
granted under our 1996 Stock Option Plan are, and options granted under our
1999 Stock Option Plan may be, immediately exercisable subject to our right to
repurchase these shares upon termination of the optionee's employment with us.
This right generally lapses as to 25% of the shares subject to the option one
year from the date of grant and as to 2.083% of the shares each succeeding
month. Options granted under our 1999 Stock Option Plan that are not
immediately exercisable generally vest over four years and become exercisable
as to 25% of the shares subject to the option and as to 2.083% of the shares
each succeeding month. Options expire 10 years from the date of grant.
Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by our board on the date of grant. In the
fiscal year ending September 30, 1999, we granted to our employee's options to
purchase a total of 2,079,900 shares of our common stock.
20
Potential realizable values are computed by:
. multiplying the number of shares of common stock subject to a given
option by $25.00, the closing price per share of our common stock on
September 30, 1999 on the Nasdaq National Market;
. assuming that the aggregate option exercise price derived from that
calculation compounds at the annual 5% or 10% rates shown in the table
for the entire 10 year term of the option; and
. subtracting from that result the aggregate option exercise price.
The 5% and 10% assumed annual rates of stock price appreciation are required
by the rules of the Securities and Exchange Commission and do not represent
our estimate or projection of future common stock prices.
Individual Grants
----------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Expiration ---------------------
Name Granted in Fiscal 1999 Per Share Date 5% 10%
- ---- ---------- -------------- --------- ---------- ---------- ----------
Umang Gupta............. -- -- -- -- $ -- $ --
Roger Higgins........... -- -- -- -- -- --
Donald Aoki............. 50,000 2.4% $8.00 6/27/2009 1,636,118 2,842,178
Eugene Shklar........... -- -- -- -- -- --
Lloyd Taylor............ 150,000 7.2 $0.50 1/3/2009 6,033,355 9,651,534
50,000 2.4 $8.00 6/27/2009 1,636,118 2,842,178
Aggregated Option Exercises in Fiscal 1999 and Option Values at September 30,
1999
The following table presents the number of shares acquired and the value
realized upon exercise of stock options during fiscal 1999 and the number of
shares of common stock subject to "vested" and "unvested" stock options held
as of September 30, 1999 by our Chief Executive Officer and our four other
most highly compensated executive officers. Also presented are the values of
"in-the-money" options, which represents the positive difference between the
exercise price of each outstanding stock option and $25.00, the closing price
per share of our common stock on September 30, 1999 on the Nasdaq National
Market.
Each of the options granted to the optionees listed in the table below was
either immediately exercisable upon grant, subject to our right to repurchase
the option shares upon termination of the optionee's employment, or generally
vests over four years. In the case of immediately exercisable options, our
right to repurchase the shares generally lapses over four years and as to 25%
of the shares subject to the option one year from the date of grant and as to
2.083% of the shares each succeeding month. In the case of options that are
not immediately exercisable, these options generally vest over four years and
become exercisable as to 25% of the shares subject to the option one year from
the date of grant and as to 2.083% of the shares each succeeding month. In the
table below, in the case of immediately exercisable options, the heading
"vested" refers to shares as to which our right of repurchase has lapsed and
the heading "unvested" refers to shares as to which we have the right to
repurchase upon termination of the optionee's employment.
Value of Unexercised
Number of Securities In-the-
Number of Underlying Unexercised Money Options at
Shares Options at September 30, 1999 September 30, 1999
Acquired on Value -------------------------------- ---------------------
Name Exercise Realized Vested Unvested Vested Unvested
- ---- ----------- -------- ------ ---------------- --------- -----------
Umang Gupta............. -- $ -- -- -- $ -- $ --
Roger Higgins........... -- -- -- -- -- --
Donald Aoki............. 833 4,998 418 48,749 7,106 828,733
Eugene Shklar........... 85,000 12,750 -- -- -- --
Lloyd Taylor............ 150,000 -- -- 50,000 -- 850,000
21
Employee Benefit Plans
1996 Stock Option Plan
As of December 31, 1999, options to purchase 275,587 shares of common stock
were outstanding under our 1996 Stock Option Plan. The 1996 plan terminated
upon the completion of our initial public offering and no options have been or
will be granted under the plan after that time. However, this termination did
not affect any outstanding options, all of which remain outstanding until
exercised or until they terminate or expire by their terms. Options granted
under these plan are subject to terms substantially similar to those described
below with respect to options granted under the 1999 Equity Incentive Plan.
1999 Stock Option Plan
As of December 31, 1999, options to purchase 1,649,726 shares of common
stock were outstanding under our 1999 Stock Option Plan. The 1999 plan
terminated upon the completion of our initial public offering, at which time
our 1999 Equity Incentive Plan became effective. As a result, no options have
been or will be granted under the plan after that time. However, this
termination did not affect any outstanding options, all of which remain
outstanding until exercised or until they terminate or expire by their terms.
Options granted under these plan are subject to terms substantially similar to
those described below with respect to options granted under the 1999 Equity
Incentive Plan.
1999 Equity Incentive Plan
Shares Reserved Under the Plan. The board of directors has adopted and our
shareholders have approved the 1999 Equity Incentive Plan. The board has
reserved 5,000,000 shares of common stock available for grant under this plan.
In addition to the shares reserved by the board, upon the completion of our
initial public offering on September 24, 1999, a total of 36,437 additional
shares previously reserved for grant under our 1996 Stock Option Plan and 1999
Stock Option Plan became available for grant under our 1999 Equity Incentive
Plan. These shares either had not been issued, were not subject to outstanding
grants, had been issued but were subsequently forfeited or repurchased by us,
or were subject to options that expired or became unexersiable. Shares will
again be available for grant and issuance under the plan that:
. are subject to issuance upon exercise of an option granted under the plan
that cease to be subject to the option for any reason other than exercise
of the option;
. have been issued upon the exercise of an option granted under the plan
that are subsequently forfeited or repurchased by us at the original
purchase price; or
. are subject to an award granted pursuant to a restricted stock purchase
agreement under the plan that are subsequently forfeited or repurchased
by us at the original issue price.
In addition, on January 1 , 2000 and on January 1 of each following year,
the total number of shares reserved for issuance under the plan increased
automatically by a number of shares equal to 5% of our outstanding shares on
December 31 of the preceding year.
Term of the Plan. The plan became effective on September 24, 1999. The plan
will terminate after 10 years, unless it is terminated earlier by our board.
The plan authorizes the award of options, restricted stock awards and stock
bonuses. If we are dissolved, liquidated or have a "change in control"
transaction, outstanding awards may be assumed or substituted by the successor
corporation, if any. In the discretion of the compensation committee, the
vesting of these awards may accelerate upon one of these transactions.
Administration of the Plan. The plan is administered by our compensation
committee, all of the members of which are "non-employee directors" under
applicable federal securities laws and "outside directors" as defined under
applicable federal tax laws. The compensation committee has the authority to
construe and interpret the plan, grant awards and make all other
determinations necessary or advisable for the administration of the plan.
22
Types of Awards Under the Plan. The plan provides for the grant of both
incentive stock options that qualify under Section 422 of the Internal Revenue
Code and nonqualified stock options. Incentive stock options may be granted
only to our employees or employees of a parent or subsidiary of us. All other
awards, other than incentive stock options, may be granted to our employees,
officers, directors, consultants, independent contractors and advisors or
those of any parent or subsidiary of us, provided the consultants, independent
contractors and advisors render bona fide services not in connection with the
offer and sale of securities in a capital-raising transaction. The exercise
price of incentive stock options must be at least equal to the fair market
value of our common stock on the date of grant. The exercise price of
incentive stock options granted to 10% shareholders must be at least equal to
110% of the fair market value of our common stock on the date of grant. The
exercise price of non-qualified stock options must be at least equal to 85% of
the fair market value of our common stock on the date of grant.
Our nonemployee directors are entitled to receive stock option grants to
purchase 50,000 shares of our common stock which vest as to 33.3% of the
shares subject to the option after one year and as to 2.82% of the shares each
succeeding month.
Options granted under the plan are either exercisable as they vest or are
immediately exercisable subject to our right of repurchase that lapses as the
shares vest. In general, options vest over a four-year period and as to 25% of
the shares subject to the option one year from the date of grant and as to
2.083% of the shares each succeeding month.
The maximum term of options granted under the plan is 10 years.
Awards, other than nonqualified stock options, granted under the plan may
not be transferred in any manner other than by will or by the laws of descent
and distribution. The plan allows exceptions to this restriction with respect
to awards that are nonqualified stock options. Options may be exercised during
the lifetime of the optionee only by the optionee. The compensation committee
could provide for differing provisions in individual award agreements, but
only with respect to awards that are not incentive stock options. Options
granted under the plan generally may be exercised for a period of time after
the termination of the optionee's service to us or a parent or subsidiary of
us. Options will generally terminate three months after the termination of
employment or twelve months if the termination is due to death or disability.
The purchase price for restricted stock will be determined by our
compensation committee. Stock bonuses may be issued for past services or may
be awarded upon the completion of certain services or performance goals.
1999 Employee Stock Purchase Plan
The board has adopted and our shareholders have approved the 1999 Employee
Stock Purchase Plan. The plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code. Rights granted
under the plan are not transferable by a participant other than by will or the
laws of descent and distribution.
Shares Reserved Under the Plan. The board of directors has reserved 400,000
shares of common stock under this plan. On each January 1, the aggregate
number of shares reserved for issuance under this plan will increase
automatically by a number of shares equal to 1% of our outstanding shares on
December 31 of the preceding year. The aggregate number of shares reserved for
issuance under the plan may not exceed 4,000,000.
Administration of the Plan. The plan is administered by our compensation
committee. Our compensation committee has the authority to construe and
interpret the plan, and its decisions are final and binding.
Eligibility to Participate. Employees generally are eligible to participate
in the plan if they are employed 10 days before the beginning of the
applicable offering period and they are customarily employed by us, or our
parent or any subsidiaries that we designate, for more than 20 hours per week
and more than five months in a calendar year and are not, and would not become
as a result of being granted an option under the plan, 5%
23
shareholders of us or our designated parent or subsidiaries. Participation in
the plan ends automatically upon termination of employment for any reason.
How Purchases are Made. Under the plan, eligible employees are permitted to
acquire shares of our common stock through payroll deductions. Eligible
employees may select a rate of payroll deduction between 2% and 10% of their
compensation and are subject to maximum purchase limitations.
Each offering period under the plan is for two years and consists of four
six-month purchase periods. The first offering period began on September 24,
1999, the first business day on which price quotations for our common stock
were available on the Nasdaq National Market. Offering periods and purchase
periods will begin on February 1 and August 1 of each year. However, because
the first day on which price quotations for our common stock was available on
the Nasdaq National Market was not February 1 or August 1, the length of the
first offering period will be less than two years, and the length of the first
purchase period will be more than six months.
The plan provides that, in the event of our proposed dissolution or
liquidation, each offering period that commenced prior to the closing of the
proposed event shall continue for the duration of the offering period,
provided that the compensation committee may fix a different date for
termination of the plan. The purchase price for our common stock purchased
under the plan is 85% of the lesser of the fair market value of our common
stock on the first or last day of the applicable offering period. The
compensation committee has the power to change the duration of offering
periods without shareholder approval, if the change is announced at least 15
days prior to the beginning of the affected offering period.
Term of the Plan. The plan became effective on September 24, 1999. The plan
will terminate 10 years from the date the plan was adopted by our board,
unless it is terminated earlier under the terms of the plan. The board has the
authority to amend, terminate or extend the term of the plan, except that no
action may adversely affect any outstanding options previously granted under
the plan.
Amendments to the Plan. Except for the automatic annual increase of shares
described above, shareholder approval is required to increase the number of
shares that may be issued or to change the terms of eligibility under the
plan. The board may make amendments to the plan as it determines to be
advisable if the financial accounting treatment for the plan is different from
the financial accounting treatment in effect on the date the plan was adopted
by the board.
COMPENSATION ARRANGEMENTS WITH EXECUTIVE OFFICERS
Umang Gupta. In September 1997, in connection with his service as one of our
directors, we granted to Umang Gupta, who now serves as our Chief Executive
Officer, an option to purchase 47,989 shares of common stock at an exercise
price of $0.20 per share. Mr. Gupta exercise this option in April 1998. Our
right of repurchase has now lapsed as to all of these shares.
In December 1997, we entered into an employment agreement with Mr. Gupta.
This agreement establishes Mr. Gupta's annual base salary and eligibility for
benefits and bonuses. Under this agreement, Mr. Gupta was granted an option to
purchase 1,750,000 shares of common stock at an exercise price of $0.20 per
share. This option was immediately exercisable, subject to our right to
repurchase the shares of common stock upon termination of his employment. Mr.
Gupta exercised this option in April 1998. Our right of repurchase has now
lapsed as to all of these shares.
Also under this agreement, Mr. Gupta was granted a warrant to purchase
265,000 shares of common stock at a purchase price of $1.30 per share. Mr.
Gupta exercised this warrant in September 1999.
This agreement continues until it is terminated upon written notice by Mr.
Gupta or us. If we terminate his employment for cause or if he voluntarily
elects to terminate his employment, we must pay his salary and other
24
benefits through the date of his termination. If his employment is terminated
by us without cause or if he terminates his employment due to a material
reduction in his salary or benefits, a material change in his responsibilities
or a sale of us, we must pay his salary and benefits through the date of his
termination and his salary for six additional months after this date.
In connection with a loan agreement, dated as of May 1999, Mr. Gupta agreed
that, except in the case of a sale of us, he will not voluntarily elect to
terminate his employment before the earlier of December 31, 2001 or the date
on which a successor chief executive officer commences employment with us.
Roger Higgins. In February and June 1997, we granted to Roger Higgins
options to purchase a total of 207,859 shares of common stock at an exercise
price of $0.05 per share. Mr. Higgins exercised these options in February and
June 1997.
Donald Aoki. In May and June 1997, we granted to Donald Aoki options to
purchase a total of 193,513 shares of common stock at an exercise price of
$0.05 per share. Mr. Aoki exercised these options in June 1997 and December
1998. In June 1999, we granted Mr. Aoki options to purchase 50,000 shares of
common stock at an exercise price of $8.00 per share.
Eugene Shklar. In August 1996 and June 1997, we granted to Eugene Shklar
options to purchase a total of 431,100 shares of common stock at an exercise
price of $0.05 per share. In July 1997, 25,000 of these 431,100 shares were
canceled. In July 1997, we granted Mr. Shklar an option to purchase 45,000
shares of common stock at an exercise price of $0.20 per share. In February
1999, a total of 2,500 of these 45,000 shares were canceled. Mr. Shklar
exercised his options as to the remaining 448,600 shares in September 1996,
June 1997 and January 1999.
Thomas Roll. In September 1998, we granted Thomas Roll an option to purchase
100,000 shares of common stock at an exercise price of $0.24 per share. He
exercised this option as to 30,000 shares in April 1999. In January 1999, we
granted Mr. Roll an option to purchase 20,000 shares of common stock at an
exercise price of $0.60 per share. In June 1999, Mr. Roll was granted an
option to purchase 30,000 shares of common stock at an exercise price of $8.00
per share.
Lloyd Taylor. In January 1999, we granted to Lloyd Taylor an option to
purchase 150,000 shares of common stock at an exercise price of $0.50 per
share. Mr. Taylor immediately exercised this option. In June 1999, Mr. Taylor
was granted an option to purchase 50,000 shares of common stock at an exercise
price of $8.00 per share.
James Salazar. In March 1999, we granted James Salazar an option to purchase
112,500 shares of common stock at an exercise price of $1.60 per share.
John Flavio. In June 1999, we granted John Flavio an option to purchase
205,000 shares of common stock at an exercise price of $8.00 per share.
Marlene Williamson. In August 1999, we granted Marlene Williamson an option
to purchase 150,000 shares of common stock at an exercise price of $9.00 per
share.
25
REPORT OF THE COMPENSATION COMMITTEE
The compensation committee of the board of directors administers Keynote's
executive compensation program. The current members of the compensation
committee are David Cowan and Mark Leslie. Each is a non-employee director
within the meaning of Section 16 of the Securities Exchange Act of 1934, as
amended, and an "outside director" within the meaning of Section 162(m) of the
Internal Revenue Code. Neither of Mr. Cowan nor Mr. Leslie has any
interlocking relationships as defined by the Securities and Exchange
Commission.
General Compensation Philosophy
The role of the compensation committee is to set the salaries and other
compensation of Keynote's executive officers and other key employees, and to
make grants in excess of 15,000 options and to administer the stock option and
other employee equity and bonus plans. Grants of options to purchase less than
15,000 shares can be authorized by Umang Gupta, our Chief Executive Officer,
and ratified by the compensation committee. Keynote's compensation philosophy
for executive officers is to relate compensation to corporate performance and
increases in shareholder value, while providing a total compensation package
that is competitive and enables Keynote to attract, motivate, reward and
retain key executives and employees. Accordingly, each executive officer's
compensation package may, in one or more years, be comprised of the following
three elements:
. base salary that is designed primarily to be competitive with base salary
levels in effect at high technology companies in the San Francisco Bay
Area that are of comparable size to Keynote and with which Keynote
competes for executive personnel;
. annual variable performance awards, such as bonuses, payable in cash
and/or stock-based incentive awards, tied to the achievement of
performance goals, financial or otherwise, established by the
compensation committee; and
. long-term stock-based incentive awards which strengthen the mutuality of
interests between Keynote's executive officers and Keynote's
shareholders.
Executive Compensation
Base Salary. Salaries for executive officers for the fiscal year ended
September 30, 1999 were generally determined on an individual basis by
evaluating each executive's scope of responsibility, performance, prior
experience and salary history, as well as the salaries for similar positions
at comparable companies.
Annual Incentive Awards. In the past, Keynote has included performance-based
bonuses, payable in cash and/or stock-based incentive awards, as part of each
executive's annual compensation plan. Annual performance-based bonuses are
based on mutually agreed upon goals and objectives. This practice is expected
to continue and each executive's annual performance will be measured by the
achievement of established goals and objectives.
Long-Term Incentive Awards. The compensation committee believes that equity-
based compensation in the form of stock options links the interests of
executive officers with the long-term interests of Keynote's shareholders and
encourages executive officers to remain employed with Keynote. Stock options
generally have value for executive officers only if the price of our stock
increases above the fair market value on the grant date and the officer
remains employed with Keynote for the period required for the shares to vest.
Keynote grants stock options in accordance with the 1999 Equity Incentive
Plan. In the fiscal year ended September 30, 1999, stock options were granted
to certain executive officers as incentives for them to become employees or to
aid in the retention of executive officers and to align their interests with
those of Keynote's shareholders. Stock options typically have been granted to
executive officers when the executive first joins us. The compensation
committee may, however, grant additional stock options to executive officers
for other reasons. The number of shares subject to each stock option granted
is within the discretion of the compensation committee and is based on
anticipated future contribution and ability to impact Keynote's results, past
26
performance or consistency within the officer's peer group. In the fiscal year
ended September 30, 1999, the compensation committee considered these factors.
At the discretion of the compensation committee, executive officers may also
be granted stock options to provide greater incentives to continue their
employment with Keynote and to strive to increase the value of Keynote's
common stock. The stock options generally become exercisable over a four-year
period and are granted at a price that is equal to the fair market value of
Keynote's common stock on the date of grant.
Chief Executive Officer Compensation
Mr. Gupta's base salary, target bonus, bonus paid and long-term incentive
awards for the fiscal year ended September 30, 1999 were determined by the
compensation committee in a manner consistent with the factors described above
for all executive officers.
Internal Revenue Code Section 162(m) Limitation
Section 162(m) of the Internal Revenue Code limits the tax deduction to $1.0
million for compensation paid to certain executives of public companies.
Having considered the requirements of Section 162(m), the compensation
committee believes that grants made pursuant to the Keynote's Stock Option
Plans and Equity Incentive Plan meet the requirements that such grants be
"performance based" and are, therefore, exempt from the limitations on
deductibility. Historically, the combined salary and bonus of each executive
officer has been below the $1.0 million limit. The compensation committee's
present intention is to comply with Section 162(m) unless the compensation
committee feels that required changes would not be in the best interest of
Keynote or its shareholders.
Compensation Committee
David Cowan
Mark Leslie
27
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on our
common stock, the Nasdaq Composite Index and The Street.com Index. The graph
assumes that $100 was invested in our common stock, the Nasdaq Composite Index
and The Street.com Index on September 24, 1999, the date of our initial public
offering, and calculates the monthly return through September 30, 1999. The
stock price performance on the following graph is not necessarily indicative
of future stock price performance.
[STOCK PRICE PERFORMANCE GRAPH APPEARS HERE]
KEYNOTE VS. INDICES: PRICE PERFORMANCE
Date Keynote Nasdaq Street.com
9/24/99 100 100 100
9/30/99 92 100 105
28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the compensation arrangements, which are described where required
in "Executive Compensation" and the transactions below, since September 30,
1998, there has not been, nor is there currently proposed, any transaction or
series of similar transactions to which we were or will be a party:
. in which the amount involved exceeds $60,000; and
. in which any director, executive officer, holder of more than 5% of our
common stock or any member of their immediate family had or will have a
direct or indirect material interest.
Capital Stock Financings
In April and May 1999, we sold a total of 3,367,272 shares of Series D
preferred stock at a purchase price of $4.42 per share and a total of 438,480
shares of common stock at a purchase price of $4.42 per share. Purchasers of
our this Series D preferred stock and common stock include, among others, the
following of our executive officers, directors and holders of more than 5% of
our outstanding stock:
Aggregate
Series D Common Consideration
Shareholder Preferred Stock Stock Paid
- ----------- --------------- ------- -------------
VeriSign, Inc........................... 1,263,200 438,481 $7,521,428
GE Capital Equity Investments, Inc...... 1,538,711 -- 7,000,000
Entities associated with Bessemer
Venture Partners, L.P.................. 226,245 -- 1,000,001
Eugene Shklar........................... 113,122 -- 499,999
Upon the completion of our initial public offering in September 1999, each
outstanding share of Series D preferred stock was converted into one share of
common stock and each share of common stock was then converted into .5 shares
of common stock.
Loans to Executive Officers
Umang Gupta. In May 1999, we loaned $300,000 to Umang Gupta, our Chief
Executive Officer, evidenced by a full recourse promissory note and secured by
a stock pledge agreement, in connection with the acceleration of the lapse of
our repurchase right with respect to the shares of our common stock owned by
him. In June 1999, these loans were consolidated into a single loan. This loan
accrues interest at a rate of 6% per year and is due and payable on or before
December 31, 2001.
Lloyd Taylor. In January 1999, we loaned $150,000 to Lloyd Taylor, our Vice
President of Operations, secured by a loan and security agreement, in
connection with his relocation to California. The loan accrues interest at a
rate of 9% per year and is due and payable on or before January 2002. In
January 1999, we loaned an additional $75,000 to Mr. Taylor, secured by a loan
and pledge agreement, in connection with his exercise of his option to
purchase 300,000 shares of our common stock. The loan accrues interest at a
rate of 7% and is payable on or before January 2004.
Marlene Williamson. In November 1999, we loaned $263,000 to Marlene
Williamson, our Vice President of Marketing, secured by a loan and security
agreement, in connection with her relocation to California. The loan accrues
interest at a rate of 6% per year and is due and payable on or before May
2000.
John Flavio. In December 1999, we loaned $200,000 to John Flavio, our Chief
Financial Officer, secured by a loan and security agreement, in connection
with his relocation to California. The loan accrues interest at a rate of 6%
per year and is due and payable on or before June 2000.
29
Option Grant to Director
Mark Leslie. In June 1999, we granted Mark Leslie an option to purchase
50,000 shares of common stock at an exercise price of $8.00 per share. Mr.
Leslie exercised this option with respect to 30,000 shares in June 1999.
Memorandum of Understanding With VeriSign, Inc.
In February 1999, we entered into a memorandum of understanding with
VeriSign, Inc. Mr. Stratton Sclavos, a member of our board of directors, is
the chief executive officer and a director of VeriSign. Under the agreement,
Keynote granted VeriSign a non-exclusive license to sell two different
customized versions of Keynote Perspective and a one-year subscription to
Keynote Lifeline to VeriSign's customers as an integrated part of VeriSign's
product offerings. In order to implement the product offerings subject to the
agreement, Keynote agreed to construct a network of 50 measurement computers
in 25 domestic and international cities. To help cover the costs of Keynote's
initial expenditures, VeriSign made a $250,000 advance available to Keynote
prior to the commencement of the joint marketing and distribution program.
VeriSign also agreed to promote Keynote's services as part of its regular
communications with customers, such as quarterly newsletters, and through a
VeriSign web site that focuses on security-related issues.
The customized versions of Perspective that VeriSign may sell under the
agreement are each one-month in duration and offer measurements from either:
. 10 different cities of the customer's choice, including up to two
international locations, or
. 25 different cities of the customer's choice, including up to four
international locations.
The agreement provides that if VeriSign is generating at least 500
introductory Perspective sales per month within six months from the beginning
of the program, then VeriSign will make available to Keynote an additional
$250,000 advance. If the program is not generating 500 of these sales per
month within six months from the beginning of the program, then Keynote may
reduce the number of measurement computers deployed under the agreement. If
the program is not generating 100 introductory Perspective sales per month
within six months from the beginning of the program, then either Keynote or
VeriSign may terminate the agreement by providing 60 days' advance written
notice to the other party, with VeriSign entitled to recover the balance of
the money it advanced to Keynote ratably over the remainder of the term of the
agreement.
The memorandum of understanding provides that VeriSign is entitled to offer
the 10-city and 25-city versions of the introductory Perspective service as an
integrated part of its product offerings. VeriSign will pay Keynote $50 for
each 10-city version and $100 for each 25-city version of the introductory
Perspective service. All of the fees that VeriSign pays to Keynote for the
subscriptions VeriSign sells to its customers are deducted from the funds that
it advanced to Keynote until such advance is repaid, with a maximum of $10,417
in fees per month to be deducted from the advance. Any fees per month in
excess of $10,417 are retained by Keynote. In the event that Keynote converts
the introductory Perspective customer into a paying Perspective customer
during the life of the VeriSign-bundled introductory Perspective subscription
or within 30 days after this period, Keynote will pay VeriSign a one-time
conversion bounty of $1,400.
VeriSign also has the right to sell a one-year subscription to Lifeline, and
VeriSign will receive a 50% discount to this service. This discount will
increase to 57% if, after the agreement has been in effect for six months,
VeriSign is paying Keynote more than $100,000 per month for the Lifeline
service. However, if after the agreement has been in effect for six months,
VeriSign is paying Keynote less than $34,750 per month for the Lifeline
service, the parties can renegotiate the discount and/or volume commitments.
If Keynote converts the Lifeline customer into a paying Perspective customer
during the life of the VeriSign-bundled Lifeline subscription or within 30
days after this period, Keynote will pay VeriSign a one-time conversion bounty
of $1,400. In addition, if a program generates leads for Perspective, Keynote
will pay VeriSign $150 for each lead which turns into a paying customer within
90 days of receipt of the lead.
30
The agreement provides that if Keynote makes available a similar service
with better terms to any customer, Keynote will provide VeriSign with the same
superior terms for the remainder of the term of the agreement. Keynote also
agreed not to enter into a similar agreement involving the bundling of its
services with certain competitors of VeriSign.
The initial term of the memorandum of understanding is two years, unless the
parties enter into a formal marketing and services agreement prior to that
time which supersedes the agreement. The agreement will continue for a series
of one-year extensions subsequent to the initial two-year term unless either
party provides written notice to the other of its intent not to renew the
agreement.
Through December 31, 1999, Keynote has received from VeriSign approximately
$295,000 in revenue from this agreement. Through December 31, 1999, Keynote
has paid to VeriSign approximately $68,000 under this agreement.
Keynote believes that the terms of the memorandum of understanding, taken as
a whole, were no less favorable to Keynote than Keynote could have obtained
from unaffiliated third parties.
SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING OF SHAREHOLDERS
Proposals of shareholders intended to be presented at our 2001 Annual
Meeting of Shareholders must be received by us at our principal executive
offices no later than October 1, 2000 in order to be included in our proxy
statement and form of proxy relating to the meeting. Proposals of shareholders
received by us at our principal executive offices after December 15, 2000 will
be considered untimely and may not be presented at our 2001 Annual Meeting.
COMPLIANCE UNDER SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Securities Exchange Act of 1934, as amended, requires our
directors and officers, and persons who own more than 10% of our common stock
to file initial reports of ownership and reports of changes in ownership with
the Securities and Exchange Commission and the Nasdaq National Market. Such
persons are required by Securities and Exchange Commission regulations to
furnish us with copies of all Section 16(a) forms that they file.
Based solely on our review of the copies of such forms furnished to us and
written representations from our executive officers and directors, we believe
that all Section 16(a) filing requirements for the year ended September 30,
1999 were met.
OTHER BUSINESS
The board of directors does not presently intend to bring any other business
before the Annual Meeting, and, so far as is known to the board, no matters
are to be brought before the Annual Meeting except as specified in the Notice
of the Annual Meeting. As to any business that may properly come before the
Annual Meeting, however, it is intended that proxies, in the form enclosed,
will be voted in respect thereof in accordance with the judgment of the
persons voting such proxies.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE PAID
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
31
APPENDIX A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
KEYNOTE SYSTEMS, INC.
(Originally incorporated on July 30, 1999)
Keynote Systems, Inc., a Delaware corporation, hereby certifies that the
Amended and Restated Certificate of Incorporation of the corporation attached
hereto as Exhibit A, which is incorporated herein by this reference, and which
restates, integrates and further amends the provisions of the Certificate of
Incorporation of this corporation as heretofore amended or supplemented, has
been duly adopted by the corporation's Board of Directors and stockholders in
accordance with Sections 242 and 245 of the Delaware General Corporation Law,
with the approval of the Corporation's stockholders having been given by
written consent without a meeting in accordance with Section 228 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, said corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its by duly authorized officer
this 12th day of January, 2000 and the foregoing facts stated herein are true
and correct.
KEYNOTE SYSTEMS, INC.
By: /s/ Umang Gupta
_________________________________
Umang Gupta,
President and Chief Executive
Officer
Exhibit A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
KEYNOTE SYSTEMS, INC.
ARTICLE I
The name of the corporation is Keynote Systems, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of
its registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock that the corporation is
authorized to issue is 105,000,000 shares. The corporation is authorized to
issue two classes of shares: Common Stock, $0.001 par value per share, and
Preferred Stock, $0.001 par value per share. The total number of shares of
Common Stock authorized to be issued is 100,000,000 shares. The total number
of shares of Preferred Stock authorized to be issued is 5,000,000 shares.
The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of the shares
of Preferred Stock in one or more series, and, by filing a Certificate of
Designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares
of each such series and any qualifications, limitations or restrictions
thereof and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding). The
number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the corporation
entitled to vote, unless a vote of any other holders is required pursuant to a
Certificate or Certificates establishing a series of Preferred Stock.
Except as expressly provided in any Certificate of Designation designating
any series of Preferred Stock pursuant to the foregoing provisions of this
Article IV, any new series of Preferred Stock may be designated, fixed and
determined as provided herein by the Board of Directors without approval of
the holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including, without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and conversion rights senior to, junior to or pari
passu with the rights of the Common Stock, the Preferred Stock, or any future
class or series of Preferred Stock or Common Stock.
ARTICLE V
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal the Bylaws of the corporation.
ARTICLE VI
For the management of the business and for the conduct of the affairs of the
corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
(A) The conduct of the affairs of the corporation shall be managed under
the direction of its Board of Directors. The number of directors shall be
fixed from time to time exclusively by resolution of the Board of
Directors.
(B) Election of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation shall
be personally liable for monetary damages for breach of fiduciary duty as a
director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE VIII
Actions shall be taken by the corporation's stockholders only at annual or
special meetings of stockholders, and the corporation's stockholders shall not
be able to act by written consent.
APPENDIX B
BYLAWS
OF
KEYNOTE SYSTEMS, INC.
A Delaware Corporation
As Adopted July 30, 1999
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year
fix. Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
purpose or purposes may be at any time by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer, the President or by a
majority of the members of the Board of Directors. Special meetings may not be
called by any other person or persons. If a special meeting of stockholders is
called by any person or persons other than by a majority of the members of the
Board of Directors, then such person or persons shall call such meeting by
delivering a written request to call such meeting to each member of the Board
of Directors, and the Board of Directors shall then determine the time, date
and place of such special meeting, which shall be held not more than one
hundred twenty (120) nor less than thirty-five (35) days after the written
request to call such special meeting was delivered to each member of the Board
of Directors.
Section 1.3: Notice of Meetings. Written notice of all meetings of
stockholders shall be given stating the place, date and time of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. Unless otherwise required by applicable law or the
Certificate of Incorporation of the Corporation, such notice shall be given
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder of record entitled to vote at such meeting.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from time
to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the adjournment is for more than thirty (30) days, or if after the
adjournment, a new record date is fixed for the adjourned meeting, then a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At the adjourned meeting, the Corporation may
transact any business that might have been transacted at the original meeting.
Section 1.5: Quorum. At each meeting of stockholders, the holders of a
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction
of business, except if otherwise required by applicable law. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares entitled to vote who are present, in person or by
proxy, at the meeting may adjourn the meeting. Shares of the Corporation's
stock belonging to the Corporation (or to another corporation, if a majority
of the shares entitled to vote in the election of directors of such other
corporation are held, directly or indirectly, by the Corporation), shall
neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the Corporation or
any other corporation to vote any shares of the Corporation's stock held by it
in a fiduciary capacity.
Section 1.6: Organization. Meetings of stockholders shall be presided over
by such person as the Board of Directors may designate, or, in the absence of
such a person, the Chairman of the Board, or, in the absence of such person,
the President of the Corporation, or, in the absence of such person, such
person as may be chosen by the holders of a majority of the shares of stock
entitled to vote who are present, in person or by proxy, at the meeting. Such
person shall be chairman of the meeting and, subject to Section 1.12 hereof,
shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of
discussion as seems to him or her to be in order. The Secretary of the
Corporation shall act as secretary of the meeting, but in his or her absence,
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
Certificate of Incorporation of the Corporation, and subject to the provisions
of Section 1.8 of these Bylaws, each stockholder shall be entitled to one (1)
vote for each share of stock held by such stockholder. Each stockholder
entitled to vote at a meeting of stockholders, or to express consent or
dissent to corporate action in writing without a meeting, may authorize
another person or persons to act for such stockholder by proxy. Such a proxy
may be prepared, transmitted and delivered in any manner permitted by
applicable law. Voting at meetings of stockholders need not be by written
ballot unless such is demanded at the meeting before voting begins by a
stockholder or stockholders holding shares representing at least one percent
(1%) of the votes entitled to vote at such meeting, or by such stockholder's
or stockholders' proxy; provided, however, that an election of directors shall
be by written ballot if demand is so made by any stockholder at the meeting
before voting begins. If a vote is to be taken by written ballot, then each
such ballot shall state the name of the stockholder or proxy voting and such
other information as the chairman of the meeting deems appropriate. Directors
shall be elected by a plurality of the votes of the shares present in person
or represented by proxy at the meeting and entitled to vote on the election of
directors. Unless otherwise provided by applicable law, the Certificate of
Incorporation of the Corporation or these Bylaws, every matter other than the
election of directors shall be decided by the affirmative vote of the holders
of a majority of the shares of stock entitled to vote thereon that are present
in person or represented by proxy at the meeting and are voted for or against
the matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
Generally. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors and which shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting,
nor more than sixty (60) days prior to any other action. If no record date is
fixed by the Board of Directors, then the record date shall be as provided by
applicable law. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number
of shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present at the
meeting.
Section 1.10 Inspectors of Elections.
(a) Applicability. Unless otherwise provided in the Corporation's
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.11 shall apply only if and
when the Corporation has a class of voting stock that is: (i) listed on a
national securities exchange; (ii) authorized for quotation on an interdealer
quotation system of a registered national securities association; or (iii)
held of record by more than 2,000 stockholders; in all other cases, observance
of the provisions of this Section 1.11 shall be optional and at the discretion
of the Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
or her ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and
the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the
disposition of any challenges made to any determination by the inspectors and
(v) certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots. The inspectors may appoint
or retain other persons or entities to assist the inspectors in the
performance of the duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at
a meeting shall be announced by the inspectors at the meeting. No ballot,
proxies or votes, nor any revocations thereof or changes thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in connection
with proxies in accordance with Section 212(c)(2) of the Delaware General
Corporation Law, the ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable
information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
that represent more votes than the holder of a proxy is authorized by the
record owner to cast or more votes than the stockholder holds of record. If
the inspectors consider other reliable information for the limited purpose
permitted herein, the inspectors at the time they make their certification of
their determinations pursuant to this Section 1.11 shall specify the precise
information considered by them, including the person or persons from whom they
obtained the information, when the information was obtained, the means by
which the information was obtained and the basis for the inspectors' belief
that such information is accurate and reliable.
Section 1.11 Notice of Stockholder Business; Nominations.
(a) Annual Meeting of Stockholders.
(i) Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders shall be made at
an annual meeting of stockholders (A) pursuant to the Corporation's notice
of such meeting, (B) by or at the direction of the Board of Directors or
(C) by any stockholder of the Corporation who was a stockholder of record
at the time of giving of the notice provided for in this Section 1.12, who
is entitled to vote at such meeting and who complies with the notice
procedures set forth in this Section 1.12.
(ii) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (C) of subparagraph
(a)(i) of this Section 1.12, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder's notice must be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business
on the ninetieth (90th) day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date
of the annual meeting is more than thirty (30) days before or more than
sixty (60) days after such anniversary date, notice by the stockholder, to
be timely, must be so delivered not earlier than the close of business on
the ninetieth (90th) day prior to such annual meeting and not later than
the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following
the day on which public announcement of the date of such meeting is first
made by the Corporation. Such stockholder's notice shall set forth: (a) as
to each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected; (b) as to
any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as
to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made, (1) the name and address
of such stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (2) the class and number of shares of the Corporation
that are owned beneficially and held of record by such stockholder and such
beneficial owner.
(iii) Notwithstanding anything in the second sentence of subparagraph
(a)(ii) of this Section 1.12 to the contrary, in the event that the number
of directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased board
of directors at least seventy (70) days prior to the first anniversary of
the preceding year's annual meeting (or, if the annual meeting is held more
than thirty (30) days before or sixty (60) days after such anniversary
date, at least seventy (70) days prior to such annual meeting), a
stockholder's notice required by this Section 1.12 shall also be considered
timely, but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary of the Corporation
at the principal executive office of the Corporation not later than the
close of business on the tenth (10th) day following the day on which such
public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of such meeting. Nominations of
persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (i) by or at the direction of the Board
of Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the
event the Corporation calls a special meeting of stockholders for the purpose
of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for
election to such position(s) as specified in the Corporation's notice of
meeting, if the stockholder's notice required by subparagraph (a)(ii) of this
Section 1.12 shall be delivered to the Secretary of the Corporation at the
principal executive offices of the Corporation not earlier than the ninetieth
(90th) day prior to such special meeting and not later than the close of
business on the later of the sixtieth (60th) day prior to such special meeting
or the tenth (10th) day following the day on which public announcement is
first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
(c) General.
(i) Only such persons who are nominated in accordance with the procedures
set forth in this Section 1.12 shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set
forth in this Section 1.12. Except as otherwise provided by law or these
Bylaws, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made or proposed, as the case may be, in accordance
with the procedures set forth in this Section 1.12 and, if any proposed
nomination or business is not in compliance herewith, to declare that such
defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 1.12, the term "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to sections 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 1.12, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 1.12 shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall consist of
one or more members. The initial number of directors shall be five (5), and
thereafter shall be fixed from time to time by resolution of the Board of
Directors. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. Directors
need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of
Incorporation. Each director shall hold office until the next annual meeting
of stockholders and until such director's successor is elected and qualified,
or until such director's earlier death, resignation or removal. Any director
may resign at any time upon written notice to the Corporation. Subject to the
rights of any holders of Preferred Stock then outstanding: (i) any director or
the entire Board of Directors may be removed, with or without cause, by the
holders of a majority of the shares then entitled to vote at an election of
directors and (ii) any vacancy occurring in the Board of Directors for any
cause, and any newly created directorship resulting from any increase in the
authorized number of directors to be elected by all stockholders having the
right to vote as a single class, may be filled by the stockholders, by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
Section 2.3: Regular Meetings. Regular meetings of the Board of Directors
may be held at such places, within or without the State of Delaware, and at
such times as the Board of Directors may from time to time determine. Notice
of regular meetings need not be given if the date, times and places thereof
are fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President or a majority of the
members of the Board of Directors then in office and may be held at any time,
date or place, within or without the State of Delaware, as the person or
persons calling the meeting shall fix. Notice of the time, date and place of
such meeting shall be given, orally or in writing, by the person or persons
calling the meeting to all directors at least four (4) days before the meeting
if the notice is mailed, or at least twenty-four (24) hours before the meeting
if such notice is given by telephone, hand-delivery, facsimile or similar
communication method. Unless otherwise indicated in the notice, any and all
business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee of the Board of Directors, may participate in a
meeting of the Board or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the Board
of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation of the Corporation, or
required by law, the vote of a majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence,
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8: Written Action by Directors. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board of
Directors or such committee, as the case may be, consent thereto in writing
and the writing or writings are filed with the minutes of proceedings of the
Board or committee, respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
required by law or the Certificate of Incorporation of the Corporation,
exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation.
Section 2.10 Compensation of Directors. Directors, as such, may receive,
pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including without limitation
their services as members of committees of the Board of Directors.
ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board of Directors, designate one or more committees,
each committee to consist of two or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate
members of any committee who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of the committee, the member or members thereof present at any meeting of such
committee who are not disqualified from voting, whether or not he, she or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent provided in a resolution of the
Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation of the
Corporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock
adopted by the Board of Directors as provided in subsection (a) of Section 151
of the Delaware General Corporation Law, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation, or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation, or fix the number of shares of any series of stock or authorize
the increase or decrease of the shares of any series, adopting an agreement of
merger or consolidation under Sections 251 or 252 of the Delaware General
Corporation Law, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or amending these Bylaws; and
unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize
the issuance of stock or adopt a certificate of ownership and merger pursuant
to section 253 of the Delaware General Corporation Law).
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such
rules, each committee shall conduct its business in the same manner as the
Board of Directors conducts its business pursuant to Article II of these
Bylaws.
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of a
Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairman of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the
Board of Directors; provided, however, that the Board of Directors may empower
the Chief Executive Officer of the Corporation to appoint officers other than
the Chairman of the Board, the Chief Executive Officer, the President, the
Chief Financial Officer or the Treasurer. Each officer shall hold office until
his or her successor is elected and qualified or until his or her earlier
death, resignation or removal. Any number of offices may be held by the same
person. Any officer may resign at any time upon written notice to the
Corporation. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the Board of
Directors and such supervisory powers, if any, as may be given by the Board of
Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the Board
of Directors, to have general supervision, general management, direction and
control of the business and affairs of the Corporation and the general
supervision and direction of all of the officers, employees and agents of the
Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such
places as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances,
mortgages, guarantees, leases, obligations, bonds, certificates and other
papers and instruments in writing which have been authorized by the Board of
Directors or which, in the judgment of the Chief Executive Officer, should be
executed on behalf of the Corporation; to sign certificates for shares of
stock of the Corporation; and, subject to the direction of the Board of
Directors, to have general charge of the property of the Corporation and to
supervise and control all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless
the Board of Directors shall designate another officer to be the Chief
Executive Officer. If there is no President, and the Board of Directors has
not designated any other officer to be the Chief Executive Officer, then the
Chairman of the Board shall be the Chief Executive Officer.
Section 4.3: Chairman of the Board. The Chairman of the Board shall have the
power to preside at all meetings of the Board of Directors and shall have such
other powers and duties as provided in these Bylaws and as the Board of
Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive Officer
of the Corporation unless the Board of Directors shall have designated another
officer as the Chief Executive Officer of the Corporation. Subject to the
provisions of these Bylaws and to the direction of the Board of Directors, and
subject to the supervisory powers of the Chief Executive Officer (if the Chief
Executive Officer is an officer other than the President), and subject to such
supervisory powers and authority as may be given by the Board of Directors to
the Chairman of the Board and/or to any other officer, the President shall
have the responsibility for the general management and control of the business
and affairs of the Corporation and the general supervision and direction of
all of the officers, employees and agents of the Corporation (other than the
Chief Executive Officer, if the Chief Executive Officer is an officer other
than the President) and shall perform all duties and have all powers that are
commonly incident to the office of president or that are delegated to the
President by the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such powers
and duties as are commonly incident to the office of Vice President or that
are delegated to him or her by the Board of Directors or the Chief Executive
Officer. A Vice President may be designated by the Board to perform the duties
and exercise the powers of the Chief Executive Officer in the event of the
Chief Executive Officer's absence or disability.
Section 4.6: Chief Financial Officer. Subject to the direction of the Board
of Directors and the President, the Chief Financial Officer shall perform all
duties and have all powers that are commonly incident to the office of chief
financial officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all monies and
securities of the Corporation. The Treasurer shall make such disbursements of
the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform
such other duties and have such other powers as are commonly incident to the
office of a treasurer or as the Board of Directors or the President may from
time to time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued all
authorized notices for, and shall keep or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall
perform such other duties and have such other powers as are commonly incident
to the office of secretary or as the Board of Directors or the President may
from time to time prescribe.
Section 4.9: Assistant Officers. The Assistant Officers, which may include
one or more Assistant Secretaries and/or one or more Assistant Treasurers, in
general shall perform such duties as are customary or as shall be assigned to
them by resolution of the Board of Directors. If required by the Board of
Directors, the Assistant Treasurers shall respectively give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine.
Section 4.10 Delegation of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
Section 4.11 Removal. Any officer of the Corporation shall serve at the
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to have a
certificate signed by or in the name of the Corporation by the Chairman or
Vice-Chairman of the Board of Directors, or the President or a Vice President,
and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, of the Corporation, certifying the number of shares owned
by such stockholder in the Corporation. Any or all of the signatures on the
certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate previously issued by it that is alleged to have been
lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or such owner's legal representative,
to agree to indemnify the Corporation and/or to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors. Each person who was
or is made a party to, or is threatened to be made a party to, or is involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he or she (or a
person of whom he or she is the legal representative) is or was a director or
officer of the Corporation or a Reincorporated Predecessor (as defined below)
or is or was serving at the request of the Corporation or a Reincorporated
Predecessor (as defined below) as a director or officer of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, shall be indemnified and held
harmless by the Corporation to the fullest extent permitted by the Delaware
General Corporation Law against all expenses, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes and penalties and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith, and such indemnification shall continue
as to a person who has ceased to be a director or officer and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that the Corporation shall indemnify any such person seeking
indemnity in connection with a proceeding (or part thereof) initiated by such
person only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation; provided, further, that the Corporation shall
not be required to indemnify a person for amounts paid in settlement of a
proceeding unless the Corporation consents in writing to such a settlement
(such consent not to be unreasonably withheld). As used herein, the term
"Reincorporated Predecessor" means a corporation that is merged with and into
the Corporation in a statutory merger where (a) the Corporation is the
surviving corporation of such merger and (b) the primary purpose of such
merger is to change the corporate domicile of the Reincorporated Predecessor,
and shall include Keynote Systems Incorporated, a California corporation.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses
(including attorneys' fees) incurred by such a director or officer in
defending any such proceeding as such expenses are incurred in advance of its
final disposition; provided, however, that if the Delaware General Corporation
Law then so requires, the payment of such expenses incurred by such a director
or officer in advance of the final disposition of such proceeding shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Article VI or otherwise; and provided, further, that
the Corporation shall not be required to advance any expenses to a person
against whom the Corporation directly brings a claim, in a proceeding,
alleging that such person has breached his or her duty of loyalty to the
Corporation, committed an act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law, or derived an improper
personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any person
in this Article VI shall not be exclusive of any other right that such person
may have or hereafter acquire under any statute, provision of the Certificate
of Incorporation of the Corporation, these Bylaws, agreement, vote or consent
of stockholders or disinterested directors, or otherwise. Additionally,
nothing in this Article VI shall limit the ability of the Corporation, in its
discretion, to indemnify or advance expenses to persons whom the Corporation
is not obligated to indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is authorized
to cause the Corporation to enter into indemnification contracts with any
director, officer, employee or agent of the Corporation, or any person serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans, providing indemnification and related rights
to such person. Such rights may be greater than those provided in this Article
VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification of
any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to
this Article VI and existing at the time of such amendment, repeal or
modification.
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein or
required by law, all notices required to be given pursuant to these Bylaws
shall be in writing and may in every instance be effectively given by hand
delivery (including use of a delivery service) by depositing such notice in
the mail, postage prepaid, or by sending such notice by prepaid telegram,
telex, overnight express courier, mailgram or facsimile. Any such notice shall
be addressed to the person to whom notice is to be given at such person's
address as it appears on the records of the Corporation. The notice shall be
deemed given (i) in the case of hand delivery, when received by the person to
whom notice is to be given or by any person accepting such notice on behalf of
such person, (ii) in the case of delivery by mail, upon deposit in the mail,
(iii) in the case of delivery by overnight express courier, on the first
business day after such notice is dispatched, and (iv) in the case of delivery
via facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given under
any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders, directors or members
of a committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present
at or participates in the meeting of the Board of Directors or committee
thereof that authorizes the contract or transaction, or solely because his,
her or their votes are counted for such purpose, if: (i) the material facts as
to his, her or their relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than
a quorum; (ii) the material facts as to his, her or their relationship or
interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee
thereof or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate seal,
which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying
in good faith upon records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of the
Corporation's officers or employees, or committees of the Board of Directors,
or by any other person as to matters the member reasonably believes are within
such other person's professional or expert competence and who has been
selected with reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Corporation's Certificate of
Incorporation shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be held to
be invalid, illegal, unenforceable or in conflict with the provisions of the
Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including, without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Corporation's Certificate of Incorporation that are not themselves invalid,
illegal, unenforceable or in conflict with the Corporation's Certificate of
Incorporation) shall remain in full force and effect.
ARTICLE X
AMENDMENT
Section 10.1 Amendments. Stockholders of the Corporation holding a majority
of the Corporation's outstanding voting stock shall have the power to adopt,
amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation,
except insofar as Bylaws adopted by the stockholders shall otherwise provide.
KEYNOTE SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
January 19, 2000
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF KEYNOTE SYSTEMS, INC.
The undersigned hereby appoints Umang Gupta and John Flavio, or either of
them, as proxies, each with full power of substitution, and hereby authorizes
them to represent and to vote, as designated below, all shares of common stock,
$0.001 par value per share, of Keynote Systems, Inc., held of record by the
undersigned on December 27, 1999, at the Annual Meeting of Shareholders to be
held at the Hotel Sofitel located at 223 Twin Dolphin Road in Redwood City,
California, on Tuesday, February 22, 2000, at 10 a.m. Pacific Standard Time,
and at any adjournments or postponements thereof.
1. ELECTION OF DIRECTORS.
[_] FOR all nominees listed [_] WITHHOLDING AUTHORITY
below (except as indicated to vote for all nominees
to the contrary below) listed below
Nominees: Umang Gupta
Eugene Shklar
David Cowan
Mark Leslie
Stratton Sclavos
Instruction: To withhold authority to vote for
any individual nominee, write that
nominee's name in the space
provided below.
_____________________________
_____________________________
2. APPROVAL OF A CHANGE IN KEYNOTE SYSTEMS, INC.'S STATE OF INCORPORATION FROM
CALIFORNIA TO DELAWARE.
[_] FOR [_] AGAINST [_] ABSTAIN
3. RATIFICATION OF THE SELECTION OF KPMG LLP AS KEYNOTE SYSTEMS, INC.'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2000.
[_] FOR [_] AGAINST [_] ABSTAIN
The board of directors recommends that you vote FOR the election of the five
nominees listed in Proposal No. 1 and FOR each of Proposal No. 2 and Proposal
No. 3.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
(CONTINUED FROM OTHER SIDE)
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE. WHEN NO CHOICE IS INDICATED,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES LISTED IN PROPOSAL NO.
1 AND FOR EACH OF PROPOSAL NO. 2 AND PROPOSAL NO. 3. In their discretion, the
proxy holders are authorized to vote upon such other business as may properly
come before the meeting or any adjournments or postponements thereof to the
extent authorized by Rule 14a-4(c) promulgated under the Securities Exchange Act
of 1934, as amended.
_____________________________________________________
(Print Shareholder name(s))
_____________________________________________________
(Signature(s) of Shareholder or Authorized Signatory)
_____________________________________________________
Dated: __________________
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president and
the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a deceased shareholder should give
their full title. Please date the proxy.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.