SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
KEYNOTE SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[LOGO OF KEYNOTE SYSTEMS, INC.]
Keynote Systems, Inc.
2855 Campus Drive
San Mateo, California 94403
January 29, 2001
To Our Stockholders:
You are cordially invited to attend the 2001 Annual Meeting of Stockholders
of Keynote Systems, Inc. to be held at the Hotel Sofitel, located at 223 Twin
Dolphin Drive in Redwood City, California, on Tuesday, March 6, 2001 at 10:00
a.m., Pacific Time.
The matters expected to be acted upon at the meeting are described in
detail in the following notice of the 2001 Annual Meeting of Stockholders 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
[LOGO OF KEYNOTE SYSTEMS, INC.]
Keynote Systems, Inc.
2855 Campus Drive
San Mateo, California 94403
----------------
NOTICE OF THE 2001 ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting of Stockholders of
Keynote Systems, Inc. will be held at the Hotel Sofitel, located at 223 Twin
Dolphin Drive in Redwood City, California, on Tuesday, March 6, 2001 at 10:00
a.m., Pacific 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 ratify the selection of KPMG LLP as independent auditors for
Keynote Systems, Inc. for the fiscal year ending September 30, 2001; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
These items of business are more fully described in the proxy statement
accompanying this notice.
Only stockholders of record at the close of business on January 8, 2001 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
By Order of the Board of Directors,
/s/ John Flavio
John Flavio
Secretary
San Mateo, California
January 29, 2001
Whether or not you expect to attend the Annual 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 2001 Annual Meeting of Stockholders:
Proposal No. 1--Election of Directors................................... 3
Directors/Nominees.................................................... 3
Board Meetings and Board Committees................................... 4
Director Compensation................................................. 4
Compensation Committee Interlocks and Insider Participation........... 5
Report of the Audit Committee......................................... 5
Proposal No. 2--Ratification of Selection of Independent Auditors....... 7
Security Ownership of Certain Beneficial Owners and Management.......... 8
Executive Compensation.................................................. 10
Summary Compensation Table............................................ 10
Option Grants in Fiscal 2000.......................................... 10
Aggregated Option Exercises in Fiscal 2000 and Option Values at
September 30, 2000................................................... 11
Employee Benefit Plans................................................ 12
Compensation Arrangements with Executive Officers....................... 15
Report of the Compensation Committee.................................... 16
Stock Price Performance Graph........................................... 18
Certain Relationships and Related Transactions.......................... 19
Stockholder Proposals for the 2002 Annual Meeting of Stockholders....... 20
Compliance Under Section 16(a) of the Securities Exchange Act of 1934... 20
Other Business.......................................................... 20
Appendix: Charter of the Audit Committee of the Board of Directors........ A-1
i
Keynote Systems, Inc.
2855 Campus Drive
San Mateo, California 94403
----------------
PROXY STATEMENT
FOR THE 2001 ANNUAL MEETING OF STOCKHOLDERS
----------------
January 29, 2001
The accompanying proxy is solicited on behalf of the board of directors of
Keynote Systems, Inc., a Delaware corporation, for use at the 2001 Annual
Meeting of Stockholders to be held at the Hotel Sofitel, located at 223 Twin
Dolphin Drive in Redwood City, California, on Tuesday, March 6, 2001 at 10:00
a.m., Pacific Time. Only holders of record of our common stock at the close of
business on January 8, 2001, 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 27,840,442 shares of common stock outstanding and entitled to vote. The
holders of a majority of the shares of our common stock entitled to vote on
the record date, present in person or represented by proxy, 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 the Annual Meeting and this
proxy statement. This proxy statement and the accompanying form of proxy were
first mailed to stockholders on or about February 2, 2001. Our annual report
and Form 10-K for the fiscal year ended September 30, 2000 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.
Vote Needed for a Quorum
A quorum is required for our stockholders to conduct business at the Annual
Meeting. The holders of a majority of the shares of our common stock entitled
to vote on the record date, present in person or represented by proxy, will
constitute a quorum for the transaction of business.
Effect of Abstentions
Proxies returned to us but marked as abstentions will not affect the
outcome of the vote on each of the proposals, but will be included in the
calculation of the number of shares considered to be present at the meeting
for quorum purposes. The failure of a stockholder to submit a proxy or to vote
in person at the Annual Meeting (including "broker non-votes") will not affect
the outcome of the vote on each of the proposals, and will not be including in
determining whether there are sufficient shares to constitute a quorum.
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 our common stock, present in person or represented
by proxy at the Annual Meeting, and entitled to vote on the election of
directors. Approval and adoption of Proposal No. 2 requires the affirmative
vote of a majority of the shares of our 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 by our stockholders of any of
the other proposals by the stockholders.
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 shares of common stock present in person or
represented by proxy at the Annual Meeting.
1
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 these 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. 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 stockholder's shares are held of record by
a broker, bank or other nominee and that stockholder wishes to vote at the
Annual Meeting, the stockholder must bring to the Annual Meeting a letter from
the broker, bank or other nominee confirming the stockholder's beneficial
ownership of the shares.
2
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, stockholders will elect each director to hold office
until the next Annual Meeting of Stockholders and until his successor has been
elected and qualified or until such director's 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 a 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.
Directors/Nominees
The names of the nominees for election to our board of directors at the
Annual Meeting, and information about each of them, are included below.
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
Umang Gupta............. 51 Chairman of the Board and Chief
Executive Officer of Keynote 1997
David Cowan............. 34 General Partner of Bessemer Venture
Partners 1998
Mark Leslie............. 55 Chairman of the Board and Chief
Executive Officer of VERITAS Software
Corporation 1999
Stratton Sclavos........ 39 President, Chief Executive Officer and
Director of VeriSign, Inc. 1999
Leo Hindery, Jr......... 53 Chairman of the Board of HL Capital,
Inc. --
Umang Gupta has served as one of our directors since September 1997 and as
our Chief Executive Officer and Chairman of our 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, Mr. Gupta was the founder and Chairman of the board of directors 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 the last position he held was Vice President and
General Manager of its Microcomputer Products Division. From 1973 to 1980, Mr.
Gupta 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.
David Cowan has served as 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, Mr.
Cowan also served as Chief Executive Officer of Visto Corporation, an Internet
services company. From January 1995 to June 1996, he served as Chief Financial
Officer, and from January 1995 to June 1995, he served as Chairman of the
Board, of VeriSign, Inc., a provider of Internet services. Mr. Cowan also
serves as a director of VeriSign as well as 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 served as one of our directors since June 1999. Since
November 2000, he has been the Chairman of the Board of VERITAS Software.
Prior to that and since 1990, he served as Chief Executive Officer of VERITAS
Software Corporation, a storage management software company. He has served as
a director of VERITAS since 1988. He also serves on the board of Brocade
Communications Systems, Inc. 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 served as one of our directors since April 1999. Since
July 1995, Mr. Sclavos has been the President, Chief Executive Officer and a
director of VeriSign. 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 Juniper Networks,
Inc. Mr. Sclavos holds a B.S. degree in electrical and computer engineering
from the University of California, Davis.
Leo Hindery, Jr. has been nominated to serve as one of our directors. Since
January 2001, Mr. Hindery has served as the chairman of HL Capital, Inc., his
family's private investment and charitable organization. From December 1999 to
January 2001, he served as the Chairman of the Board and Chief Executive
Officer of GlobalCenter Inc., the Internet services subsidiary of Global
Crossing Ltd., a web hosting provider, which subsidiary was acquired by Exodus
Communications, Inc., in January 2001 In addition, from March 2000 to October
2000, Mr. Hindery served as interim Chief Executive Officer of Global
Crossing. From March 1999 to November 1999, he served as the President and
Chief Executive Officer of AT&T Broadband, a provider of telephony, video and
data services operations. From March 1997 to March 1999, Mr. Hindery served as
President and Chief Executive Officer of Tele-Communications, Inc., a cable
television and programming company which was acquired by AT&T. Before this, he
was Managing General Partner of InterMedia Partners, a cable television system
operator that he founded in January 1988. Mr. Hindery also serves as a
director of GT Group Telecom Inc., TD Waterhouse Group and several private
companies. He holds a B.A. degree in economics and political science from
Seattle University and an M.B.A. degree from Stanford University.
The Board Recommends a Vote FOR the Election of
Each of the Nominated Directors.
Board Meetings and Board Committees
Board Meetings.
The board met six times, including telephone conference meetings, and acted
one time by written consent, during the fiscal year ended September 30, 2000.
No director attended fewer than 75% of the total number of meetings held by
the board and 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 Mr. Cowan and Mr. 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 Mr. Leslie
and Mr. Sclavos. 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.
4
Option Grants. On September 24, 1999, the date of our initial public
offering, each non-employee director who was a member of our board on or
before September 24, 1999, was automatically granted an option under our 1999
Equity Incentive Plan, at an exercise price equal to the fair market value of
our common stock on the date of grant, to purchase 50,000 shares unless that
director had previously received an option grant. Each non-employee director
who 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. The options have ten-year terms and
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 automatically granted to non-employee directors under
the plan vest over three years. One-third of the shares subject to these
options 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
stockholders following the grant of the option. The remaining shares subject
to these options 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.
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. Mr. Gupta did not participate in discussions by our
board with respect to his compensation.
Report of the Audit Committee
The audit committee of the board of directors monitors the adequacy of
Keynote's accounting and financial reporting processes. The committee also
evaluates the performance and independence of Keynote's independent auditors.
The audit committee operates under a written charter, which was adopted on
June 9, 2000, by Keynote's board of directors and by the audit committee, each
on June 9, 2000. This written charter is included as an appendix to this proxy
statement.
Under the written charter of the audit committee, until June 13, 2001, the
committee will consist of at least two directors, a majority of whom are not
officers or employees of Keynote. The current members of the committee are Mr.
Leslie and Mr. Sclavos. Each is an "independent" director as defined by the
rules of The Nasdaq Stock Market. Beginning on June 14, 2001, the audit
committee will consist of at least three directors and each member of the
committee must be "independent" as defined by the rules of The Nasdaq Stock
Market.
Keynote's financial and senior management supervise its systems of internal
controls and the financial reporting process. Keynote's independent auditors
perform an independent audit of its consolidated financial statements in
accordance with generally accepted accounting principles and issue a report on
these consolidated financial statements. The audit committee monitors these
processes.
The audit committee has reviewed Keynote's audited consolidated financial
statements for the fiscal year ended September 30, 2000 and has met with both
the management of Keynote and its independent accountants to discuss the
consolidated financial statements. Keynote's management represented to the
audit committee that its audited consolidated financial statements were
prepared in accordance with generally accepted accounting principles.
The audit committee discussed with Keynote's independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees. The audit committee has also received
from Keynote's independent auditors the written disclosures and letter
required by Independence
5
Standards Board Standard No. 1, Independence Discussions with Audit Committees
and has discussed with Keynote's independent auditors the independence of that
firm.
Based on the audit committee's discussions with the management of Keynote
and Keynote's independent auditors and based on the audit committee's review
of Keynote's audited consolidated financial statements together with the
report of Keynote's independent auditors on the consolidated financial
statements and the representations of Keynote's management with regard to
these consolidated financial statements, the audit committee recommended to
Keynote's board of directors that the audited consolidated financial
statements be included in Keynote's annual report on Form 10-K for the fiscal
year ended September 30, 2000 filed with the Securities and Exchange
Commission.
Audit Committee
Mark Leslie
Stratton Sclavos
6
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The audit committee of our board of directors has selected KPMG LLP as the
independent auditors to perform the audit of our financial statements for the
fiscal year ending September 30, 2001, and the stockholders are being asked to
ratify such selection. Effective February 1999, our board of directors
approved a change in our accountants and engaged KPMG as our principal
accountants to audit our financial statements. We did not consult with KPMG on
any accounting or financial reporting periods before their engagement. Before
this change, Arthur Andersen LLP served as our independent auditors. The
dismissal of Arthur Andersen effective February 1999, was approved by our full
board of directors prior to the creation of our audit committee.
Arthur Andersen performed the first full fiscal year audit of our financial
statements for the fiscal year then ended December 31, 1996, as well as the
audit for the fiscal year then ended December 31, 1997. The report of Arthur
Andersen on our financial statements prepared in connection with the December
31, 1996 and 1997 audits was unqualified. Furthermore, in connection with the
December 31, 1996 and 1997 audits and during the subsequent interim period
prior to the dismissal of Arthur Andersen, there were no disagreements between
us and Arthur Andersen on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of Arthur Andersen, would have caused Arthur
Andersen to make reference to the subject matter of such disagreements in
connection with its report.
Following our engagement of KPMG effective February 1999, KPMG completed an
audit of our financial statements for the fiscal year then ended December 31,
1998. Subsequent to this audit, we changed our fiscal year end from December
31 to September 30. As the prior year audits performed by Arthur Andersen were
as of December 31, KPMG audited the fiscal years ended September 30, 1996,
1997 and 1998. KPMG has since audited our two most recent fiscal years ended
September 30, 1999 and 2000.
Representatives of KPMG 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
7
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, 2000:
. each stockholder 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, 2000 was more than $100,000; and
. directors and executive officers as a group.
The percentage ownership is based on 27,840,442 shares of common stock
outstanding as of December 31, 2000. Shares of common stock that are subject
to options currently exercisable or exercisable within 60 days of December 31,
2000, 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. The address for each of the 5% or greater stockholders listed
below is c/o Keynote Systems, Inc., 2855 Campus Drive, San Mateo, CA 94403,
unless otherwise noted.
Shares Beneficially Owned
-----------------------------
Name of Beneficial Owner Number of Shares Percent
- ------------------------ ----------------- ----------
Umang Gupta(1)................................ 2,167,232 7.78%
Eugene Shklar................................. 2,023,140 7.27
FMR Corp.(2).................................. 1,686,940 6.06
One Federal Street
Boston, Ma 02110-2003
Stratton Sclavos(2)........................... 1,389,122 4.98
David Cowan(3)................................ 1,196,319 4.29
Donald Aoki(4)................................ 282,397 1.01
Lloyd Taylor(5)............................... 129,124 *
Roger Higgins(6).............................. 112,859 *
Mark Leslie(7)................................ 77,777 *
John Flavio(8)................................ 44,365 *
Leo Hindery, Jr. ............................. -- *
All 13 directors and executive officers as a
group(9)..................................... 5,273,058 19.48%
- --------
* Indicates beneficial ownership of less than 1%.
(1) Includes 70,000 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 the shares.
(2) Based solely on information provided by FMR Corp. in a Form 13F filed
with the Securities and Exchange Commission on November 14, 2000.
(3) Includes 1,361,345 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.
also Includes 27,777 shares subject to an option exercisable within 60
days of December 31, 2000.
(4) Includes 430,463 shares held by Bessec Ventures IV L.P., 426,933 shares
held by Bessemer Venture Partners IV, L.P., 105,716 shares held by
Bessemer Venture Investors and 53,179 shares held by Bessemer Venture
Associates. 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. Includes 27,777 shares subject to an option
exercisable within 60 days of December 31, 2000.
8
(5) Includes 5,342 shares held by Mr. Aoki as trustee for his minor children.
Includes 2,083 shares subject to an option exercisable within 60 days of
December 31, 2000. Of the shares held by Mr. Aoki, 18,301 shares remained
subject to our right of repurchase as of December 31, 2000.
(6) Includes 62,500 shares subject to options exercisable within 60 days of
December 31, 2000. Of the shares held by Mr. Taylor, 78,125 shares
remained subject to our right of repurchase as of December 31, 2000.
(7) Represents 42,859 shares held by the Roger W. Higgins and Priscilla
Higgins Revocable Trust and 70,000 shares held by the Higgins-Trapwell
Family Foundation. Mr. Higgins disclaims beneficial ownership of the
shares held by these entities except to the extent of his pecuniary
interest in the shares. Of the shares held by Mr. Higgins, 11,685 shares
remained subject to our right of repurchase as of December 31, 2000.
(8) Represents 30,000 shares held by Leslie Investments, LLC. Mr. Leslie, one
of our directors, disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest in the shares. Includes 47,777 shares
subject to options exercisable within 60 days of December 31, 2000.
(9) Includes 30,728 shares subject to options exercisable within 60 days of
December 31, 2000.
(10) Includes 185,515 shares subject to options exercisable within 60 days of
December 31, 2000. Of the shares held, 118,341 shares remained subject to
our right of repurchase as of December 31, 2000.
9
EXECUTIVE COMPENSATION
The following table presents compensation information for the fiscal years
ending September 30, 1998, 1999 and 2000 paid or accrued to our Chief
Executive Officer and our four other most highly compensated executive
officers whose salary and bonus for the year ended September 30, 2000 was more
than $100,000.
Summary Compensation Table
Annual Long Term
Compensation Compensation
----------------- ------------
Awards
Securities
Fiscal Underlying
Name and Principal Position Year Salary Bonus Options
- --------------------------- ------ -------- -------- ------------
Umang Gupta............................... 2000 $200,860 $100,000 300,000
Chief Executive Officer 1999 188,288 -- --
1998 119,704 -- 1,750,000
Roger Higgins............................. 2000 179,518 113,124 --
Vice President of Worldwide Sales 1999 185,479 88,145 --
1998 181,466 61,034 --
John Flavio............................... 2000 173,713 17,000 30,000
Vice President of Finance and 1999 31,417 -- 205,000
Chief Financial Officer 1998 -- -- --
Donald Aoki............................... 2000 168,842 8,500 30,000
Vice President of Engineering 1999 166,920 -- 50,000
1998 144,748 -- --
Lloyd Taylor.............................. 2000 164,984 14,630 30,000
Vice President of Operations 1999 114,001 -- 200,000
1998 -- -- --
Option Grants in Fiscal 2000
The following table presents the grants of stock options under our 1999
Equity Incentive Plan during the year ended September 30, 2000 to our Chief
Executive Officer and our four other most highly compensated executive
officers.
All options granted under our 1999 Equity Incentive Plan are either
incentive stock options or nonqualified stock options. Options granted under
our 1999 Equity Incentive 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 Equity Incentive Plan that
are not immediately exercisable 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. 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 year
ending September 30, 2000, we granted to our employee's options to purchase a
total of 2,488,273 shares of our common stock.
Potential realizable values are computed by:
. multiplying the number of shares of common stock subject to a given
option by the market price per share of our common stock on the date of
grant;
10
. assuming that the aggregate option exercise price as 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. The
closing price per share of our common stock as reported on the Nasdaq National
Market on September 29, 2000, the last trading day of fiscal 2000, was $26.75.
Individual Grants Potential Realizable
--------------------------------------------- Value at Assumed Annual
Number of Percent of Rates of Stock Price
Securities Total Options Appreciation for Option
Underlying Granted to Exercise Term
Options Employees in Price Expiration -----------------------
Name Granted Fiscal 2000 Per Share Date 5% 10%
- ---- ---------- ------------- --------- ---------- ----------- -----------
Umang Gupta............. 300,000 12.1% $ 70.00 01/16/10 $13,206,787 $33,468,592
Roger Higgins........... -- -- -- -- -- --
John Flavio............. 30,000 1.2 35.875 08/10/10 676,848 1,715,265
Donald Aoki............. 30,000 1.2 35.875 08/10/10 676,848 1,715,265
Lloyd Taylor............ 30,000 1.2 35.875 08/10/10 676,848 1,715,265
Aggregated Option Exercises in Fiscal 2000 and
Option Values at September 30, 2000
The following table presents the number of shares acquired and the value
realized upon exercise of stock options during the year ended September 30,
2000. The value realized upon exercise is calculated by subtracting the
aggregate option exercise price from the fair market value of the shares on
the date of exercise. The table also presents the number of shares of common
stock subject to "vested" and "unvested" stock options held as of September
30, 2000 by our Chief Executive Officer and our four other most highly
compensated executive officers. Also presented is the value of "in-the-money"
options as of September 30, 2000, which represents the positive difference
between the aggregate exercise price of the outstanding stock option and the
aggregate fair market value of the option based on $26.75, the closing price
per share of our common stock on September 29, 2000, the last trading day of
fiscal 2000, as reported 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 and becomes 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.
Value of
Number of Unexercised
Securities Underlying In-the-Money
Number of Unexercised Options Options at
Shares at September 30, 2000 September 30, 2000
Acquired on Value ---------------------- -------------------
Name Exercise Realized Vested Unvested Vested Unvested
- ---- ----------- ---------- ---------- ----------- -------- ----------
Umang Gupta............. -- $ -- -- 300,000 $ -- $ --
Roger Higgins........... -- -- -- -- -- --
John Flavio............. 62,500 2,983,970 11,458 161,042 214,763 2,457,038
Donald Aoki............. 5,417 210,503 -- 73,750 -- 820,313
Lloyd Taylor............ 20,832 1,040,603 1,042 58,126 19,538 527,363
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. As of September 30, 2000, our Chief Executive Officer and
four other most highly
11
compensated executive officers had exercised options to purchase the following
shares that remained subject to our right of repurchase:
Shares
Subject to
Name Repurchase
---- ----------
Umang Gupta..................................................... --
Roger Higgins................................................... 24,108
John Flavio..................................................... --
Donald Aoki..................................................... 28,804
Lloyd Taylor.................................................... 87,500
Employee Benefit Plans
1996 Stock Option Plan and 1999 Stock Option Plan
Our 1996 Stock Option Plan and 1999 Stock Option Plan terminated upon the
date of our initial public offering in September 1999, at which time our 1999
Equity Incentive Plan became effective. Since that time, no additional options
have been granted or in the future will be granted under these plans. However,
this termination did not affect any options outstanding under these plans, all
of which will 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 our 1999 Equity Incentive Plan.
1999 Equity Incentive Plan
Shares Reserved Under the Plan. The board of directors has adopted and our
stockholders have approved our 1999 Equity Incentive Plan. The board initially
reserved 5,000,000 shares of common stock available for issuance under this
plan. In addition, upon the date of our initial public offering on September
24, 1999, a total of 438,037 additional shares previously reserved for grant
under our 1996 Stock Option Plan and 1999 Stock Option Plan became available
for grant under the 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 of each year, the total number of shares reserved
for issuance under the plan increases automatically by a number of shares
equal to 5% of our outstanding shares on December 31 of the preceding year. As
of September 30, 2000, options to purchase 3,926,820 shares were outstanding,
and we had 3,903,110 shares of common stock available for issuance under the
plan, including our 1996 Stock Option Plan and 1999 Stock Option Plan. As of
January 1, 2001, the date of the automatic increase, options to purchase
3,852,865 shares were outstanding, and we had 5,322,816 shares of common stock
available for issuance under the plan, including our 1996 Stock Option Plan
and 1999 Stock Option Plan.
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.
12
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. Except for the automatic option grants to non-
employee directors described below, 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.
Grants or options to purchase fewer than 15,000 shares of our common stock can
be authorized by our Chief Executive Officer and ratified by our compensation
committee.
Eligibility to Participate. The plan authorizes the award of stock options,
restricted stock awards and stock bonuses. These 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 provide bona fide services to us not in
connection with the offer and sale of securities in a capital-raising
transaction. No person is eligible to received more than 4,000,000 shares in
any calendar year under the Plan, other than our new employees or new
employees of a parent or subsidiary of us, who are eligible to receive up to
4,500,000 shares in the calendar year in which they begin their employment
with us. 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.
Stock Options. The plan provides for the grant of 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. 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% stockholders 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. Options granted under the plan are
exercisable as they 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. Our non-employee 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 upon
the earlier of one year of service as a director or the date of our annual
meeting and as to 2.82% of the shares each succeeding month.
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.
Restricted Stock and Stock Bonus Awards. The plan authorizes the grant of
restricted stock and stock bonus awards either in addition to or in lieu of
other awards under the plan, under the terms, conditions and restrictions as
the compensation committee may provide. They 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 stockholders 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 initially 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
13
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. As of
September 30, 2000, we had 562,831 shares of common stock available for
issuance under the plan and 73,256 shares had been purchased under the plan.
As of January 1, 2001, the date of the automatic increase, we had 278,322
shares of common stock available for issuance under the plan and no additional
shares had been purchased under the plan since September 30, 2000.
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% stockholders 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 be 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 stockholder 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, stockholder 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.
14
COMPENSATION ARRANGEMENTS WITH EXECUTIVE OFFICERS
Other than our employment agreement with Mr. Gupta, our Chief Executive
Officer, which is described below, we do not have employment agreements with
any of our executive officers. Options granted to our four most highly
compensated executive officers during the fiscal year ended September 31, 2000
are described above in the section "Executive Compensation."
Umang Gupta. In December 1997, we entered into an employment agreement with
Mr. Gupta, our Chief Executive Officer. 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 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.
Olivier Carron. In April 2000, we granted Mr. Carron, our Vice President of
Keynote Europe, options to purchase 20,000 shares of common stock at an
exercise price of $35.625 per share. In September 2000, we granted him options
to purchase 20,000 shares of common stock at an exercise price of $22.313.
Each of these options vests as to 25% of the shares subject to the option one
year after the date of grants and as to 2.083% of the total shares each
succeeding month.
Marilyn Kanas. In June 2000, we granted Ms. Kanas, our Vice President of
Marketing and Public Services, options to purchase 29,700 shares of common
stock at an exercise price of $50.063 per share. In September 2000, we granted
her an option to purchase 40,000 shares of common stock at an exercise price
of $22.313 per shares. Each of these options vests as to 25% of the shares
subject to the option one year after the date of grants and as to 2.083% of
the total shares each succeeding month.
Kevin Brown. In June 2000, we granted Mr. Brown, our Vice President of U.S.
Sales, options to purchase 20,000 shares of common stock at an exercise price
of $54.75 per share. In August 2000, we granted him an option to purchase
40,000 shares of common stock at an exercise price of $35.875 per share. Each
of these options vests as to 25% of the shares subject to the option one year
after the date of grants and as to 2.083% of the total shares each succeeding
month.
15
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 Mr. Cowan and Mr. 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 of stock options to purchase in excess of 15,000 shares and to
administer the stock option and other employee equity and bonus plans. Grants
of options to purchase fewer than 15,000 shares can be authorized by our Chief
Executive Officer, Umang Gupta, and ratified by the compensation committee.
Keynote's compensation philosophy for executive officers is to relate
compensation to corporate performance and increases in stockholder 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
stockholders.
Executive Compensation
Base Salary. Salaries for executive officers for the fiscal year ended
September 30, 2000 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 stockholders 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, 2000, 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 stockholders. 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
16
and is based on anticipated future contribution and ability to impact
Keynote's results, past performance or consistency within the officer's peer
group. In the fiscal year ended September 30, 2000, 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, 2000 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 stockholders.
Compensation Committee
David Cowan
Mark Leslie
17
STOCK PRICE PERFORMANCE GRAPH
The follow table compares the cumulative total stockholder 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 annual return through September 30, 2000. The
stock price performance on the following graph is not necessarily indicative
of future stock price performance.
[PERFORMANCE GRAPH APPEARS HERE]
- -------------------------------------------------------
9/24/99 9/30/99 9/30/00
- -------------------------------------------------------
Keynote Systems, Inc. 100 92 98
- -------------------------------------------------------
Nasdaq Composite Index 100 100 134
- -------------------------------------------------------
The Street.com Index 100 105 116
- -------------------------------------------------------
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the compensation arrangements, which are described where
required in "Director Compensation" and "Executive Compensation" and the
transactions described below, since October 1, 1999, 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.
Loans to Executive Officers
Umang Gupta. In April 1998, we loaned $280,000 to Umang Gupta, our Chief
Executive Officer, secured by a pledge of shares of our common stock subject
to his options, in connection with his exercise of options to purchase these
shares. In May 1999, we loaned $300,000 to Mr. Gupta, evidenced by a full
recourse promissory note and secured by pledge of shares of our common stock
subject to his options, 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 that
accrued interest at a rate of 6.0% per year and was due and payable on or
before December 31, 2001. The largest aggregate amount outstanding under this
loan during the year ended September 30, 2000, was $580,000. This loan,
including accrued interest, was paid in full in April 2000.
Lloyd Taylor. In January 1999, we loaned an additional $75,000 to Lloyd
Taylor, our Vice President of Operations, secured by a pledge of shares of our
common stock subject to his options, in connection with his exercise of an
option to purchase these shares. This note accrued interest at a rate of 7.0%
per yea and was due and payable on or before January 2004. Additionally in
January 1999, we loaned $150,000 to Mr. Taylor, secured by a loan and security
agreement, in connection with his relocation to California. The loan accrued
interest at a rate of 9.0% and was due and payable on or before January 2002.
The largest aggregate amount outstanding under these loans during the year
ended September 30, 2000, was $225,000. These loans, including accrued
interest, were paid in full in March 2000.
Marlene Williamson. In November 1999, we loaned $263,000 to Marlene
Williamson, our Vice President of Marketing, secured by pledge of shares of
our common stock, in connection with her relation to California. The loan
accrued interest at a rate of 6.0% per year and was due and payable on or
before May 2000. The largest aggregate amount outstanding under this loan
during the year ended September 30, 2000 was $263,000. This loan, including
accrued interest, was paid in full in May 2000.
John Flavio. In December 1999, we loaned $200,000 to John Flavio, our Chief
Financial Officer, secured by a pledge of shares of our common stock, in
connection with his relocation to California. The loan accrued interest at a
rate of 6.0% per year and was due and payable on or before June 2000. The
largest aggregate amount outstanding under this loan during the year ended
September 30, 2000 was $200,000. This loan, including accrued interest, was
paid in full in March 2000.
Donald Aoki. In January 2001, we loaned $575,000 to Don Aoki, our Vice
President of Engineering, secured by a pledge of shares of our common stock
and a deed of trust on certain real property. The loan accrues interest at a
rate of 5.9% per year and is due and payable on or before January 2002. The
entire principal amount of this loan is currently outstanding.
19
STOCKHOLDER PROPOSALS FOR THE 2002 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at our 2002 Annual
Meeting of Stockholders must be received by us at our principal executive
offices no later than 120 calendar days before the date of this proxy
statement, or October 1, 2001, in order to be included in our proxy statement
and form of proxy relating to the meeting. Proposals of stockholders received
by us at our principal executive offices later than 45 days after the date
this proxy statement was first mailed to our stockholders, or December 19,
2001, 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,
2000 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 Annual 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 Annual Meeting.
20
Appendix
KEYNOTE SYSTEMS, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
I. Purpose
The purpose of the Audit Committee (the "Committee") of the Board of
Directors (the "Board") of Keynote Systems, Inc. (the "Company") is to assist
the Board in fulfilling its statutory and fiduciary oversight responsibilities
relating to the Company's financial accounting, reporting and controls. The
Committee's principal functions are to:
. monitor the periodic reviews of the adequacy of the accounting and
financial reporting processes and systems of internal control that are
conducted by the Company's independent auditors, and the Company's
financial and senior management;
. review and evaluate the independence and performance of the Company's
independent auditors; and
. facilitate communication among the Company's independent auditors, the
Company's financial and senior management, and the Board.
The Committee will fulfill these functions primarily by carrying out the
activities enumerated in Part IV of this charter. In order to serve these
functions, the Committee shall have unrestricted access to Company personnel
and documents, and shall have authority to direct and supervise an
investigation into any matters within the scope of its duties, including the
power to retain outside counsel in connection with any such investigation.
While the Audit Committee has the responsibilities and powers set forth in
this charter, it is not the duty of the Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is
the responsibility of management and the Company's independent auditors. Nor
is it the duty of the Committee to conduct investigations, to resolve
disagreements, if any, between management and its independent auditors or to
assure compliance with laws and regulations and the Company's policies and
procedures.
II. Membership
All members of the Committee will be appointed by, and shall serve at the
discretion of, the Board. Unless a chair is elected by the full Board, the
members of the Committee may designate a Chair by majority vote of the
Committee membership.
As of the date this charter is adopted and until June 13, 2001, the
Committee shall consist of at least two members of the Board. At least a
majority of the members shall be persons who are not officers or employees of
the Company or any subsidiary and who do not have any other relationship
which, in the opinion of the Board of Directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. As of June 14, 2001, the Committee shall consist of three or more
members of the Board, with the exact number being determined by the Board.
Each member of the Committee shall be "independent" as defined by the rules of
The Nasdaq Stock Market, as they may be amended from time to time (the
"Rules"), except as otherwise permitted by such Rules. Each member of the
Committee shall have the ability to read and understand fundamental financial
statements (or become able to do so within a reasonable time after joining the
Committee) and at least one member shall have prior experience in accounting,
financial management or financial oversight, as required by the Rules.
III. Meetings
Meetings of the Committee shall be held at least quarterly and more
frequently as determined to be appropriate by the Committee. The Committee
should periodically meet with the independent auditors out of the presence of
management about internal controls, the fullness and accuracy of the Company's
financial statements
A-1
and any other matters that the Committee or the independent auditors believe
should be discussed privately with the Committee. The Committee members, or
the Chairman of the Committee on behalf of all of the Committee members,
should communicate with management and the independent auditors on a quarterly
basis in connection with their review of the Company's financial statements.
IV. Responsibilities and Duties
The following shall be the principal recurring processes of the Committee
in carrying out its oversight responsibilities. These processes are set forth
as a guide with the understanding that the Committee may supplement them as
appropriate and may establish policies and procedures from time to time that
it deems necessary or advisable in fulfilling its responsibilities.
1. Review the Company's quarterly and annual financial statements,
including any report or opinion by the independent auditors, prior to
distribution to the public or filing with the Securities and Exchange
Commission.
2. In connection with the Committee's review of the annual financial
statements:
. Discuss with the independent auditors and management the financial
statements and the results of the independent auditors' audit of the
financial statements.
. Discuss any items required to be communicated by the independent
auditors in accordance with SAS 61, as amended. These discussions should
include the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles, the
reasonableness of significant judgments, the clarity of the disclosures
in the Company's financial statements and any significant difficulties
encountered during the course of the audit, including any restrictions
on the scope of work or access to required information.
3. In connection with the Committee's review of the quarterly financial
statements:
. Discuss with the independent auditors and management the results of the
independent auditors' SAS 71 review of the quarterly financial
statements.
. Discuss significant issues, events and transactions and any significant
changes regarding accounting principles, practices, judgments or
estimates with management and the independent auditors, including any
significant disagreements among management and the independent auditors.
4. Discuss any comments or recommendations of the independent auditors
outlined in their annual management letter. Approve a schedule for
implementing any recommended changes and monitor compliance with the schedule.
5. Discuss with the independent auditors and management their periodic
reviews of the adequacy of the Company's accounting and financial reporting
processes and systems of internal control, including the adequacy of the
systems of reporting to the audit committee by management and by the
independent auditors.
6. Periodically consult with the independent auditors out of the presence
of management about internal controls, the fullness and accuracy of the
Company's financial statements and any other matters that the Committee or
such persons believe should be discussed privately with the Committee.
7. Review the independence and performance of the independent auditors.
Recommend to the Board of Directors the appointment or discharge of the
independent auditors.
8. Communicate with the Company's independent auditors about the Company's
expectations regarding its relationship with the auditors, including the
following: (i) the independent auditors' ultimate accountability to the Board
and the Committee, as representatives of the Company's stockholders; and (ii)
the ultimate authority and responsibility of the Board and the Committee to
select, evaluate and, where appropriate, replace the independent auditors.
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9. Review and approve processes and procedures to ensure the continuing
independence of the Company's independent auditors. These processes shall
include obtaining and reviewing, on an annual basis, a letter from the
independent auditors describing all relationships between the independent
auditors and the Company required to be disclosed by Independence Standards
Board Standard No. 1, reviewing the nature and scope of such relationships and
discontinuing any relationships that the Committee believes could compromise
the independence of the auditors.
10. Review the independent auditors' audit plan.
11. Approve the fees and other significant compensation to be paid to the
independent auditors.
12. Periodically review the status of any legal matters that could have a
significant impact on the Company's financial statements.
13. Annually prepare a report to the Company's stockholders for inclusion
in the Company's annual proxy statement as required by the rules and
regulations of the Securities and Exchange Commission, as they may be amended
from time to time.
14. Maintain minutes of meetings and periodically report to the Board of
Directors on significant matters related to the Committee's responsibilities.
15. Review and reassess the adequacy of the Committee's charter at least
annually. Submit the charter to the Company's Board of Directors for review
and include a copy of the charter as an appendix to the Company's proxy
statement as required by the rules and regulations of the Securities and
Exchange Commission, as they may be amended from time to time (currently, once
every three years).
16. Perform any other activities required by applicable law, rules or
regulations, including the rules of the Securities and Exchange Commission and
any stock exchange or market on which the Company's Common Stock is listed,
and perform other activities that are consistent with this charter, the
Company's Bylaws and governing laws, as the Committee or the Board deems
necessary or appropriate.
A-3
KEYNOTE SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
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 January 8, 2001, at the Annual Meeting of Stockholders to be
held at the Hotel Sofitel in Redwood City, California, on Tuesday, March 6,
2001, at 10:00 a.m. Pacific Time, and at any adjournments or postponements
thereof.
1. Election of Directors.
[_] FOR all nominees listed [_] WITHHOLDING AUTHORITY
below (except as indicated to the contrary to vote for all nominees
below) listed below
Nominees: Umang
Gupta Instruction: To withhold authority to vote for
David Cowan any individual nominee, write that
Mark Leslie nominee's name in the space
Stratton
Sclavos provided below.
Leo Hindery,
Jr. ______________________________________________
______________________________________________
2. Ratification of The Selection of KPMG LLP as Keynote Systems, Inc.'s
Independent Auditors for the Fiscal Year Ending September 30, 2001.
[_] 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 Proposal No. 2.
(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 PROPOSAL NO. 2. 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 Stockholder(s)
name)
--------------------------
(Signature(s) of
Stockholder 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
these 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 stockholder should give
their full title. Please date the proxy.
Whether or not you plan to attend the Annual 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 Annual Meeting.