UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 27, 2006
KEYNOTE SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
000-27241 94-3226488
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(Commission (IRS Employer
File Number) Identification No.)
777 Mariners Island Boulevard, San Mateo, California 94404
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(Address of principal executive offices) (Zip Code)
(650) 403-2400
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(Registrant's telephone number, including area code)
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement.
On January 27, 2006, the compensation committee of the Board of Directors
of Keynote Systems, Inc. ("Keynote") approved a grant to Umang Gupta, the
Company's Chief Executive Officer, of an option to purchase 500,000 shares of
Keynote common stock. The exercise price shall be the fair market value of the
underlying shares of Keynote common stock on Friday February 3, 2006, the date
of grant. The grant will be made pursuant to Keynote's 1999 Equity Incentive
Plan, which has been approved by Keynote's stockholders. The grant provides for
monthly vesting over two years beginning December 7, 2005. The grant also
provides for acceleration of vesting of all of the shares underlying such option
if, following a sale of Keynote, Mr. Gupta is not the Chief Executive Officer of
the resulting company. If Mr. Gupta's employment is terminated by Keynote
without cause or through his voluntary termination, and if he assists in the
transition to a successor Chief Executive Officer, vesting of the shares subject
to his options would continue for an additional 12 months. If Mr. Gupta's
employment is terminated by Keynote without cause or due to his death or through
his constructive termination due to a material reduction in his salary or
benefits or a material change in his responsibilities, the shares subject to his
options would vest in an amount equal to the number that would vest during the
six months following this termination. If Mr. Gupta's employment is terminated
by Keynote for cause or due to his disability or through his voluntary
termination, the vesting of any shares subject to his options would cease on the
date of termination.
On January 27, 2006, the compensation committee also increased Mr. Gupta's
base salary to $284,400 for fiscal year 2006, and increased his
performance-based target bonus to $180,000 for fiscal year 2006. Mr. Gupta's
performance-based bonus depends upon the achievement of corporate targets during
fiscal year 2006, expressed in terms of revenue and EBITA objectives. Mr. Gupta
is eligible to receive 50% of his performance-based target bonus upon the
achievement of revenue target ("Revenue Bonus") and 50% of his performance-based
target bonus upon the achievement of an EBITA target ("EBITA Bonus"). The
specific revenue and EBITA targets are not public information. In addition, the
compensation committee determined that Mr. Gupta would be eligible for a reduced
Revenue Bonus and/or EBITA Bonus in the event of under-achievement of a
performance objective and for a Revenue Bonus and/or EBITA Bonus in excess of
the target amount in the event of over-achievement of a performance objective,
subject to a maximum payment of 200% of each bonus. Mr. Gupta would not be
eligible to receive any portion of the Revenue Bonus until achievement of 80% of
the revenue target and would not be eligible to receive any portion of the EBITA
Bonus until achievement of 80% of the EBITA target. Furthermore, the
compensation committee determined the revenue and EBITA targets could be subject
to adjustment in the event of acquisitions by Keynote.
On January 27, 2006, the Board of Directors of Keynote approved changes to
non-employee director compensation. Each non-employee director will receive the
following:
o an annual retainer of $25,000 for his or her services as director
(provided that each such non-employee director must have attended at
least three of the four regularly scheduled board meetings during the
fiscal year and at least 75% of the total number of board meetings
held during such year);
o an annual retainer of $5,000 and an annual option grant for 5,000
shares of Keynote common stock for his or her service on either of the
Board's compensation committee or nominating and governance committee;
o an annual retainer of $10,000 and an annual option grant for 5,000
shares of Keynote common stock for his or her service on the Board's
audit committee;
o an additional annual option grant for 2,000 shares of Keynote common
stock for his or her service as the chair of either of the Board's
compensation committee or nominating and governance committee; and
o an additional annual option grant for 5,000 shares of Keynote common
stock for his or her service as the chair of the Board's audit
committee.
Such cash payments are to be made to each non-employee director following
the completion of the fiscal year to which they relate. For service in fiscal
year 2006, such option grants shall be made Friday February 3, 2006, shall vest
in full on September 30, 2006, and will have an exercise price equal to the
closing price of the common stock on the date of the grant. For future fiscal
years, the Board anticipates that such option grants will be made at the
beginning of the fiscal year, will vest monthly over the twelve month period
following the date of grant, and will have an exercise price equal to the
closing price of the common stock on the date of the grant. Such options will
accelerate in full upon a sale of Keynote.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEYNOTE SYSTEMS, INC.
Date: February 2, 2006 By: /s/ Andrew Hamer
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Andrew Hamer
Vice President and Chief Financial
Officer