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:

Keynote Systems, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404

February 10, 2006

To our Stockholders:

You are cordially invited to attend the 2006 Annual Meeting of
Stockholders of Keynote Systems, Inc. to be held at our executive offices,
located at 777 Mariners Island Boulevard in San Mateo, California, on Thursday,
March 23, 2006 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 2006 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

Keynote Systems, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404

NOTICE OF THE 2006 ANNUAL MEETING OF STOCKHOLDERS

To our Stockholders:

NOTICE IS HEREBY GIVEN that the 2006 Annual Meeting of Stockholders of
Keynote Systems, Inc. will be held at our executive offices, located at 777
Mariners Island Boulevard in San Mateo, California, on Thursday, March 23, 2006
at 10:00 a.m., Pacific Time, for the following purposes:

1. To elect directors, each to serve until his or her successor has
been elected and qualified or until his or her earlier resignation or
removal;

2. To approve the amendments of the 1999 Equity Incentive Plan to
(i) increase the size of the automatic initial grant of stock options
awarded to new directors, and (ii) establish a limit on the amount of
shares covered by the discretionary grants of stock options awarded to
non-employee directors;

3. To ratify the selection of KPMG LLP as independent auditors for
the fiscal year ending September 30, 2006; and

4. To transact such other business as may properly come before the
meeting or any adjournment.

The foregoing items of business are more fully described in the proxy
statement accompanying this notice.

Only stockholders of record at the close of business on February 7, 2006
are entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.

By Order of the Board of Directors,

/s/ ANDREW HAMER

Andrew Hamer
Secretary

San Mateo, California
February 10, 2006

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 2006 Annual Meeting of Stockholders:

Proposal No. 1--Election of Directors 3
Nominees for Board of Directors 3
Corporate Governance and Board Matters 4
Director Compensation 6
Compensation Committee Interlocks and Insider Participation 7
Code of Ethics 7
Proposal No. 2--Approval of Amendment to 1999 Equity Incentive Plan 9
Proposal No. 3--Ratification of Selection of Independent Auditors 13
Principal Accountant Fees and Services 13
Report of the Audit Committee 14
Security Ownership of Certain Beneficial Owners and Management 15
Executive Compensation 17
Summary Compensation Table 17
Option Grants in Fiscal 2005 18
Aggregated Option Exercises in Fiscal 2005 and
Option Values at September 30, 2005 19
Equity Compensation Plans 19
Employment Agreement with Chief Executive Officer 20
Other Change-of-Control Arrangements 20
Report of the Compensation Committee 21
Stock Price Performance Graph 23
Certain Relationships and Related Transactions 24
Stockholder Proposals for the 2007 Annual Meeting of Stockholders 24
Compliance Under Section 16(a) of the Securities Exchange Act of 1934 24
Other Business 24

The Report of the Audit Committee, the Report of the Compensation
Committee and the Stock Price Performance Graph contained in this proxy
statement are required by the Securities and Exchange Commission. The
information in these sections shall not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that we specifically
incorporate this information by reference into such filings. In addition, this
information shall not otherwise be deemed to be "soliciting material" or to be
filed under those Acts.

Keynote Systems, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404

-----------------------------

PROXY STATEMENT
FOR THE 2006 ANNUAL MEETING OF STOCKHOLDERS

-----------------------------

February 10, 2006

The accompanying proxy is solicited on behalf of the board of directors of
Keynote Systems, Inc., a Delaware corporation, for use at the 2006 Annual
Meeting of Stockholders to be held at our executive offices, located at 777
Mariners Island Boulevard in San Mateo, California, on Thursday, March 23, 2006
at 10:00 a.m., Pacific Time. Only holders of record of our common stock at the
close of business on February 7, 2006, which is the record date, will be
entitled to vote at the Annual Meeting. At the close of business on the record
date, we have 20,712,277 shares of common stock outstanding and entitled to
vote. 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 for director and the proposal 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 22, 2006. Our annual report for the fiscal year ended September 30,
2005 is 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.

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. Approval and adoption of
Proposal No. 2 requires the affirmative vote of a majority of the shares of our
common stock entitled to vote on the proposal that are present in person or
represented by proxy at the Annual Meeting and are voted for or against the
proposal. The effectiveness of any of the proposals is not conditioned upon the
approval by our stockholders of any other proposal by the stockholders.

Effect of Abstentions

If stockholders abstain from voting, including brokers holding their
customers' shares of record who cause abstentions to be recorded, these shares
are considered present and entitled to vote at the Annual Meeting. These shares
will count toward determining whether or not a quorum is present. However, these
shares will not be taken into account in determining the outcome of Proposal No.
1 or Proposal No. 2.

Effect of "Broker Non-Votes"

If a stockholder does not give a proxy to its broker with instructions
as to how to vote the shares, the broker has authority under New York Stock
Exchange rules to vote those shares for or against certain "routine" matters,
such as all of the proposals to be voted on at the Annual Meeting. If a broker
votes shares that are unvoted by its customers for or against a proposal, these
shares are considered present and entitled to vote at the Annual Meeting. These
shares would count toward determining whether or not a quorum is present. These
shares would also be taken into account in determining the outcome of the
proposals.

Although all of the proposals to be voted on at the Annual Meeting are
considered "routine," where a matter is not "routine," a broker generally would
not be entitled to vote its customers' unvoted shares. These so-called "broker
non-votes" would count toward determining whether or not a quorum is present.
However, these shares would not be taken into account in determining the outcome
of any of the proposals.

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.

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 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:

o a written instrument delivered to us stating that the proxy is
revoked;

o a subsequent proxy that is signed by the person who signed the
earlier proxy and is presented at the Annual Meeting; or

o 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.

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 or her
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
seven members. Accordingly, seven nominees will be elected at the Annual Meeting
to be our 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.

Nominees for Board of Directors

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 56 Chairman of the Board and Chief Executive Officer of Keynote 1997
David Cowan 40 General Partner of Bessemer Venture Partners 1998
Deborah Rieman 56 Retired President and Chief Executive Officer of Check Point Software 2002
Technologies Inc.
Mohan Gyani 54 Retired President and Chief Executive Officer of AT&T Wireless Mobility Services 2002
Geoffrey Penney 60 Retired Executive Vice President and Chief Information Officer, Charles Schwab 2002
Corporation
Raymond L. Ocampo Jr. 52 President and Chief Executive Officer, Samurai Surfer LLC 2004
Jennifer J. Bolt 41 Senior Vice President and Chief Information Officer of Franklin Resources, Inc. 2004

Umang Gupta has served as one of our directors since September 1997 and as
our Chief Executive Officer and Chairman of the board of directors since
December 1997. Previously, he was a private investor and an advisor to
high-technology companies and the founder and chairman of the board and chief
executive officer of Gupta Software Corporation. He previously held various
positions with Oracle Corporation and IBM. Mr. Gupta holds a B.S. degree in
chemical engineering from the Indian Institute of Technology, Kanpur, India, and
an 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 served as a General Partner of Bessemer Venture
Partners, a venture capital investment firm. Mr. Cowan is also a director 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.

Deborah Rieman has served as one of our directors since January 2002.
Since June 1999, Dr. Rieman has managed a private investment fund. From July
1995 to June 1999, Dr. Rieman was the President and Chief Executive Officer of
Check Point Software Technologies Inc., an Internet security software company.
Dr. Rieman also serves as a director of Arbinet-thexchange, Inc., Corning Inc.,
Kintera, Inc., and Tumbleweed Communications Inc. Dr. Rieman holds a Ph.D.
degree in mathematics from Columbia University and a B.A. degree in mathematics
from Sarah Lawrence College.

Mohan Gyani has served as one of our directors since January 2002. From
May 2005 to December 2005, Mr. Gyani served as Chairman and CEO of Roamware,
Inc. From January 2003 to December 2004, Mr. Gyani served as Senior Advisor,
Office of the Chairman and Chief Executive Officer, of AT&T Wireless Mobility
Services, a telecommunications company. From March 2000 to January 2003. he
served as President and Chief Executive Officer and, from January 2000 to March
2000, as Chief Financial Officer of AT&T Wireless Mobility Services. From
October 1999 to December 1999, Mr. Gyani served as President and Chief Financial
Officer of PeoplePC, Inc., a computer company. From June 1999 to September 1999,
he served as the Head of Strategy and Corporate Development and a member of the
board of directors of Vodafone AirTouch Plc, a mobile telecommunications network
company. He served as Executive Vice President and Chief Financial Officer of
AirTouch, a telecommunications company, from September 1995 to June 1999, prior
to its merger with Vodafone. Mr. Gyani is a member of the boards of directors of
SIRF, Inc., Safeway Inc., Epiphany Inc. and a private company. Mr. Gyani holds
an M.B.A. degree and a B.A. degree in business administration from San Francisco
State University.

Geoffrey Penney has served as one of our directors since July 2002. From
December 1998 to his retirement in June 2004, Mr. Penney served as Executive
Vice President, and since November 2001, as Chief Information Officer, of the
Charles Schwab Corporation, a financial services company. Mr. Penney holds a
Ph.D. degree and B.A. degree in inorganic chemistry from St. John's College,
Cambridge (U.K.).

Raymond L. Ocampo Jr. has served as one of our directors since March 2004.
Since April 2004, Mr. Ocampo has served as President and Chief Executive Officer
of Samurai Surfer LLC, a consulting and investment company. In November 1996,
Mr. Ocampo retired from Oracle Corporation, where he had served in various
senior and executive positions since 1986, most recently as Senior Vice
President, General Counsel and Secretary since September 1990. Mr. Ocampo is a
member of the boards of directors of CytoGenix, Inc., Intraware, Inc., PMI
Group, Inc. and VitalStream Holdings, Inc. Since January 2000, Mr. Ocampo has
also served as a member of the board of directors of the Berkeley Center for Law
& Technology, which he co-founded in 1996. Mr. Ocampo holds a J.D. degree from
Boalt Hall School of Law at the University of California at Berkeley and an A.B.
degree in Political Science from the University of California, Los Angeles.

Jennifer Bolt has served as one of our directors since April, 2004. Ms.
Bolt has served as senior vice president and chief information officer of
Franklin Resources, Inc., a financial services company since May 2003. Prior to
that time, she served in various other capacities for Franklin Resources, Inc.
or its subsidiaries. She also serves as chairman of Franklin Capital Corporation
and Franklin Templeton Bank & Trust, and is a member of Franklin Resources,
Inc.'s Executive Committee. Ms. Bolt holds a B.A. degree in economics and
physical education from the University of California at Davis.

The Board Recommends a Vote FOR the Election of
Each of the Nominated Directors.

Corporate Governance and Board Matters

Corporate Governance

Keynote maintains a corporate governance page on its website which
includes information about its corporate governance initiatives, including
Keynote's Code of Business Conduct and Ethics, Code of Ethics for Chief
Executive Officer and Senior Financial Department Personnel, Corporate
Governance Guidelines, and charters for the committees of the board of
directors. The corporate governance page can be found at www.keynote.com, by
clicking on "About Us," and then on "Corporate Governance."

Keynote's policies and practices reflect corporate governance initiatives
that are compliant with the listing requirements of NASDAQ and the corporate
governance requirements of the Sarbanes-Oxley Act of 2002, including:

o A majority of the board members are independent of Keynote and
its management;

o All members of the key board committees--the audit committee,
the compensation committee, and the nominating and governance
committee--are independent;

o Keynote has appointed a lead independent director;

o The independent members of the board of directors meet
regularly without the presence of management. The lead
independent director presides at these executive sessions;

o Keynote has a clear code of business conduct;

o The charters of the board committees clearly establish their
respective roles and responsibilities;

o Keynote's audit committee has procedures in place for the
anonymous submission of employee complaints on accounting,
internal accounting controls, or auditing matters;

o Keynote has adopted a code of ethics that applies to its chief
executive officer and all senior members of its finance
department, including our chief financial officer; and

o Keynote has adopted corporate governance guidelines and
principles.

Director Independence

The board has determined that each of our directors is an independent
director as defined by the rules of the NASDAQ Stock Market, other than Mr.
Gupta, who serves as an employee of Keynote as our chief executive officer. In
addition, the board has determined that each member of the audit committee meets
the additional independence criteria of the SEC required for audit committee
membership.

Board Meetings

The board met five times during the fiscal year ended September 30, 2005.
No director, other than Mr. Cowan, 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, an audit committee
and a nominating and governance committee. Each committee operates pursuant to a
written charter; copies of these written charters are available on our website
at www.keynote.com.

Compensation Committee. The current members of our compensation committee
are Mr. Cowan and Dr. Rieman. The board of directors has determined that each
member of the compensation committee is an independent director as defined by
the rules of the NASDAQ Stock Market, 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. 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. The compensation committee met three times during
the fiscal year ended September 30, 2005.

Audit Committee. The current members of our audit committee are Mr. Gyani,
Mr. Penney and Mr. Ocampo. Mr. Gyani serves as the chair. The board of directors
has determined that each member of the audit committee is an independent
director as defined by the rules of the Securities and Exchange Commission and
the NASDAQ Stock Market, and that each of them is able to read and understand
fundamental financial statements. The board of directors has also determined
that Mr. Gyani is an "audit committee financial expert" within the meaning of
the rules of the Securities and Exchange Commission and is "financially
sophisticated" within the meaning of the rules of the NASDAQ Stock Market. Our
audit committee reviews our financial statements, monitors our accounting
policies and practices, appoints and oversees the performance of our independent
auditors and reviews the results and scope of audits and other services provided
by our independent auditors. The audit committee met twelve times during the
fiscal year ended September 30, 2005.

Nominating and Governance Committee. The current members of our nominating
and governance committee are Mr. Cowan, Mr. Ocampo and Mr. Penney. Mr. Penney
serves as the chair. The board of directors has determined that each member of
the nominating and governance committee is an independent director as defined by
the rules of the NASDAQ Stock Market. Our nominating and governance committee
identifies, considers and recommends candidates to serve as members of the board
and makes recommendations regarding the structure and composition of the board
and board committees. The nominating and governance committee is also
responsible for overseeing, reviewing and making periodic recommendations
concerning Keynote's corporate governance policies. The nominating and
governance committee met once during the fiscal year ended September 30, 2005.

Consideration of Director Nominees

Our nominating and governance committee generally identifies nominees for
our board based upon recommendations by our directors and management. The
nominating and governance committee will also consider recommendations properly
submitted by our stockholders in accordance with the procedure set forth in our
bylaws. Stockholders can recommend qualified candidates for our board by writing
to our corporate secretary at Keynote Systems, Inc., 777 Mariners Island
Boulevard, San Mateo, CA 94404. Submissions that are received that meet the
criteria outlined below will be forwarded to the nominating and governance
committee for review and consideration. We request that any such recommendations
be made at least three months prior to the end of the fiscal year ending
September 30, 2006 to ensure adequate time for meaningful consideration by the
nominating and governance committee. The nominating and governance committee
intends to review periodically whether a more formal policy regarding
stockholder nominations should be adopted.

The goal of the nominating and governance committee is to ensure that our
board possesses a variety of perspectives and skills derived from high-quality
business and professional experience. The nominating and governance committee
seeks to achieve a balance of knowledge, experience and capability on our board.
To this end, the nominating and governance committee seeks nominees with the
highest professional and personal ethics and values, an understanding of our
business and industry, diversity of business experience and expertise, a high
level of education, broad-based business acumen, and the ability to think
strategically. Although the nominating and governance committee uses these and
other criteria to evaluate potential nominees, we have no stated minimum
criteria for nominees. The nominating and governance committee does not use
different standards to evaluates nominees depending on whether they are proposed
by our directors and management or by our stockholders. To date, we have not
paid any third parties to assist us in this process.

Stockholder Communication with Our Board

Our stockholders may communicate with our board or any of our individual
directors by writing to them c/o Keynote Systems, Inc., 777 Mariners Island
Boulevard, San Mateo, CA 94404. In addition, all communications that are
received by our chief executive officer or chief financial officer that are
directed to the attention of our board are forwarded to our board. The
nominating and governance committee intends to consider whether it is
appropriate to adopt a more formal process for our stockholders to communicate
with our board.

Director Compensation

Cash Compensation. For the 2005 fiscal year, non-employee directors were
each paid an annual retainer fee of $20,000, provided the director 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 the
fiscal year. For the 2006 fiscal year, following a review by the compensation
committee of director compensation practices at peer companies (and the
responsibilities of our directors and board committee members), the board has
approved (i) an increase in the annual retainer fee to $25,000, subject to the
director attending 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 the fiscal year, and (ii) annual fees of $5,000 to each member of
the compensation committee and the nominating and governance committee and of
$10,000 to each member of the audit committee. All of these fees are paid after
the conclusion of the fiscal year. All directors are reimbursed for their
reasonable expenses in attending board and board committee meetings.

Option Grants. Historically, each new non-employee director has received
an automatic option grant under our 1999 Equity Incentive Plan to purchase
50,000 shares of our common stock. The grant is made on the date the
non-employee director becomes a director and vests over three years, with
one-third of the shares subject to the option vesting on the earlier of one year
following the director's appointment to the board or the first annual meeting of
our stockholders following the grant of the option. The remaining shares subject
to these automatic option grants vest ratably on a monthly basis over the two
years following that earlier event. The board has also made discretionary option
awards to non-employee directors to recognize service as a member of a committee
of the board and to provide incentive compensation to directors whose prior
option awards have fully vested.

Following a review by the compensation committee of director
compensation practices at peer companies (and the responsibilities of our
directors and board committee members), our board approved adjustments to the
overall equity compensation awarded to our non-employee directors. These
adjustments are intended to provide for option awards for director service that
would vest as to 15,000 shares each year, and additional option awards each year
for committee service. On July 1, 2005, Messrs. Cowan, Gyani and Penney and Dr.
Rieman, each of whose automatic initial option grant had fully vested, were each
granted an option to purchase 60,000 shares of our common stock. One-quarter of
the shares subject to these options shall vest on March 23, 2006, the date of
the 2006 Annual Meeting of Keynote Stockholders. The remaining shares subject to
these options will vest ratably on a monthly basis over the three years after
the Annual Meeting, with each option to be fully vested at the 2009 Annual
Meeting of Keynote Stockholders. Also on July 1, 2005, Ms. Bolt and Mr. Ocampo,
each of whose automatic initial option grant was not fully vested, were each
granted an option to purchase 30,000 shares of our common stock. The shares
subject to these options will not commence to vest until the 2007 Annual Meeting
of Keynote Stockholders, when they will vest ratably monthly over the next two
years with each option to be fully vested at the 2009 Annual Meeting of Keynote
Stockholders. Each of the options granted on July 1, 2005 were discretionary
grants and had an exercise price of $11.98 per share, the fair market value of
our common stock on the date of grant.

For committee service, the board determined that each member of one of our
three standing committees would be awarded an option for 5,000 shares for
service during fiscal 2006. In addition, the chair of the audit committee would
receive an option for an additional 5,000 shares and the chairs of our
compensation committee and nominating and governance committee would each
receive options for an additional 2,000 shares for service in fiscal 2006. The
board anticipates making additional comparable option awards for committee
service during fiscal 2007, based on its assessment of the responsibilities of
members of each committee, the equity compensation practices of peer companies,
and the annual option award limitations of the 1999 Equity Incentive Plan
included in Proposal No. 2. For committee service during 2006, the following
options were granted on February 3, 2006, each with an exercise price of $11.68
per share, the fair market value on the date of grant: to Mr. Penney for 12,000
shares; to Messrs. Cowan and Gyani for 10,000 shares; and to Mr. Ocampo and Dr.
Rieman for 5,000 shares. In addition, Mr. Ocampo was awarded an additional
option for 5,000 shares on February 9, 2006, with an exercise price of $11.53
per share in connection with his joining of the nominating and governance
committee. Subject to continued service, these options will vest in full on
September 30, 2006.

If Proposal No. 2 below is approved by our stockholders, each new
non-employee director will be automatically granted an option to purchase 60,000
shares of our common stock on the date he or she becomes a director. The options
will have an exercise price equal to the fair market value of our common stock
on the date of grant, will have ten-year terms and will vest over four years.
One-quarter of the shares subject to these options will vest on the earlier of
one year following the director's appointment to the board of directors, or the
first annual meeting of our stockholders following the grant of the option. The
remaining shares subject to these automatic option grants will vest ratably on a
monthly basis over the three years following that initial vesting date.

The board also intends to grant to each non-employee director an option to
purchase 15,000 shares of our common stock on the date of the 2006 Annual
Meeting of Stockholders. These options will have an exercise price equal to the
fair market value of our common stock on the date of grant and have ten-year
terms. These options will begin to vest on the date of the 2009 Annual Meeting
of Stockholders, vesting ratably on a monthly basis after the Annual Meeting,
with the option to be fully vested at the 2010 Annual Meeting of Keynote
Stockholders. The board intends to make additional discretionary option grants
to our non-employee directors at each future Annual Meeting of Stockholders.

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.

Code of Ethics

We have adopted a code of ethics that applies to our chief executive
officer and senior financial officers, including our chief financial officer,
controller and all other employees engaged in the finance organization of
Keynote. This code of ethics is posted on our website at http://www.keynote.com.

Directors' Attendance at Annual Stockholder Meetings

Keynote encourages its board members to attend its annual meeting of
stockholders, but does not require attendance. In 2005, two of our directors
attended Keynote's annual meeting of stockholders. Mr. Gupta, chairman of our
board and our chief executive officer, has attended all of our Annual Meetings.

PROPOSAL NO. 2
--------------

APPROVAL OF AMENDMENTS TO THE 1999 EQUITY INCENTIVE PLAN
--------------------------------------------------------

Keynote is requesting that our stockholders vote in favor of amending
the 1999 Equity Incentive Plan, which was approved, as amended, by the board of
directors on January 27, 2006, subject to stockholder approval. The following is
a summary of the amendments to the 1999 Equity Incentive Plan. This summary,
however, does not purport to be a complete description of all of the provisions
of the 1999 Equity Incentive Plan. It is qualified in its entirety by reference
to the full text of the 1999 Equity Incentive Plan, which is enclosed with this
proxy statement.

Our stockholders are being asked to approve amendments to the 1999
Equity Incentive Plan:

o to increase from 50,000 shares to 60,000 shares the automatic
initial option grant made to a non-employee director upon
commencement of service as a director, and extend the vesting period
for that option from three years to four years; and

o to establish a limit of 40,000 shares per year on the amount of
shares covered by discretionary option grants awarded to a
non-employee director in any fiscal year.

The automatic initial option to purchase 60,000 shares of Keynote
common stock, to be given to new non-employee directors, will have an exercise
price equal to the fair market value of our common stock on the date of grant,
have a ten-year term and vest over four years. One-fourth of the shares subject
to these options will vest on the earlier of one year following the director's
appointment to the board of directors, or the first annual meeting of our
stockholders following the grant of the option, with the remaining shares
subject to these options vesting ratably on a monthly basis over the three years
following that initial vesting date. The automatic initial option to purchase
50,000 shares of Keynote common stock currently awarded to new non-employee
directors vests over three years.

The board may make discretionary grants to non-employee directors. The
board has used this authority to make grants for committee service as well as
when non-employee directors' initial option grants have fully vested. Under
Proposal No. 2, the aggregate amount of discretionary grants to a non-employee
director would not exceed 40,000 shares in any fiscal year.

The board is not proposing any other amendments to the plan. If
Proposal No. 2 is not approved, the current automatic initial option grant to
non-employee directors will remain at 50,000 shares vesting over three years and
the board would still have the authority to make discretionary grants, without
any limit as to the number of shares subject to an option.

Terms of the 1999 Equity Incentive Plan

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.

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 under this Proposal No. 2, 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, and its decisions are final and binding. Grants of options to
non-officer employees to purchase 40,000 or fewer shares of our common stock can
be made by our chief executive officer and ratified by our compensation
committee.

Shares Reserved Under the 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 38,037
additional shares previously reserved for grant under our 1996 Stock Option Plan
and 1999 Stock Option Plan became available for grant under the plan. Shares
will again be available for grant and issuance under the plan that:

o 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;

o have been issued upon the exercise of an option granted under the
plan that are subsequently forfeited or repurchased by us at the
original exercise price; or

o 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 purchase price.

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. As of February 3, 2006, approximately 216 persons were eligible to
participate in the plan. 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. No
person is eligible to receive more than 1,000,000 shares in any calendar year
under the plan, other than new employees of Keynote or a Subsidiary of Keynote
(including new employees who are also officers and directors of Keynote or a
Subsidiary of Keynote), who are eligible to receive up to a maximum of 2,000,000
shares in the calendar year in which they commence their employment. A person
may be granted more than one Award under this Plan.

Stock Options. The plan provides for the grant of incentive stock
options that qualify under Section 422 of the Internal Revenue Code and
nonstatutory 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
nonstatutory stock options must be at least equal to 85% of the fair market
value of our common stock on the date of grant. The maximum term of options
granted under the plan is 10 years.

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. Options will generally terminate three months after the termination of
employment or 12 months if the termination is due to death or disability.

Acceleration of Stock Options. Under the grant provision of our 1999
Equity Incentive Plan to non-employee directors, any unvested shares subject to
options granted to non-employee directors will become immediately exercisable
upon a transaction that results in a change of control.

Restricted Stock and Stock Bonuses. 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.

Amendments to the Plan. The board may at any time terminate or amend
the plan in any respect. The board will not, without stockholder approval, amend
the plan in any manner that requires the approval of our stockholders.

Federal Income Tax Information. The following is a general summary as
of the date of this proxy statement of the United States federal income tax
consequences to us and employees participating in the plan. Federal tax laws may
change and the federal, state and local tax consequences for any participating
employee will depend upon his or her individual circumstances. Each
participating employee has been and is encouraged to seek the advice of a
qualified tax advisor regarding the tax consequences of participation in the
plan. The following discussion does not purport to describe state or local
income tax consequences or tax consequences for employees in countries other
than the United States.

Options granted under the plan may be either incentive stock options
that satisfy the requirements of Section 422 of the Internal Revenue Code or
nonstatutory stock options that are not intended to meet these requirements.

Tax Treatment for Employees--Incentive Stock Options. An employee will
not recognize income for federal income tax purposes upon grant of an incentive
stock option and will incur no tax upon exercise of an incentive stock option
unless the employee is subject to the alternative minimum tax.

If the employee holds the shares purchased upon exercise of the
incentive stock option for more than one year after the date the option was
exercised and for more than two years after the option grant date, the employee
generally will realize long-term capital gain or loss (rather than ordinary
income or loss) upon disposition of such shares. This gain or loss will be equal
to the difference between the amount realized upon such disposition and the
amount paid for such shares. If the employee disposes of the shares prior to the
expiration of either the one-year or the two-year required holding periods
described above (which is referred to as a "disqualifying disposition"), then
the gain realized upon such disposition, up to the difference between the option
exercise price and the fair market value of such shares on the date of exercise
(or, if less, the amount realized on a sale of such shares), will be treated as
ordinary income. Any additional gain will be capital gain, depending upon the
amount of time the shares were held by the employee.

The difference between the exercise price and fair market value of the
shares on the date of exercise is an adjustment to income for purposes of the
alternative minimum tax, or AMT. The AMT (which is imposed to the extent it
exceeds the taxpayer's regular tax) is currently 26% of an individual taxpayer's
alternative minimum taxable income (28% percent in the case of alternative
minimum taxable income in excess of $175,000). Alternative minimum taxable
income is determined by adjusting regular taxable income for certain items,
increasing that income by certain tax preference items and reducing this amount
by the applicable exemption amount ($58,000 in the case of a joint return,
subject to reduction under certain circumstances). If a disqualifying
disposition of the shares occurs in the same taxable year of the employee as
exercise of the incentive stock option, there is no AMT adjustment with respect
to those shares. Also, upon a sale of the shares that is either (i) not a
disqualifying disposition or (ii) a disqualifying disposition in a calendar year
other than the year of exercise, alternative minimum taxable income is reduced
in the year of sale by the excess of the fair market value of the shares at
exercise over the amount paid for the shares.

Tax Treatment for Employees--Nonstatutory Stock Options. An employee
will not recognize income for federal income tax purposes at the time a
nonstatutory stock option is granted. However, upon exercise of a nonstatutory
stock option, the employee must include in income as compensation an amount
equal to the difference between the fair market value of the shares on the date
of exercise and the employee's purchase price. The included amount must be
treated as ordinary income by the employee and may be subject to income tax
withholding by us (either by payment in cash or withholding out of the
employee's salary). Upon resale of the shares by the employee, any subsequent
appreciation or depreciation in. the value of the shares will be treated as
long-term or short-term capital gain or loss.

Tax Treatment for Keynote. We will be entitled to a deduction in
connection with the disposition of shares acquired under an incentive stock
option only to the extent that the employee recognizes ordinary income on a
disqualifying disposition of the shares. We will be entitled to a deduction in
connection with the exercise of a nonstatutory stock option by an employee to
the extent that the employee recognizes ordinary income.

Maximum Tax Rates. The maximum rate applicable to ordinary income is
35%. Long-term capital gain on stock held for more than twelve months will be
taxed at a maximum rate of 15%. Capital gains will continue to be offset by
capital losses and up to $3,000 of capital losses may be offset annually against
ordinary income.

ERISA Information. The plan is not subject to any of the provisions of
the Employee Retirement Income Security Act of 1974.

History of Grants.

Our chief executive officer and four other most highly compensated
executive officers who were serving as executive officers as of September 30,
2005 have been granted options to purchase shares under the 1999 Equity
Incentive Plan, over the life of these plans through February 3, 2006, as
follows:

Name and Position 1999 Equity
Incentive Plan
-----------------------------------------------------------------------------------------
Umang Gupta 2,100,000
Chief Executive Officer
Donald Aoki 320,000
Senior Vice President of Products, Engineering and Operations
Peter J. Maloney 230,000
Former Vice President of Finance and Chief Financial Officer
Patrick D. Quirk 600,000
Executive Vice President of Worldwide Customer Operations
Vik Chaudhary 143,000
Vice President of Marketing and Corporate Development

Our current executive officers as a group, our current non-employee
directors as a group and our current employees (excluding executive officers and
directors) as a group have been granted options to purchase shares under the
1999 Equity Incentive Plan, over the life of this plan through February 3, 2006,
as follows:

1999 Equity
Incentive Plan
----------------

Current executive officers (5 persons) 3,288,000
Current non-employee directors (6 persons) 697,000
Current employees (excluding executive officers
and non-employee directors) 3,858,371

New Plan Benefits.

The following table shows, in the aggregate, the options to be granted to
non-employee directors under the 1999 Equity Incentive Plan, after the Annual
Meeting of Stockholders in fiscal 2006.

Name and Position Dollar Value ($) Number of Units
----------------- ---------------- ---------------
Non-Employee Director Group Fair Market Value on grant date 90,000

Future awards to executive officers and employees, and any additional
future awards to non-employee directors, under the 1999 Equity Incentive Plan
are discretionary and cannot be determined at this time. We have therefore not
included a table reflecting any such awards.

The Board Recommends a Vote FOR the Approval of Amendments to
the 1999 Equity Incentive Plan.

PROPOSAL NO. 3

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, 2006, and our stockholders are being asked to
ratify such selection. 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.

Ratification by our stockholders of the selection of KPMG LLP as our
independent accountants is not required by our bylaws or otherwise. However, the
board is submitting the selection of KPMG LLP to our stockholders for
ratification as a matter of good corporate practice. If our stockholders fail to
ratify this selection, the audit committee will reconsider whether or not to
retain that firm. Even if the selection is ratified, the audit committee in its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if it determines that such a change would be in the
best interests of Keynote and our stockholders.

The Board Recommends a Vote FOR the Ratification of the Selection of KPMG LLP

Principal Accountant Fees and Services

During the fiscal years ended September 30, 2004 and 2005, the aggregate
fees billed by Keynote's independent auditors, KPMG LLP, for professional
services were as follows:

o Audit Fees. The aggregate fees billed by KPMG LLP for professional
services rendered for the audit of Keynote's annual consolidated
financial statements, review of the consolidated financial
statements included in Keynote's quarterly reports on Form 10-Q and
services that are normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were
$488,700, including auditing services related to acquisitions, for
the fiscal year ended September 30, 2005 and $659,320, including
auditing services related to acquisitions, for the fiscal year ended
September 30, 2004;

o Audit-Related Fees. The aggregate fees billed by KPMG LLP for
assurance and related services that are reasonably related to the
performance of Keynote's consolidated financial statements that are
not reported above under "Audit Fees" were $270,000 for the fiscal
year ended September 30, 2005. The services for the fees disclosed
under this category primarily included reviews per the new Statement
on Auditing Standards No. 100. The fees for assurance and related
services were $18,400 for the fiscal year ended September 30, 2004.
The services primarily included accounting consultations in
connection with acquisitions.

o Tax Fees. The aggregate fees billed by KPMG LLP for professional
services rendered for tax compliance and tax advice planning were
$143,855 for the fiscal year ended September 30, 2005 and $149,427
for the fiscal year ended September 30, 2004. The services for the
fees disclosed under this category include tax consultation and the
preparation of tax returns; and

o All Other Fees. For the fiscal year ended September 30, 2005, KPMG
LLP billed aggregate fees of $243,000 for consultants related to
Sarbanes-Oxley 404 compliance. The fees under this category were
$1,500 for the fiscal year ended September 30, 2004.

The audit committee has determined that the provision of these services is
compatible with maintaining KPMG LLP's independence.

REPORT OF THE AUDIT COMMITTEE

The audit committee of the board of directors consists of three members.
Each member of the committee is "independent" as defined by the rules of the
Securities and Exchange Commission and meets each of the other requirements for
audit committee members under applicable NASDAQ listing standards.

The current members of the committee are Mr. Gyani, Mr. Penney and Mr.
Ocampo, each of whom is "financially literate" as required by NASDAQ rules. The
board of directors has also determined that Mr. Gyani is an "audit committee
financial expert" within the meaning of the rules of the Securities and Exchange
Commission. Stockholders should understand that these designations related to
our audit committee members' experience and understanding with respect to
certain accounting and auditing matters do not impose upon any of them any
duties, obligations or liabilities that are greater than those generally imposed
on a member of the audit committee or of the board.

Keynote's financial and senior management supervise the systems of
internal controls and the financial reporting process. KPMG LLP, Keynote's
independent auditor, is responsible for performing an independent audit of
Keynote's consolidated financial statements in accordance with generally
accepted auditing standards and issuing a report on these consolidated financial
statements. The audit committee's responsibility is to monitor and oversee these
processes and the independence of Keynote's independent auditors.

The audit committee has reviewed Keynote's audited consolidated financial
statements for the fiscal year ended September 30, 2005 and has met with the
management of Keynote and its independent accountants to discuss the
consolidated financial statements. Keynote's management has represented to the
audit committee that Keynote's audited consolidated financial statements were
prepared in accordance with generally accepted accounting principles.

The audit committee has discussed with Keynote's independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61,
Codification of Statements on Auditing Standards, AU Section 380. The audit
committee has received from Keynote's independent auditors the written
disclosures and letter required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and has discussed with them
their independence. The audit committee has also considered whether the
provision of non-audit services by Keynote's independent auditors is compatible
with maintaining the independence of the independent auditors.

Based on the review and discussions noted above, 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, 2005, and be filed with the Securities and
Exchange Commission.

The Audit Committee selected KPMG LLP to be Keynote's independent auditor
for fiscal 2005 and, pursuant to the requirements of law and the charter of the
audit committee, pre-approved all audit and non-audit services provided to us by
the independent auditors during fiscal 2005.

Audit Committee

Mohan Gyani
Geoffrey Penney
Raymond L. Ocampo Jr.

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, 2005 by:

o each stockholder known by us to be the beneficial owner of more
than 5% of our common stock;

o each of our directors;

o our chief executive officer and four other most highly compensated
executive officers who were serving as executive officers as of
September 30, 2005; and

o all of our directors and executive officers as a group.

The percentage ownership is based on 20,654,438 shares of common stock
outstanding as of December 31, 2005. Shares of common stock that are subject to
options currently exercisable or exercisable within 60 days of December 31,
2005, 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. Unless
otherwise noted, the address for each stockholder listed below is c/o Keynote
Systems, Inc., 777 Mariners Island Boulevard, San Mateo, CA 94404.

Shares Beneficially
Owned
---------------------------
Number of
Name of Beneficial Owner Shares Percent
- ------------------------ ------ -------
Umang Gupta(1) 3,710,910 16.67%
David J. Greene & Co (2) 1,223,977 5.92%
Royal Capital Management, LLC (3) 1,100,000 5.33%
Donald Aoki (4) 361,953 1.73%
Raymond L. Ocampo Jr.(5) 114,110 *
David Cowan(6) 100,345 *
Mohan Gyani(7) 64,722 *
Geoffrey Penney(8) 59,722 *
Deborah Rieman(9) 59,722 *
Peter Maloney(10) 41,042 *
Jennifer Bolt(11) 47,222 *
Vikram A. Chaudhary (12) 33,830 *
Patrick Quirk -- *
All 11 directors and executive
officers as a group(13) 4,593,578 20.01%

- ---------------------

* 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 these shares except to the
extent of his pecuniary interest in the shares. Includes 1,600,000
shares subject to options exercisable within 60 days of December 31,
2005.

(2) Based solely on information provided by David J. Greene & Co. in its
Schedule 13F filed with the Securities and Exchange
Commission on or prior to December 31, 2005.

(3) Based solely on information provided by Royal Capital Management, LLC in
its Schedule 13F filed with the Securities and Exchange Commission on or
prior to December 31, 2005.

(4) Includes 74,172 shares held by the Aoki family trust, 3,842 shares held
by Mr. Aoki as trustee for his minor children and 650 shares held by the
Frank and Jeanne Aoki Revocable Trust, over which Mr. Aoki exercises
investment power. Mr. Aoki disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in the shares.
Includes 282,080 shares subject to options exercisable within 60 days of
December 31, 2005.

(5) Includes 34,716 shares held by Raymond L. Ocampo Jr. and
Sandra O. Ocampo, Trustees of Ocampo Revocable Trust UTA May 30,
1996, and 56,666 shares subject to options exercisable within 60 days
of December 31, 2005.

(6) Includes 59,722 shares subject to options exercisable within 60 days
of December 31, 2005.

(7) Represents 64,722 shares subject to options exercisable within 60 days
of December 31, 2005.

(8) Represents 59,722 shares subject to options exercisable within 60 days
of December 31, 2005.

(9) Represents 59,722 shares subject to options exercisable within 60 days
of December 31, 2005.

(10) Includes 38,516 shares subject to options exercisable within 60 days
of December 31, 2005.

(11) Represents 47,222 shares subject to options exercisable within 60 days
of December 31, 2005.

(12) Represents 33,830 shares subject to options exercisable within 60 days
of December 31, 2005.

(13) Includes 2,302,202 shares subject to options exercisable within 60 days
of December 31, 2005.

EXECUTIVE COMPENSATION

The following table presents compensation information for the fiscal years
ending September 30, 2003, 2004 and 2005 paid or accrued to our chief executive
officer and our four other most highly compensated executive officers who were
serving as executive officers as of September 30, 2005.

Long Term
Compensation
Annual Compensation Awards
-----------------------------------------------
Securities
Fiscal Other Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation(1)
- --------------------------- ---- ------ ----- ------------ ------- ---------------
Umang Gupta 2005 $237,000 $37,500 $-- -- $2,000
Chief Executive Officer 2004 225,000 150,000 -- -- $2,000
2003 237,500 (2) 127,500 -- -- --
Donald Aoki 2005 206,298 16,973 55,000
Senior Vice President of Products, 2004 169,305 29,334 -- 25,000 2,000
Engineering and Operations 2003 176,504 25,970 -- 40,000 2,000
Peter Maloney (3) 2005 178,572 17,786 -- 30,000 2,000
Former Vice President of Finance 2004 163,500 37,247 -- 25,000 2,000
and Chief Financial Officer 2003 156,375 28,194 -- 50,000 --
Patrick Quirk 2005 106,667 (4) 70,000 -- 600,000 2,000
Executive Vice President of 2004 -- -- -- -- --
Worldwide Customer Operations 2003 -- -- -- -- --
Vikram A. Chaudhary 2005 153,333 (5) 11,375 -- 75,000 2,000
Vice President of Marketing and 2004 123,524 38,969 -- -- --
Corporate Development 2003 118,647 19,750 -- -- --

- ---------------------

(1) The amounts disclosed in the All Other Compensation column consist of
Keynote's matching contributions under our 401(k) plan.

(2) In fiscal 2003, Mr. Gupta voluntarily took a 10% cut to his base salary
of $250,000, lowering his base salary to $225,000. On
an annualized basis, his salary for fiscal 2003 was $237,500.

(3) Mr. Maloney resigned as Vice President of Finance and Chief Financial
Officer effective January 1, 2006.

(4) Mr. Quirk was hired as an executive officer of Keynote on April 7, 2005.

(5) Mr. Chaudhary became an executive officer of Keynote on May 1, 2005.

Option Grants in Fiscal 2005

The following table presents the grants of stock options under our 1999
Equity Incentive Plan during the fiscal year ended September 30, 2005 to our
chief executive officer and our four other most highly compensated executive
officers who were serving as executive officers as of September 30, 2005.

Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
----------------- -----------
Percent of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees In Price Expiration
Name Granted Fiscal 2005 Per Share Date 5% 10%
---- ------- ----------- --------- ---- -- ---
Umang Gupta -- --% $-- -- $-- $--
Donald Aoki 55,000 3.22% 12.33(1) 11/16/2014(1) 426,398 1,080,806
Peter Maloney 30,000 1.75% 11.98 06/30/2015 225,780 572,402
Patrick Quirk 600,000 35.00% 11.95 04/03/2015 4,509,174 11,427,133
Vikram A. Chaudhary 75,000 4.39% 10.95 04/30/2015 516,480 1,308,861

(1) weighted average price is based on 25,000 shares at $12.76 and
30,000 shares at $11.98. The expiration date for the grant of 25,000 shares is
11/15/2014 and for the grant of 30,000 shares is 06/30/2015.

All options granted under our 1999 Equity Incentive Plan are either
incentive stock options or nonstatutory stock options. Options granted under our
1999 Equity Incentive Plan generally vest and become exercisable over a
four-year period 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 on the date of grant.
In the year ending September 30, 2005, we granted to our employees options to
purchase a total of 1,710,290 shares of our common stock.

Potential realizable values are computed by:

o 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;

o 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

o 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 30, 2005, was $12.98.

Aggregated Option Exercises in Fiscal 2005 and Option Values
at September 30, 2005

The following table presents the number of shares of common stock subject
to vested and unvested stock options held as of September 30, 2005 by our chief
executive officer and our four other most highly compensated executive officers
who were serving as executive officers as of September 30, 2005. Also reported
is the value of in-the-money stock options as of September 30, 2005, which
represents the positive difference between the aggregate exercise price of the
outstanding options and the aggregate fair market value of the options based on
$12.98, the closing price per share of our common stock on September 30, 2005,
as reported on the NASDAQ National Market. The value of the unexercised
in-the-money options has not been, and may never be, realized.

Number of
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired at September 30, 2005 at September 30, 2005
on Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------- --------- ----------- ------------- ----------- -------------
Umang Gupta -- $ -- 1,537,499 62,501 $6,756,745 $341,225
Donald Aoki 57,850 250,695 262,290 101,460 967,842 136,233
Peter Maloney -- -- 153,956 76,044 718,977 111,973
Patrick Quirk -- -- -- 600,000 -- 618,000
Vikram A. Chaudhary 5,000 29,509 31,748 98,252 108,969 182,871

Equity Compensation Plans

As of September 30, 2005, we maintained our 1999 Equity Incentive Plan and
1999 Employee Stock Purchase Plan, both of which were approved by our
stockholders. The following table gives information about equity awards under
those plans as of September 30, 2005:

(a) (b) (c)
Number of Shares
Remaining
Number of Shares Available for
to Equity
be Issued Upon Weighted-Average Compensation Plans
Exercise Exercise Price of (Excluding Shares
of Outstanding Outstanding Reflected
Plan Category Options Options in Column (a))
- ------------- ------- ------- --------------
Equity compensation plans
approved by stockholders 6,236,436 $13.42 3,742,089(1)

Total 6,236,436 $13.42 3,742,089

- ---------------------

(1) Of these, 2,955,826 shares remained available for grant under the 1999
Equity Incentive Plan and 787,073 shares remained available for grant
under the 1999 Employee Stock Purchase Plan. All of the shares available
for grant under the 1999 Equity Incentive Plan may be issued as restricted
stock, although we do not currently intend to do so.

Employment Agreement with Chief Executive Officer

We entered into an employment agreement with Umang Gupta, our chief
executive officer, in December 1997 and amended this agreement in November 2001.
This agreement, as amended, establishes Mr. Gupta's annual base salary and
eligibility for benefits and bonuses. This agreement continues until it is
terminated upon written notice by Mr. Gupta or us. We must pay Mr. Gupta his
salary and other benefits through the date of any termination of his employment.
If his employment is terminated by us without cause or through his constructive
termination due to a material reduction in his salary or benefits, a material
change in his responsibilities or a sale of us if he is not the chief executive
officer of the resulting combined company, we must also pay his salary for six
additional months after that date.

In connection with the November 2001 amendment of this agreement, Mr.
Gupta was granted an option to purchase 1,300,000 shares of common stock at an
exercise price of $7.52 per share. This option is immediately exercisable,
subject to our right to repurchase the shares of common stock upon termination
of his employment. This option vested as to 20,833 shares on January 7, 2002,
vested as to 33,333 shares each month thereafter through January 7, 2004, and
vested as to 20,833 shares each month thereafter. This option is currently fully
vested.

Under the employment agreement, as amended, all shares subject to Mr.
Gupta's options, including the option granted on February 3, 2006 and any
options granted in the future, would vest in full 90 days following a sale of us
if Mr. Gupta is not the chief executive officer of the resulting combined
company. If his employment is terminated by us 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 his employment is terminated by us 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 his employment is terminated by us for cause or due to his
disability or through his voluntary termination where he does not assist in the
transition to a successor chief executive officer, the vesting of any shares
subject to his options would cease on the date of termination. During the fiscal
year ended September 30, 2005, these terms applied to the now fully-vested
option granted to Mr. Gupta in November 2001.

Other Change-of-Control Arrangements

The options that we grant to our executive officers other than our chief
executive officer, as described above, under our 1999 Equity Incentive Plan
generally provide for acceleration of the vesting of such options upon the
occurrence of specified events. If the executive officer is terminated without
cause following a sale of our company that occurs within 12 or less months after
the date of grant of the option, that option vests immediately with respect to
25% of the shares subject to that option. If the executive officer is terminated
without cause following a sale of our company that occurs more than 12 months
after the date of grant of the option, that option vests immediately with
respect to all of the shares subject to that option. For the purposes of this
provision, a sale of our company includes any sale of all or substantially all
of our assets, or any merger or consolidation of us with or into any other
corporation, corporations, or other entity in which more than 50% of our voting
power is transferred. For purposes of this provision, cause means (i) willfully
engaging in gross misconduct that is materially and demonstrably injurious to
us; (ii) willful and continued failure to substantially perform the executive
officer's duties (other than incapacity due to physical or mental illness),
provided that this failure continues after our board of directors has provided
the executive officer with a written demand for substantial performance, setting
forth in detail the specific respects in which it believes the executive officer
has willfully and not substantially performed his or her duties and a reasonable
opportunity (to be not less than 30 days) to cure the failure. A termination
without cause includes a termination of employment by the executive officer
within 30 days following any one of the following events: (x) a 10% or more
reduction in the executive officer's salary that is not part of a general salary
reduction plan applicable to all officers of the successor company; (y) a change
in the executive officer's position or status to a position that is not at the
level of vice president or above with the successor; or (z) relocating the
executive officer's principal place of business, in excess of fifty (50) miles
from the current location of such principal place of business. In addition, if
any of these executive officers is terminated without cause, he or she is
entitled to receive a payment equal to three months of his or her base salary.

The options that we grant to our non-employee directors under the
automatic option grant provision of our 1999 Equity Incentive Plan provide that
any unvested shares subject to these options will become immediately exercisable
upon a transaction that results in a change of control.

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 Dr. Rieman. 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 Mr. Cowan nor Dr. Rieman 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 and to administer the stock option and other
employee equity and bonus plans. 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
executive officers and employees. Accordingly, each executive officer's
compensation package may, in one or more years, be comprised of the following
three elements:

o 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;

o annual variable performance awards, such as bonuses, payable in cash
and/or stock-based incentive awards, tied to the achievement of
goals based on Keynote's performance either generally, or in the
given area under the individual's management, and using financial or
other appropriate measures for determining achievement that are
established by the compensation committee; and

o long-term stock-based incentive awards that strengthen the mutuality
of interests between Keynote's executive officers and Keynote's
stockholders.

In preparing the Stock Price Performance Graph for this proxy statement,
Keynote used The Street.com Internet Sector Index as its published line of
business index. The compensation practices of most of the companies in that
index were not reviewed by Keynote when the compensation committee reviewed the
compensation information described above because such companies were determined
not to be competitive with Keynote for executive talent. Instead, the
compensation committee reviewed the compensation practices of a number of high
technology companies in the San Francisco Bay Area for which adequate
information was available for analysis.

Executive Compensation

Base Salary. Salaries for executive officers for the fiscal year ended
September 30, 2005 were generally determined on an individual basis by
evaluating each executive officer's scope of responsibility, performance, prior
experience and salary history, as well as the salaries for similar positions at
comparable companies. We believe our executive's salaries are generally in the
mid-range of those companies that figured in our analysis.

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 officer'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 officer's
annual performance will be measured by the achievement of established goals and
objectives using quantitative and qualitative measures.

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 its 1999 Equity Incentive
Plan. In the fiscal year ended September 30, 2005, stock options were granted to
certain executive officers to aid in the retention of those executive officers
and to align their interests with those of Keynote's stockholders. Stock options
typically are granted to an executive officer when he or she first joins us. The
compensation committee may, however, grant additional stock options to executive
officers for other reasons such as for retention or to attempt to ensure that a
given executive officer's actual and potential stockholdings (meaning shares
held plus vested and unvested options) will align his or her interests with
those of Keynote's other stockholders. 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 performance or consistency within the officer's peer group, and
the number of unvested options. In the fiscal year ended September 30, 2005, the
compensation committee considered these factors and other factors as well. Stock
options generally vest and become exercisable over a four-year period, remain
exercisable for as long as nine years after vesting (so long as the executive
remains in our employ), 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

The compensation committee reviewed Mr. Gupta's performance and
compensation package in October 2004. At that time it determined to adjust for
fiscal 2005, Mr. Gupta's base salary from $225,000 to $237,000 per year and
determined not to make any adjustment to his target bonus of $150,000. The
compensation committee believes that revenue growth is an important element in
the long-term success of Keynote and the target bonus of the chief executive
officer should be paid primarily in relation to the improvement of Keynote's
financial and operating performance. For fiscal 2005, the compensation committee
therefore determined that Mr. Gupta's target bonus should be entirely based on
Keynote achieving profit and revenue objectives contained in the operating plan
approved by the board of directors. The compensation committee established
fourth quarter revenues, rather than annual revenues, as the revenue objective
for Mr. Gupta's performance bonus on the rationale that fourth quarter revenues
are a better indicator of revenue growth. Based on Keynote's fiscal 2005
performance against these profit and revenue objectives, the compensation
committee determined that Mr. Gupta had earned 25% of his target bonus, $37,500.
The board, with Mr. Gupta not present, reviewed and ratified this determination.
With respect to long term incentive compensation, Mr. Gupta requested that he
not be granted any stock options in fiscal 2005 to moderate the potential
dilution from stock options to our stockholders. The compensation committee took
account of this request, of the option grant awarded in fiscal 2002, and of the
level of his existing shareholdings in concluding that Mr. Gupta's interest in
the long-term success of Keynote remained aligned with that of Keynote's other
stockholders.

On January 27, 2006, after reviewing Mr. Gupta's performance, his
overall compensation package, the level of his existing shareholdings and the
vesting of his options, the Compensation Committee determined that it would
increase Mr. Gupta's total compensation by targeting cash compensation at less
than the median and allocating a greater percentage of total compensation to an
equity award which would deliver a return to Mr. Gupta only if our common stock
appreciates. Accordingly, the compensation committee increased Mr. Gupta's base
salary to $284,400 for fiscal year 2006, increased his performance-based target
bonus to $180,000 for fiscal year 2006, and approved a grant to Mr. Gupta of an
option to purchase 500,000 shares of our common stock, which was made on
February 3, 2006 at an exercise price of $11.68 per share, and vests monthly
over two years beginning December 7, 2005. 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.

Internal Revenue Code Section 162(m) Limitation

Section 162(m) of the Internal Revenue Code limits the tax deduction in
any taxable year of a publicly held company to one million dollars for
compensation paid to the chief executive officer and its four other most highly
compensated executive officers. Having considered the requirements of Section
162(m), the compensation committee believes that grants made pursuant to
Keynote's 1999 Equity Incentive Plan meet the requirements that such grants be
"performance based" and are, therefore, exempt from the limitations of Section
162(m) on deductibility. Historically, and for fiscal year 2005 as well, the
combined salary and bonus of each executive officer covered by Section 162(m)
has been below one million dollars. The compensation committee's present
intention is to structure compensation arrangements to maximize Keynote's
available deductions consistent with Section 162(m) unless the occasion should
arise that the compensation committee reasonably believes that the best
interests of Keynote and its stockholders will be served by structuring
compensation for a given executive officer, or executive officers, differently.

Compensation Committee

David Cowan
Deborah Rieman

STOCK PRICE PERFORMANCE GRAPH

The following graph and table compare the cumulative total stockholder
return on our common stock, the NASDAQ Composite Index and The Street.com
Internet Sector Index. The graph and table assume that $100 was invested in our
common stock, the NASDAQ Composite Index and The Street.com Internet Sector
Index on September 30, 2001, and calculates the annual return through September
30, 2005. The stock price performance on the following graph and table is not
necessarily indicative of future stock price performance.

[GRAPHIC OMITTED]

-----------------------------------------------------------------------------------
NASDAQ
Keynote Systems, Inc. Composite Index The Street.com Internet Sector index
- ------------------------- -----------------------------------------------------------------------------------

September 30, 2001 $100 $100 $100
- ------------------------- -----------------------------------------------------------------------------------
September 30, 2002 86 78 58
- ------------------------- -----------------------------------------------------------------------------------
September 30, 2003 147 119 115
- ------------------------- -----------------------------------------------------------------------------------
September 30, 2004 186 127 143
- ------------------------- -----------------------------------------------------------------------------------
September 30, 2005 171 143 175
- ------------------------- -----------------------------------------------------------------------------------

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Other than the compensation arrangements that are described above in
"Director Compensation", "Employment Agreement with Chief Executive Officer" and
"Chief Executive Officer Compensation", since October 1, 2004, 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.

STOCKHOLDER PROPOSALS FOR THE 2007 ANNUAL MEETING OF STOCKHOLDERS

Proposals of stockholders intended to be presented at our 2007 Annual
Meeting of Stockholders and included in our proxy statement and form of proxy
relating to the meeting, pursuant to Rule 14a-8 under the Exchange Act, must be
received by us at our principal executive offices no later than 120 calendar
days before the one-year anniversary of the date of this proxy statement, or
October 13, 2006. In accordance with our bylaws, written notice of any proposals
of stockholders intended to be presented at the meeting but not included in our
proxy materials must be received by us at our principal executive offices not
less than 60 days nor more than 90 days before the one-year anniversary of the
date of the annual meeting to which this proxy statement relates. For the 2007
Annual Meeting, such notice must be received between December 23, 2006 and
January 22, 2007. Such notice must include information on the nominees for
election and the business to be brought before the meeting. Such notice must
also contain information concerning the stockholder submitting the proposal,
including its name and address, the number and class of shares of our capital
stock beneficially owned by such stockholder and any material interest that such
stockholder has in the business proposed to be brought before the meeting. We
reserve the right to reject, rule out of order, or take other appropriate action
with respect to any proposal that does not comply with these and other
applicable requirements, including conditions established by the Securities and
Exchange Commission.

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 found that
the following filings were late:

Forms 4 for stock options granted on July 1, 2005 to five
directors and two officers, covering 360,000 shares of common stock were
filed late.

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.

KEYNOTE SYSTEMS, INC.

1999 EQUITY INCENTIVE PLAN

As Adopted June 28, 1999 and Amended on September 22,
1999, March 25, 2003 and January 27, 2006

1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.

2. SHARES SUBJECT TO THE PLAN.

2.1 Number of Shares Available. Subject to Sections 2.2 and
18, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 5,000,000 Shares plus Shares that are subject to:
(a) issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option; (b) an Award granted
hereunder but are forfeited or are repurchased by the Company at the original
issue price; and (c) an Award that otherwise terminates without Shares being
issued. In addition, any authorized shares not issued or subject to outstanding
grants under the Keynote Systems, Inc. 1996 Stock Option Plan and the 1999 Stock
Option Plan (the "Prior Plans") on the Effective Date (as defined below) and any
shares issued under the Prior Plans that are forfeited or repurchased by the
Company or that are issuable upon exercise of options granted pursuant to the
Prior Plans that expire or become unexercisable for any reason without having
been exercised in full, will no longer be available for grant and issuance under
the Prior Plans, but will be available for grant and issuance under this Plan.
No more than 20,000,000 shares shall qualify as ISOs (as defined in Section 5
below). At all times the Company shall reserve and keep available a sufficient
number of Shares as shall be required to satisfy the requirements of all
outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.

2.2 Adjustment of Shares. In the event that the number of
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.

3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent or Subsidiary of the Company; provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. No person will be eligible to receive more than 1,000,000 Shares in
any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to receive
up to a maximum of 2,000,000 Shares in the calendar year in which they commence
their employment. A person may be granted more than one Award under this Plan.

4. ADMINISTRATION.

4.1 Committee Authority. This Plan will be administered by
the Committee or by the Board acting as the Committee. Except for automatic
grants to Outside Directors pursuant to Section 9 hereof, and subject to the
general purposes, terms and conditions of this Plan, and to the direction of the
Board, the Committee will have full power to implement and carry out this Plan.
Except for automatic grants to Outside Directors pursuant to Section 9 hereof,
the Committee will have the authority to:

(a) construe and interpret this Plan, any Award Agreement
and any other agreement or document executed pursuant to this
Plan;

(b) prescribe, amend and rescind rules and regulations
relating to this Plan or any Award;

(d) determine the form and terms of Awards;

(e) determine the number of Shares or other consideration
subject to Awards;

(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any Parent or
Subsidiary of the Company;

(g) grant waivers of Plan or Award conditions;

(h) determine the vesting, exercisability and payment of
Awards;

(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;

(j) determine whether an Award has been earned; and

(k) make all other determinations necessary or advisable for
the administration of this Plan.

4.2 Committee Discretion. Except for automatic grants to
Outside Directors pursuant to Section 9 hereof, any determination made by the
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under this Plan to Participants who are not Insiders
of the Company.

5. OPTIONS. The Committee may grant Options to eligible persons and
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:

5.1 Form of Option Grant. Each Option granted under this Plan
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("Stock Option Agreement"), and, except as otherwise
required by the terms of Section 9 hereof, will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.

5.2 Date of Grant. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.

5.3 Exercise Period. Options may be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement governing such Option; provided, however, that no Option will
be exercisable after the expiration of ten (10) years from the date the Option
is granted; and provided further that no ISO granted to a person who directly or
by attribution owns more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any Parent or Subsidiary of
the Company ("Ten Percent Stockholder") will be exercisable after the expiration
of five (5) years from the date the ISO is granted. The Committee also may
provide for Options to become exercisable at one time or from time to time,
periodically or otherwise, in such number of Shares or percentage of Shares as
the Committee determines.

5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.

5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"Exercise Agreement") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.

5.6 Termination. Notwithstanding the exercise periods set
forth in the Stock Option Agreement, exercise of an Option will always be
subject to the following:

(a) If the Participant is Terminated for any reason
except death or Disability, then the Participant may
exercise such Participant's Options only to the extent that
such Options would have been exercisable upon the
Termination Date no later than three (3) months after the
Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after
the Termination Date deemed to be an NQSO), but in any
event, no later than the expiration date of the Options.

(b) If the Participant is Terminated because of
Participant's death or Disability (or the Participant dies
within three (3) months after a Termination other than for
Cause or because of Participant's Disability), then
Participant's Options may be exercised only to the extent
that such Options would have been exercisable by Participant
on the Termination Date and must be exercised by Participant
(or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the
Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the
Committee, with any such exercise beyond (a) three (3)
months after the Termination Date when the Termination is
for any reason other than the Participant's death or
Disability, or (b) twelve (12) months after the Termination
Date when the Termination is for Participant's death or
Disability, deemed to be an NQSO), but in any event no later
than the expiration date of the Options.

(c) Notwithstanding the provisions in paragraph 5.6(a)
above, if a Participant is terminated for Cause, neither the
Participant, the Participant's estate nor such other person
who may then hold the Option shall be entitled to exercise
any Option with respect to any Shares whatsoever, after
termination of service, whether or not after termination of
service the Participant may receive payment from the Company
or Subsidiary for vacation pay, for services rendered prior
to termination, for services rendered for the day on which
termination occurs, for salary in lieu of notice, or for any
other benefits. In making such determination, the Board
shall give the Participant an opportunity to present to the
Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur
on the date when the Company dispatches notice or advice to
the Participant that his service is terminated.

5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.

5.8 Limitations on ISO. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value
of Shares on the date of grant with respect to which ISO are exercisable for the
first time by a Participant during any calendar year exceeds $100,000, then the
Options for the first $100,000 worth of Shares to become exercisable in such
calendar year will be ISO and the Options for the amount in excess of $100,000
that become exercisable in that calendar year will be NQSOs. In the event that
the Code or the regulations promulgated thereunder are amended after the
Effective Date of this Plan to provide for a different limit on the Fair Market
Value of Shares permitted to be subject to ISO, such different limit will be
automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.

5.9 Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.

5.10 No Disqualification. Notwithstanding any other provision
in this Plan, no term of this Plan relating to ISO will be interpreted, amended
or altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.

6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:

6.1 Form of Restricted Stock Award. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("Restricted Stock Purchase Agreement") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.

6.2 Purchase Price. The Purchase Price of Shares sold
pursuant to a Restricted Stock Award will be determined by the Committee on the
date the Restricted Stock Award is granted, except in the case of a sale to a
Ten Percent Stockholder, in which case the Purchase Price will be 100% of the
Fair Market Value. Payment of the Purchase Price may be made in accordance with
Section 8 of this Plan.

6.3 Terms of Restricted Stock Awards. Restricted Stock Awards
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance Periods
may overlap and Participants may participate simultaneously with respect to
Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.

6.4 Termination During Performance Period. If a Participant
is Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.

7. STOCK BONUSES.

7.1 Awards of Stock Bonuses. A Stock Bonus is an award of
Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent or Subsidiary of the Company. A Stock Bonus may be awarded
for past services already rendered to the Company, or any Parent or Subsidiary
of the Company pursuant to an Award Agreement (the "Stock Bonus Agreement") that
will be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.

7.2 Terms of Stock Bonuses. The Committee will determine the
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature, length
and starting date of any Performance Period for each Stock Bonus; (b) select
from among the Performance Factors to be used to measure the performance, if
any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events or
circumstances to avoid windfalls or hardships.

7.3 Form of Payment. The earned portion of a Stock Bonus may
be paid currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Committee may determine. Payment may be made in the
form of cash or whole Shares or a combination thereof, either in a lump sum
payment or in installments, all as the Committee will determine.

8. PAYMENT FOR SHARE PURCHASES.

8.1 Payment. Payment for Shares purchased pursuant to this
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:

(a) by cancellation of indebtedness of the Company to
the Participant;

(b) by surrender of shares that either: (1) have been
owned by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and, if
such shares were purchased from the Company by use of a
promissory note, such note has been fully paid with respect
to such shares); or (2) were obtained by Participant in the
public market;

(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares;

(d) by waiver of compensation due or accrued to the
Participant for services rendered;

(e) with respect only to purchases upon exercise of an
Option, and provided that a public market for the Company's
stock exists:

(1) through a "same day sale" commitment
from the Participant and a broker-dealer that is a
member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the Participant
irrevocably elects to exercise the Option and to
sell a portion of the Shares so purchased to pay
for the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to
the Company; or

(2) through a "margin" commitment from
the Participant and a NASD Dealer whereby the
Participant irrevocably elects to exercise the
Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security
for a loan from the NASD Dealer in the amount of
the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the
Company; or

(f) by any combination of the foregoing.

8.2 Loan Guarantees. The Committee may help the Participant
pay for Shares purchased under this Plan by authorizing a guarantee by the
Company of a third-party loan to the Participant.

9. GRANTS TO OUTSIDE DIRECTORS.

9.1 Types of Options and Shares. Options granted under this
Plan and subject to this Section 9 shall be NQSOs.

9.2 Eligibility. Options subject to this Section 9 shall be
granted only to Outside Directors.

9.3 Initial Grants. Each Outside Director who first becomes a
member of the Board on or after the Company's 2006 Annual Meeting of
Stockholders will automatically be granted an Option for 60,000 Shares on the
date such Outside Director first becomes a member of the Board (in either case
an "Initial Grant").

9.4 Additional Grants. Each Outside Director will be eligible
for additional Options (an "Additional Grant") at the sole discretion of the
Committee or the Board acting as the Committee. No Outside Director shall
receive Additional Grants during any fiscal year covering, in the aggregate, in
excess of 40,000 Shares, provided that any Options received pursuant to Section
9.3 above shall not count against such limit.

9.5 Vesting.

(a) The date an Outside Director receives an Initial Grant
is referred to in this Plan as the "Start Date" for such Option. Each
Initial Grant will vest as to 25% of the Shares on the earlier of the
first anniversary of the Start Date for such Initial Grant or the
first Annual Meeting of stockholders of the Company following such
Initial Grant, and as to 2.0833% of the Shares monthly thereafter
until all of the Shares are fully vested, so long as the Outside
Director continuously remains a director of the Company.

(b) The Committee, in its sole discretion, may set the
vesting schedule of Additional Grants to Outside Directors.

(c) In the event of a corporate transaction described in
Section 18.1, the vesting of all options granted to Outside Directors
pursuant to this Section 9 will accelerate and such options will
become exercisable in full prior to the consummation of such event at
such times and on such conditions as the Committee determines, and
must be exercised, if at all, within three months of the consummation
of said event. Any options not exercised within such three-month
period shall expire.

9.6 Exercise Price. The exercise price of an Option pursuant
to an Initial Grant or an Additional Grant shall be the Fair Market Value of the
Shares, at the time that the Option is granted.

10. WITHHOLDING TAXES.

10.1 Withholding Generally. Whenever Shares are to be issued
in satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.

10.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee

11. TRANSFERABILITY.

11.1 Except as otherwise provided in this Section 11, Awards
granted under this Plan, and any interest therein, will not be transferable or
assignable by Participant, and may not be made subject to execution, attachment
or similar process, otherwise than by will or by the laws of descent and
distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards that are not ISOs.

11.2 All Awards other than NQSO's. All Awards other than
NQSO's shall be exercisable: (i) during the Participant's lifetime, only by (A)
the Participant, or (B) the Participant's guardian or legal representative; and
(ii) after Participant's death, by the legal representative of the Participant's
heirs or legatees.

11.3 NQSOs. Unless otherwise restricted by the Committee, an
NQSO shall be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" and (ii) after Participant's death, by the legal representative of
the Participant's heirs or legatees. "Permitted transfer" means, as authorized
by this Plan and the Committee in an NQSO, any transfer effected by the
Participant during the Participant's lifetime of an interest in such NQSO but
only such transfers which are by gift or domestic relations order. A permitted
transfer does not include any transfer for value and neither of the following
are transfers for value: (a) a transfer of under a domestic relations order in
settlement of marital property rights or (b) a transfer to an entity in which
more than fifty percent of the voting interests are owned by Family Members or
the Participant in exchange for an interest in that entity.

12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES..

12.1 Voting and Dividends. No Participant will have any of the rights
of a stockholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a stockholder and have all the rights of a stockholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.

12.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.

12.3 Restrictions on Shares. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.

13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.

14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.

15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.

16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding

any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.

17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.

18. CORPORATE TRANSACTIONS.

18.1 Assumption or Replacement of Awards by Successor. Except for
automatic grants to Outside Directors pursuant to Section 9 hereof, in the event
of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participants, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 18.1,
such Awards will expire on such transaction at such time and on such conditions
as the Committee will determine. Notwithstanding anything in this Plan to the
contrary, the Committee may, in its sole discretion, provide that the vesting of
any or all Awards granted pursuant to this Plan will accelerate upon a
transaction described in this Section 18. If the Committee exercises such
discretion with respect to Options, such Options will become exercisable in full
prior to the consummation of such event at such time and on such conditions as
the Committee determines, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.

18.2 Other Treatment of Awards. Subject to any greater rights granted
to Participants under the foregoing provisions of this Section 18, in the event
of the occurrence of any transaction described in Section 18.1, any outstanding
Awards will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, or sale of assets.

18.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.

19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on
the date on which the registration statement filed by the Company with the SEC
under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "Effective Date").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; provided,
however, that: (a) no Option may be exercised prior to initial stockholder
approval of this Plan; (b) no Option granted pursuant to an increase in the

number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the stockholders of the
Company; (c) in the event that initial stockholder approval is not obtained
within the time period provided herein, all Awards granted hereunder shall be
cancelled, any Shares issued pursuant to any Awards shall be cancelled and any
purchase of Shares issued hereunder shall be rescinded; and (d) in the event
that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
cancelled, any Shares issued pursuant to any Award granted pursuant to such
increase will be cancelled, and any purchase of Shares pursuant to such increase
will be rescinded.

20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.

21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan in any respect, including without limitation amendment of any
form of Award Agreement or instrument to be executed pursuant to this Plan;
provided, however, that the Board will not, without the approval of the
stockholders of the Company, amend this Plan in any manner that requires such
stockholder approval.

22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.

23. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:

"Award" means any award under this Plan, including any Option, Restricted
Stock or Stock Bonus.

"Award Agreement" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.

"Board" means the Board of Directors of the Company.

"Cause" means the commission of an act of theft, embezzlement, fraud,
dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" means the Compensation Committee of the Board.

"Company" means Keynote Systems, Inc. or any successor corporation.

"Disability" means a disability, whether temporary or permanent, partial or
total, as determined by the Committee.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.

"Fair Market Value" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:

(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;

(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on which
the Common Stock is listed or admitted to trading as reported in The
Wall Street Journal;

(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices
on the date of determination as reported in The Wall Street Journal;

(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in the
initial public offering of the Company's Common Stock pursuant to a
registration statement filed with the SEC under the Securities Act; or

(e) if none of the foregoing is applicable, by the Committee in good
faith.

"Family Member" includes any of the following:

(a) child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the Participant, including any such person with such
relationship to the Participant by adoption;

(b) any person (other than a tenant or employee) sharing the
Participant's household;

(d) a foundation in which the persons in (a) and (b) or the
Participant control the management of assets; or

(e) any other entity in which the persons in (a) and (b) or the
Participant own more than fifty percent of the voting interest.

"Insider" means an officer or director of the Company or any other person
whose transactions in the Company's Common Stock are subject to Section 16 of
the Exchange Act.

"Option" means an award of an option to purchase Shares pursuant to Section
5.

"Outside Director" means a member of the Board who is not an employee of
the Company or any Parent, Subsidiary or Affiliate of the Company.

"Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.

"Participant" means a person who receives an Award under this Plan.

"Performance Factors" means the factors selected by the Committee from
among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:

(a) Net revenue and/or net revenue growth;

(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;

(d) Net income and/or net income growth;

(e) Earnings per share and/or earnings per share growth;

(f) Total stockholder return and/or total stockholder return growth;

(g) Return on equity;

(h) Operating cash flow return on income;

(i) Adjusted operating cash flow return on income;

(j) Economic value added; and

(k) Individual confidential business objectives.

"Performance Period" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.

"Plan" means this Keynote Systems, Inc. 1999 Equity Incentive Plan, as
amended from time to time.

"Restricted Stock Award" means an award of Shares pursuant to Section 6.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Shares" means shares of the Company's Common Stock reserved for issuance
under this Plan, as adjusted pursuant to Sections 2 and 18, and any successor
security.

"Stock Bonus" means an award of Shares, or cash in lieu of Shares, pursuant
to Section 7.

"Subsidiary" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

"Termination" or "Terminated" means, for purposes of this Plan with respect
to a Participant, that the Participant has for any reason ceased to provide
services as an employee, officer, director, consultant, independent contractor,
or advisor to the Company or a Parent or Subsidiary of the Company. An employee
will not be deemed to have ceased to provide services in the case of (i) sick
leave, (ii) military leave, or (iii) any other leave of absence approved by the
Committee, provided, that such leave is for a period of not more than 90 days,
unless reemployment upon the expiration of such leave is guaranteed by contract
or statute or unless provided otherwise pursuant to formal policy adopted from
time to time by the Company and issued and promulgated to employees in writing.
In the case of any employee on an approved leave of absence, the Committee may
make such provisions respecting suspension of vesting of the Award while on
leave from the employ of the Company or a Subsidiary as it may deem appropriate,
except that in no event may an Option be exercised after the expiration of the
term set forth in the Option agreement. The Committee will have sole discretion
to determine whether a Participant has ceased to provide services and the
effective date on which the Participant ceased to provide services (the
"Termination Date").

"Unvested Shares" means "Unvested Shares" as defined in the Award
Agreement.

"Vested Shares" means "Vested Shares" as defined in the Award Agreement.

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 Andrew Hamer, or either of
them, as proxies, each with full power of substitution, and hereby authorizes
them to represent and to vote, as designated on the reverse side, all shares of
common stock, $0.001 par value per share, of Keynote Systems, Inc. held of
record by the undersigned on February 7, 2006, at the Annual Meeting of
Stockholders to be held at the executive offices of Keynote Systems, Inc. in San
Mateo, California, on Thursday, March 23, 2006 at 10:00 a.m., Pacific Time, and
at any adjournments or postponements thereof.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
SEVEN NOMINEES LISTED IN PROPOSAL NO. 1 AND FOR PROPOSAL NO. 2. PLEASE SIGN,
DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE
OR BLACK INK AS SHOWN HERE |X|

1. ELECTION OF DIRECTORS

|_| FOR ALL NOMINEES Nominees: o Umang Gupta
o David Cowan
o Deborah Rieman
o Mohan Gyani
o Geoffrey Penney
o Raymond L. Ocampo Jr.
o Jennifer Bolt
|_| WITHHOLD AUTHORITY FOR ALL NOMINEES
|_| FOR ALL EXCEPT (SEE INSTRUCTION BELOW)

Instruction: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee for which you wish
to withhold authority to vote, as shown here: o

2. APPROVAL OF AMENDMENTS TO THE 1999 EQUITY INCENTIVE PLAN.

|_| 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, 2006.

|_| FOR |_| AGAINST |_| ABSTAIN

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.

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
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE ANNUAL MEETING

To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
|_|

Signature of Stockholder: ___________ Date: __________ Signature of
Stockholder: ____________ Date: __________

Note: This proxy must be signed exactly as the name appears hereon. If
shares are held jointly, each holder should sign. If signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If the signer is a partnership, please sign
full partnership name by authorized person, giving full title as such.