SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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by Rule 14a-6(e)(2))
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|_| 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.
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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3) Filing Party:
4) Date Filed:
Keynote
The Mobile & Internet Performance Authority
Keynote Systems, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
January 28, 2008
To our Stockholders:
You are cordially invited to attend the 2008 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 20, 2008 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 2008 Annual Meeting of Stockholders and
proxy statement.
We encourage you to 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
The Mobile & Internet Performance Authority
Keynote Systems, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
NOTICE OF THE 2008 ANNUAL MEETING OF STOCKHOLDERS
To our Stockholders:
NOTICE IS HEREBY GIVEN that the 2008 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 20, 2008
at 10:00 a.m., Pacific Time, for the following purposes:
1. To elect seven members of Keynote's Board of Directors;
2. To ratify the selection of Deloitte & Touche LLP as Keynote's
independent registered public accounting firm for the fiscal year ending
September 30, 2008; and
3. 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 January 21, 2008
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
January 28, 2008
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 Annual Meeting of Shareholders 1
Proposal No. 1--Election of Directors.................................................................................. 3
Nominees for Board of Directors................................................................................. 3
Corporate Governance and Board Matters.......................................................................... 5
Director Compensation........................................................................................... 7
Compensation Committee Interlocks and Insider Participation..................................................... 8
Code of Ethics.................................................................................................. 8
Directors' Attendance at Annual Stockholder Meetings............................................................ 8
Proposal No. 2--Ratification of Selection of Independent Registered Public Accounting Firm............................. 9
Audit and Related Fees.......................................................................................... 9
Report of the Audit Committee......................................................................................... 10
Security Ownership of Certain Beneficial Owners and Management........................................................ 11
Compensation Discussion and Analysis.................................................................................. 13
Summary Compensation Table............................................................................... 20
Grants of Plan-Based Awards............................................................................... 20
Outstanding Equity Awards at September 30, 2007........................................................... 21
Option Exercises in Fiscal 2007........................................................................... 22
Equity Compensation Plans............................................................................................. 23
Report of the Compensation Committee.................................................................................. 24
Certain Relationships and Related Transactions........................................................................ 25
Stockholder Proposals for the 2009 Annual Meeting of Stockholders..................................................... 25
Compliance Under Section 16(a) of the Securities Exchange Act of 1934................................................. 25
Other Business........................................................................................................ 25
----------------
The Report of the Audit Committee and the Report of the Compensation Committee 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 2008 ANNUAL MEETING OF STOCKHOLDERS
------------------
January 28, 2008
The accompanying proxy is solicited on behalf of the Board of Directors of
Keynote Systems, Inc., a Delaware corporation, for use at the 2008 Annual
Meeting of Stockholders to be held at our executive offices, located at 777
Mariners Island Boulevard in San Mateo, California, on Thursday, March 20, 2008
at 10:00 a.m., Pacific Time. Only holders of record of our common stock at the
close of business on January 21, 2008, which is the record date, will be
entitled to vote at the Annual Meeting. At the close of business on the record
date, there were 17,176,152 shares of Keynote common stock outstanding. 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 will be first mailed to stockholders on or about February 8, 2008. Our
annual report for the fiscal year ended September 30, 2007 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 Proposal No. 1
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. 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 any of the
proposals.
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 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 proposal that is not routine.
1
Adjournment of Meeting
In the event that sufficient votes 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.
Telephone or Internet Voting
For stockholders with shares registered in the name of a brokerage firm or
bank, a number of brokerage firms and banks are participating in a program for
shares held in "street name" that offers telephone and Internet voting options.
Stockholders with shares registered directly in their names with American Stock
Transfer & Trust Co ("AST"), our transfer agent, will also be able to vote using
the telephone and Internet. If your shares are held in an account at a brokerage
firm or bank participating in this program or registered directly in your name
with AST, you may vote those shares by calling the telephone number specified on
your proxy or accessing the Internet website address specified on your proxy
instead of completing and signing the proxy itself. The giving of such a
telephonic or Internet proxy will not affect your right to vote in person should
you decide to attend the Annual Meeting.
The telephone and Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been recorded
properly. Stockholders voting via the telephone or Internet should understand
that there may be costs associated with telephonic or electronic access, such as
usage charges from telephone companies and Internet access providers, that must
be borne by the stockholder.
2
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, stockholders will elect directors to hold office
until the next Annual Meeting of Stockholders and until their successors have
been elected and qualified or until a director's earlier resignation or removal.
The size of our Board of Directors is currently set at seven members. Each of
the current directors has been nominated for election by the Board of Directors
and has decided to stand for re-election. The seven nominees receiving the
highest number of affirmative votes of the shares entitled to vote 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 58 Chairman of the Board and Chief Executive Officer of Keynote 1997
David Cowan (2) (3) 42 General Partner of Bessemer Venture Partners 1998
Deborah Rieman*(2) 58 Retired President and Chief Executive Officer of Check Point Software 2002
Technologies Inc.
Mohan Gyani (1) 56 Retired President and Chief Executive Officer of AT&T Wireless Mobility Services 2002
Raymond L. Ocampo Jr. (1) (3) 54 President and Chief Executive Officer, Samurai Surfer LLC 2004
Jennifer Bolt (2) 43 Executive Vice President, Operations and Technology of Franklin Resources, Inc. 2004
Charles M. Boesenberg (1) 59 Retired President and Chief Executive Officer of NetIQ, Inc. 2006
* Lead independent director
(1) Member of our Audit Committee
(2) Member of our Compensation Committee
(3) Member of our Nominating and Governance Committee
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 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 and
as our lead independent director since April 2004. 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 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. Mr.
Gyani has been a private investor since December 2004. He served as Chief
Executive Officer and Chairman of Roamware from May 2003 to December 2003. Mr.
Gyani was a senior advisor to the Chairman and Chief Executive Officer of AT&T
Wireless from January 2003 to December 2004. He served as President and Chief
Executive Officer of AT&T Wireless Mobility Services from February 2000 to
January 2003. From 1995 to 1999, Mr. Gyani served as Executive Vice President
and Chief Financial Officer of AirTouch Communications. Mr. Gyani is a member of
the boards of directors of SIRF Technology Holdings, Inc., Safeway Inc.,
Epiphany Inc., Union Bank of California, Mobile TeleSystems and three private
companies. Mr. Gyani holds an M.B.A. degree and a B.A. degree in business
administration from San Francisco State University.
3
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. and PMI
Group, Inc. 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 Executive Vice President, Operations and Technology of
Franklin Resources, Inc., a financial services company since June 2006. Prior to
that time, she served in various other capacities for Franklin Resources, Inc.
or its subsidiaries. Ms. Bolt serves as chairman of Franklin Capital Corporation
and Franklin Templeton Bank & Trust, director of Fiduciary Trust Company
International and is a member of Franklin Resources, Inc.'s Executive Committee.
Ms. Bolt is also a member of the board of Templeton Global Growth Fund Ltd and a
member of the boards of other private companies. Ms. Bolt holds a B.A. degree in
economics and physical education from the University of California at Davis.
Charles M. Boesenberg has served as one of our directors since September
2006. From January 2002, Mr. Boesenberg served as Chairman, CEO and President of
NetIQ, Inc. before it was acquired by Attachmate Corporation in June 2006. From
March 2000 to December 2001, Mr. Boesenberg served as President of Post PC
Ventures, a management and investment group. Mr. Boesenberg was president and
CEO of Integrated Systems, Inc. (ISI), a provider of embedded systems software,
from 1998 until ISI merged with Wind River Systems in February of 2000. Mr.
Boesenberg joined ISI from Magellan, where he was CEO From 1992 to 1994. Mr.
Boesenberg currently serves on the boards of directors of Callidus Software
Inc., Interwoven, Inc., Rackable Systems, Inc and other private companies. He
holds a B.S. in mechanical engineering from the Rose Hullman Institute of
Technology and an M.S. in business administration from Boston University.
The Board Recommends a Vote FOR the Election of
Each of the Nominated Directors.
4
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
"Company," on "Investor Relations," and then on "Corporate Governance."
Keynote's policies and practices reflect corporate governance initiatives
that are compliant with the listing requirements of The NASDAQ Stock Market 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. Dr. Rieman, the lead
independent director, presides at these executive sessions;
o Keynote has a clear code of business conduct that is annually
affirmed by its employees;
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 of Directors 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 of Directors met five times during the fiscal year ended
September 30, 2007. During this period each director attended at least 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, Dr. Rieman and Ms. Bolt. Ms. Bolt serves as the chair. 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
considers and approves, or reviews and makes recommendations to our Board
concerning salaries for our officers 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 five times during the fiscal year ended September 30, 2007.
5
Audit Committee. Our Audit Committee oversees our corporate accounting and
financial reporting process. Among other matters, the Audit Committee:
o evaluates the qualifications, independence and performance of our
independent registered public accounting firm;
o determines the engagement of our independent registered public
accounting firm and reviews and approves the scope of the annual audit
and the audit fee;
o discusses with management and our independent registered public
accounting firm the results of the annual audit and the review of our
quarterly financial statements;
o approves the retention of our independent registered public accounting
firm to perform any proposed permissible non-audit services;
o monitors the rotation of partners of our independent registered public
accounting firm on our engagement team as required by law;
o reviews our critical accounting policies and estimates; and
o annually reviews the Audit Committee charter and the committee's
performance.
The current members of our Audit Committee are Mr. Gyani, Mr. Ocampo and
Mr. Boesenberg. 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 each of
Mr. Gyani and Mr. Boesenberg 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. The Audit Committee met eight times during the fiscal year ended
September 30, 2007.
Nominating and Governance Committee. The current members of our Nominating
and Governance Committee are Mr. Cowan, and Mr. Ocampo. Mr. Ocampo currently
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, makes recommendations regarding the structure and composition of the
Board and Board committees and oversees the annual Board evaluation process. 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 did not have formal
meetings during the fiscal year ended September 30, 2007, but acted through
informal communications.
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, 2008 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.
6
Stockholder Communication with Our Board
Our stockholders may communicate with our Board of Directors 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.
Director Compensation
Directors who are employees of Keynote do not receive compensation from
Keynote for the services they provide as directors. Members of the Board of
Directors who are not employees of Keynote receive cash and equity compensation
for their service as directors.
Cash Compensation. Non-employee directors are each paid an annual retainer
fee of $25,000; this payment is subject to a 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. In
addition, members of the Compensation Committee and the Nominating and
Governance Committee are each paid an annual fee of $5,000, and members of the
Audit Committee are each paid an annual fee of $10,000. The cash retainers
earned for the 2007 fiscal year by each of our non-employee directors are
indicated in the table below. All directors are also reimbursed for their
reasonable expenses in attending Board and Board committee meetings.
Equity Compensation. Our non-employee directors receive both automatic
option grants and discretionary option awards under our 1999 Equity Incentive
Plan. On the date he or she becomes a director, a new non-employee director
receives an automatic option grant to purchase 60,000 shares of our common
stock. These options vest over four years, with one-quarter of the shares
subject to the option vesting 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 grants vest ratably on a monthly basis following the initial
vesting date. The vesting of the options will accelerate in full upon a change
of control of Keynote. The automatic option grants have an exercise price equal
to the fair market value of our common stock on the date of grant and a ten year
term. In addition to these automatic option grants, our non-employee directors
receive discretionary option awards annually for committee service and upon
re-election at the annual meeting of stockholders. In fiscal 2007, the Board of
Directors made discretionary option awards to non-employee directors for service
on our standing committees, and on March 22, 2007, the date of our 2007 Annual
Meeting of Stockholders, each non-employee director who was re-elected to the
Board of Directors received an option to purchase 15,000 shares of our common
stock. Options for 5,000 shares were awarded for service on one of our three
standing committees; in addition, the chair of the Audit Committee received an
option for an additional 5,000 shares and the chairs of our Compensation
Committee and our Nominating and Governance Committee each received options for
an additional 2,000 shares. The options awarded for committee service vest
monthly during the fiscal year and were fully vested at September 30, 2007. The
options awarded at the 2007 Annual Meeting of Stockholders do not commence
vesting until our 2010 Annual Meeting of Stockholders and then vest ratably on a
monthly basis with each option to be fully vested at our 2011 Annual Meeting of
Stockholders. The discretionary options also have an exercise price equal to the
fair market value of our common stock on the date of grant and a ten year term;
these options will vest in full upon a change of control of Keynote.
Options were awarded to, and cash fees earned by, our non-employee directors
during fiscal 2007 in the following amounts:
Director Compensation
Fees Earned or Paid in Cash
- ------------------------------ ----------------------------- ------------------------------- --------------------------
Name Fees Earned or Option Awards (2)(3) Total
---- Paid in Cash -------------- -----
- ------------------------------ ----------------------------- ------------------------------- --------------------------
Charles M. Boesenberg $35,000 $60,108 (4)(5) $95,108
- ------------------------------ ----------------------------- ------------------------------- --------------------------
Jennifer Bolt 30,000 $55,332 (4)(5) $85,332
- ------------------------------ ----------------------------- ------------------------------- --------------------------
David Cowan 35,000 $84,993 (4)(5) $119,993
- ------------------------------ ----------------------------- ------------------------------- --------------------------
Mohan Gyani 35,000 $84,955 (4)(5) $119,955
- ------------------------------ ----------------------------- ------------------------------- --------------------------
Raymond L. Ocampo, Jr. 40,000 $59,197 (4)(5) $99,197
- ------------------------------ ----------------------------- ------------------------------- --------------------------
Deborah Rieman 30,000 $78,551 (4)(5) $108,551
- ------------------------------ ----------------------------- ------------------------------- --------------------------
Geoff Penney (1) 20,000 $23,918 (5) $43,918
- ------------------------------ ----------------------------- ------------------------------- --------------------------
(1) Mr. Penney did not stand for re-election as a director at the 2007 Annual
Meeting of Stockholders. Accordingly, his term ended on March 22, 2007.
(2) The amounts reflect the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended September 30, 2007, in accordance
with FAS 123(R), of stock option awards issued pursuant to the 1999 Equity
Incentive Plan and thus include amounts from outstanding stock option awards
granted during and prior to fiscal 2007. Assumptions used in the calculation of
these amounts are included in the notes to our audited consolidated financial
statements for the fiscal year ended September 30, 2007, as included in our
Annual Report on Form 10-K. The amounts shown disregard estimated forfeitures
related to service-based vesting conditions. These amounts reflect Keynote's
accounting expense for these awards, and do not correspond to the actual value
that may be recognized by the non-employee director.
7
(3) As of September 30, 2007, each non-employee director has the following
number of shares subject to options outstanding: Charles M. Boesenberg: 80,000;
Jennifer Bolt: 124,000; David Cowan: 170,000; Mohan Gyani: 175,000; Raymond L.
Ocampo, Jr.: 140,000; and Deborah Rieman: 160,000.
(4) An option to purchase 15,000 shares of our common stock was granted on March
22, 2007 at an exercise price of $13.51 per share. The option will vest ratably
over a 12-month period commencing on the date of the 2010 Annual Meeting of
Stockholders and concluding on the date of the 2011 Annual Meeting of
Stockholders. The vesting of the option accelerates in full upon a change of
control. The grant date fair value for each of these option grants was $31,135.
(5) On February 2, 2007, an option to purchase 10,000 shares of our common
stock, with a grant date fair value of $19,566, was granted to each of Messrs.
Cowan, Gyani and Ocampo, an option to purchase 5,000 shares, with a grant date
fair value of $8,783, to each of Mr. Boesenberg and Dr. Rieman, an option to
purchase 7,000 shares, with a grant date fair value of $13,696, to Ms. Bolt, and
an option to purchase 12,000 shares, with a grant date fair value of $28,640, to
Mr. Penney. Each of these options has an exercise price of $12.51 per share.
One-third of the shares subject to the options were vested on the grant date,
with the remainder vesting ratably on a monthly basis through September 30,
2007.
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 personnel, 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. Four of our directors attended
our 2007 Annual Meeting of Stockholders. Mr. Gupta, Chairman of the Board and
our Chief Executive Officer, has attended all of our annual meetings.
8
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of our Board of Directors has selected Deloitte &
Touche LLP ("Deloitte") as the independent registered public accounting firm for
the fiscal year ending September 30, 2008, and our stockholders are being asked
to ratify such selection. Representatives of Deloitte will be present at the
Annual Meeting, will be able to make a statement if they wish to do so, and will
be able to respond to appropriate questions.
Ratification by our stockholders of the selection of Deloitte as our
independent registered public accounting firm is not required by our bylaws or
otherwise. However, the Board is submitting the selection of Deloitte 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 registered public
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
Deloitte & Touche LLP
Audit and Related Fees
During the fiscal year ended September 30 2007, Deloitte served as
Keynote's independent registered public accounting firm. During the fiscal year
ended September 30 2006, KPMG LLP ("KPMG") served as Keynote's independent
registered public accounting firm. The aggregate fees billed by Deloitte for
professional services rendered during fiscal year ended September 30 2007, and
the aggregate fees billed by KPMG for professional services rendered during
fiscal year ended September 30 2006 were as follows:
o Audit Fees. The aggregate fees billed by Deloitte for professional
services rendered for the audit of Keynote's annual consolidated
financial statements, the audit of Keynote's internal control over
financial reporting, and review of the condensed 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 $1,279,647, for the fiscal year ended September 30,
2007. The aggregate fees billed by KPMG for professional services
rendered for the audit of Keynote's annual consolidated financial
statements, and 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, and auditing
services related to acquisitions were $1,864,000 for the fiscal year
ended September 30, 2006;
o Audit-Related Fees. There were no fees billed by Deloitte and no
fees billed by KPMG for assurance and related services reasonably
related to the performance of the audit or review of Keynote's
consolidated financial statements that are not reported above under
"Audit Fees" for the fiscal years ended September 30, 2007 and
September 30, 2006;
o Tax Fees. There were no fees billed by Deloitte and no fees billed
by KPMG for professional services rendered for tax compliance and
tax advice planning for the fiscal years ended September 30, 2007
and September 30, 2006; and
o All Other Fees. For the fiscal years ended September 30, 2007 and
September 30, 2006, there were no fees billed by Deloitte or KMPG
for consultants related to Sarbanes-Oxley 404 compliance.
The Audit Committee determined that the provision of these services was
compatible with maintaining Deloitte's independence for the fiscal year ended
September 30, 2007 and was compatible with maintaining KPMG's independence for
the fiscal year ended September 30, 2006.
9
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has reviewed Keynote's audited consolidated financial
statements for the fiscal year ended September 30, 2007 and has met with the
management of Keynote and its independent auditors to discuss the audited
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, 2007, and be filed with the Securities and
Exchange Commission.
Audit Committee
Mohan Gyani
Raymond L. Ocampo Jr.
Charles M. Boesenberg
10
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, 2007 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, Chief Financial Officer and three other
most highly compensated executive officers who were serving as
executive officers as of September 30, 2007; and
o all of our directors and executive officers as a group.
The percentage ownership is based on 17,789,656 shares of common stock
outstanding, excluding shares of treasury stock, as of December 31, 2007. Shares
of common stock that are subject to options currently exercisable or exercisable
within 60 days of December 31, 2007, 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.
Name of Beneficial Owner Shares Beneficially
Owned
-----
Number of
Name of Beneficial Owner Shares Percent
- ------------------------ --------- ---------
Directors and Named Executive Officers:
Umang Gupta (1) ............................................ 3,080,233 17.31%
Donald Aoki (2) ............................................ 358,938 2.02%
Raymond L. Ocampo Jr.(3) ................................... 162,444 *
David Cowan (4) ............................................ 152,166 *
Mohan Gyani (5) ............................................ 138,750 *
Deborah Rieman (6) ......................................... 118,750 *
Jennifer Bolt (7) .......................................... 86,000 *
Andrew Hamer (8) ........................................... 75,519 *
Jeffrey Kraatz (9) ......................................... 53,957 *
Charles M. Boesenberg (10) ................................. 31,250 *
Johannes Reis .............................................. 2,974 *
All 14 directors and executive officers as a group (11) .... 4,702,974 26.44%
5% Stockholders:
David J. Greene & Co (12) .................................. 1,360,098 7.65%
Dimensional Fund Advisors, LP (13) ......................... 1,220,470 6.86%
Renaissance Technologies Corp. (14) ........................ 1,192,900 6.71%
S Squared Technology (15) .................................. 1,174,300 6.60%
- ---------------------
11
* Indicates beneficial ownership of less than 1%.
(1) Includes 1,411,700 shares subject to options exercisable within 60 days of
December 31, 2007.
(2) Includes 25,752 shares held by the Aoki family trust, 2,842 shares held by
Mr. Aoki as trustee for his minor children, and 350 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. Also includes
322,289 shares subject to options exercisable within 60 days of December
31, 2007.
(3) Includes 34,716 shares held by Raymond L. Ocampo Jr. and Sandra O. Ocampo,
Trustees of Ocampo Revocable Trust UTA May 30, 1996, and 105,000 shares
subject to options exercisable within 60 days of December 31, 2007.
(4) Includes 133,750 shares subject to options exercisable within 60 days of
December 31, 2007.
(5) Represents 138,750 shares subject to options exercisable within 60 days of
December 31, 2007.
(6) Represents 118,000 shares subject to options exercisable within 60 days of
December 31, 2007.
(7) Represents 86,000 shares subject to options exercisable within 60 days of
December 31, 2007.
(8) Represents 75,519 shares subject to options exercisable within 60 days of
December 31, 2007.
(9) Represents 53,957 shares subject to options exercisable within 60 days of
December 31, 2007.
(10) Represents 31,250 shares subject to options exercisable within 60 days of
December 31, 2007.
(11) Includes 4,722,170 shares subject to options exercisable within 60 days of
December 31, 2007.
(12) Based solely on information provided by David J. Greene & Company, LLC in
its 13G Form, as amended, filed with the Securities and Exchange Commission
on January 24, 2008. The address of this entity is 599 Lexington Avenue,
12th Floor, New York, NY 10022.
(13) Based solely on information provided by Dimensional Fund Advisors, LP in
its 13F Form, as amended, filed with the Securities and Exchange Commission
on October 25, 2007. The address of Dimensional is 1299 Ocean Avenue, Santa
Monica, CA 90401.
(14) Based solely on information provided by Renaissance Technologies, Corp. in
its 13F Form, as amended, filed with the Securities and Exchange Commission
on November 14, 2007. The address of this entity is 800 Third Avenue, 33rd
Floor, New York, NY 10022.
(15) Based solely on information provided by S Squared Technology in its 13G
Form, as amended, filed with the Securities and Exchange Commission on
January 7, 2008 and represents 964,200 shares held by S Squared Technology
LLC ("SST") and 210,100 shares held by S Squared Technology Partners, C.P.
("SSTP"). Seymour L. Goldblatt is President of each of SST and SSTP and
owns a majority of the interests of SST. Kenneth Goldblatt owns a majority
of the interests of SSTP. The address of these entities is 515 Madison
Avenue, New York, NY 10022.
12
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This compensation discussion and analysis describes the material elements
of compensation awarded to each of our executive officers who are identified in
the Summary Compensation Table on page 19 (the "named executive officers"). This
discussion and analysis serves as an introduction to the executive compensation
information provided in narratives, tables and footnotes that follow. This
discussion and analysis contains statements about individual and company
performance targets and goals, and the likelihood of achieving these targets and
goals, in the limited context of our compensation programs. Those statements
should not be understood to be statements of our expectations or estimates of
future performance or other guidance, and should not be applied to other
contexts. These statements are subject to many risks and uncertainties,
including, but not limited to, those identified in our Form 10-K for fiscal year
ended September 30, 2007 under "Item 1A. Risk Factors."
Our compensation committee performs at least annually a strategic review of
our executive officers' overall compensation to determine whether they provide
adequate incentives and motivation to our executive officers. Our compensation
committee's most recent overall compensation review occurred in October 2007.
During each fiscal year, the compensation committee meets with our Chief
Executive Officer to review the objectives of Keynote and its executives for
such year and to establish parameters for performance-based year-end bonus
awards. Bonus awards for executives other than the chief executive officer may
be based on achievement of corporate objectives as well as on achievement of
personal objectives as determined by the chief executive officer. Personal
objectives are established by the chief executive officer at the beginning of
the fiscal year and usually involve a mix of quantitative and qualitative goals.
At the conclusion of each fiscal year, the compensation committee meets with the
chief executive officer to review the performance of Keynote and its executive
officers against the corporate performance objectives and parameters that were
established for eligibility for performance-based bonuses and to award year-end
cash bonuses accordingly or, in the case of the chief executive officer, to
approve a performance-based cash bonus subject to ratification by the board of
directors.
Our Chief Executive Officer makes recommendations to the Compensation
Committee about the compensation of named executive officers other than our
Chief Executive Officer. In setting the compensation for named executive
officers other than our Chief Executive Officer, the Compensation Committee
gives weight to the recommendations of our Chief Executive Officer, but final
decisions about the compensation of our named executive officers are made by the
Compensation Committee. The Compensation Committee determines the compensation
of the chief executive officer outside of his presence.
General Compensation Policy and Objectives
Our executive compensation program is designed to attract, as needed,
individuals with the skills necessary for us to achieve our business plan, to
reward those individuals fairly over time, to retain those individuals who
continue to perform at or above the levels that we expect and to closely align
the compensation of those individuals with the performance of our company on
both a short-term and long-term basis. Keynote's compensation philosophy for
executive officers is to relate compensation to individual and corporate
performance. Accordingly, our compensation programs are designed with a
framework of rewards, in the short term and the long term, for meeting and
exceeding measurable company-wide goals and individual goals. Within this
overall philosophy, the elements of compensation for our named executive
officers include base salaries, cash incentive bonuses, and equity incentive
awards.
We view these components of compensation as related but distinct. Although
our compensation committee does review total compensation, we do not believe
that significant compensation derived from one component of compensation should
negate or reduce compensation from other components. We determine the
appropriate level for each compensation component based in part, but not
exclusively, on our understanding of the competitive market, our view of
internal equity and consistency, individual performance and overall company
performance. We have not relied on specific third-party compensation studies or
surveys, until our most recent compensation decisions regarding our Chief
Executive Officer compensation for fiscal 2008. Our compensation committee has
not adopted any formal or informal policies or guidelines for allocating
compensation between long-term and currently paid out compensation, between cash
and non-cash compensation or among different forms of non-cash compensation.
However, the compensation committee's philosophy is to have a significant
portion of an employee's compensation performance-based, while providing the
opportunity to be well rewarded through equity if the company performs well over
time. We also believe for technology companies, stock-based compensation is the
primary motivator in attracting employees, rather than cash compensation.
From time to time, special business conditions may warrant additional
compensation to attract, retain or motivate executives. Examples of such
conditions could include acquisitions, recruiting or retaining specific or
unique talent, and recognition for exceptional contributions. In these
situations, the Compensation Committee considers the business needs and the
potential costs and benefits of special rewards.
13
We account for equity compensation paid to our employees under SFAS 123(R),
which requires us to estimate and record an expense over the service period of
the award. Our cash compensation is recorded as an expense at the time the
obligation is accrued. We currently intend that all cash compensation paid will
be tax deductible for us. However, with respect to equity compensation awards,
while any gain recognized by employees from nonqualified options granted at fair
market value should be deductible, to the extent that an option constitutes an
incentive stock option gain recognized by the optionee will not be deductible if
there is no disqualifying disposition by the optionee. In addition, if we grant
restricted stock or restricted stock unit awards that are not subject to
performance vesting, they may not be fully deductible by us at the time the
award is otherwise taxable to employees.
The Compensation Committee has engaged Compensia, Inc., an executive
compensation consultant to assist the Compensation Committee in establishing
compensation for our Chief Executive Officer for fiscal year ending September
30, 2008. Compensia was identified and engaged directly by the Compensation
Committee and has not provided any other services to the Company. We have not
previously utilized third party consulting firms in determining executive
compensation.
Elements of Compensation
The three material elements of our named executive officer compensation
program are base salary, cash incentive awards and equity incentive awards.
Base Salary
We seek to provide our senior management with a base salary that is
appropriate for their roles and responsibilities, and that provides them with a
level of income stability. The Compensation Committee reviews base salaries
annually, and adjusts them from time in light of market conditions. For fiscal
year ended September 30, 2007, the base salaries of our named executive officers
were determined for each individual by evaluating his scope of responsibility,
historical qualitative performance and other contributions, prior experience and
salary history, and salaries for similar positions at comparably sized
companies. The Compensation Committee made its compensation decisions based on
its subjective judgment taking into account the available information, and in
setting salaries for fiscal year ended September 30, 2007, the Compensation
Committee considered base salary increases for all of our named executive
officers. After careful consideration, the Compensation Committee approved
increases for Messrs. Gupta and Hamer. Mr. Kraatz' base salary was increased by
$25,000 in connection with his promotion to Senior Vice President Worldwide
Sales and Services in April 2007. The base salary of Mr. Reis, which was
initially determined in connection with the negotiations regarding his
employment arrangement in connection with the acquisition of SIGOS in April
2006, remained the same. The base salary of Mr. Aoki also remained the same. The
Compensation Committee believed the salary levels for fiscal year ended
September 30, 2007 would serve as an effective means of retaining these
individuals.
For the fiscal year ended September 30, 2007, the Compensation Committee
approved an increase to Mr. Gupta's base salary in the amount of $16,000, from
$284,000 to $300,000. The Compensation Committee considered the Company's
performance in fiscal year ended September 30, 2006, Mr. Gupta's overall and
cash compensation history at the Company, and the Compensation Committee's
understanding of cash compensation paid to chief executive officers of other
public and private companies. The Compensation Committee determined that this
additional salary was fair and reasonable in view of its' qualitative assessment
of Mr. Gupta's expected contributions in his role, our business needs, the
potential costs and benefits, including the retentive and incentive benefits.
The Compensation Committee also believed that this additional pay would serve
the purpose of retaining Mr. Gupta as our Chief Executive Officer.
During fiscal year ended September 30, 2007, the Compensation Committee
increased the base salary of Mr. Hamer by $6,000 from $200,000 to $206,000. The
Compensation Committee determined that Mr. Hamer should receive a cost of living
adjustment. During fiscal year ended September 30, 2007, the Compensation
Committee also increased the base salary of Mr. Kraatz by $25,000 from $150,000
to $175,000 in connection with his promotion, and determined that such increase
was warranted based on his increased responsibilities. The Compensation
Committee did not adjust the base salaries of Messrs. Aoki or Reis during fiscal
year ended September 30, 2007. The Compensation Committee determined that
compensation for each of Mr. Aoki and Reis should be more closely aligned with
their cash incentive award potential and any increase in their respective
compensation should result from exceeding target goals described below.
Mr. Gupta's base salary for 2008 was increased to $330,000. In determining
his base salary for fiscal 2008, the Compensation Committee considered the
report of Compensia, its compensation consultant. The salary increase for Mr.
Gupta was based on a review of peer public software industry companies that the
Compensation Committee believed to be similar to our company in terms of size,
financial results and geographic location. These peer companies consisted of:
Activeidentity, BroadVision, Callidus Software, Captaris, Chordiant Software,
DivX, Document Sciences, Echelon, Entrust, Guidance Software, KANA Software,
Kintera, NetManage, New Market Technology, Pervasive Software, Saba Software,
SoftBrands, Synplicity, Tumbleweed Communications and Visual Sciences.
14
Cash Incentive Awards
Each of our named executive officers is eligible to receive incentive cash
compensation based on individual performance and, in the case of only our Chief
Executive Officer and Chief Financial Officer in fiscal 2007, our corporate
performance for the entire year. The Compensation Committee met with our Chief
Executive Officer to review the objectives of Keynote and its executives for the
fiscal year ended September 30, 2007 and to establish parameters for
performance-based year-end bonus awards.
Personal management by objectives (MBOs) and Corporate MBOs are established
at the beginning of the fiscal year. Corporate MBOs include quantitative goals,
while Personal MBOs involve a mix of quantitative and qualitative goals. In
general, the Compensation Committee designed its named executive officer
incentive bonus targets to ensure that each of the named executive officers had
interests that were aligned with those of our stockholders and that the named
executive officers are provided incentives to maximize their efforts throughout
the year.
For fiscal year ended September 30, 2007, the individual MBOs on-target
bonuses varied for each named executive officer, with a range of 20% to 138% of
base salary. Mr. Hamer's on-target bonus was 20% of his base salary and Mr.
Aoki's on-target bonus was 37.5% of his base salary. The on-target bonus for Mr.
Kraatz was 138% of base salary, with much of his bonus directly related to the
amount of services sold because of his responsibility for the sales function at
our company. Mr. Reis did not have a specific on-target bonus; rather his bonus
was based on the financial performance of the SIGOS mobile business. Our named
executive officers who are responsible for sales and service functions were
gathered toward the high end of this range and the others were gathered at the
bottom of this range, reflecting our compensation philosophy to link specific
cash based elements of compensation to our near term financial performance, and
to increase the percentage of total cash compensation represented by cash
incentive awards where doing so would have the greatest impact on revenue
generation.
The on-target bonus amounts for each of the named executive officers for
fiscal year ended September 30, 2007 were as follows:
--- -------------------------- ------------------------- -------------------------
-------------------------- On-Target Bonus Minimum Bonus Maximum Bonus
Name On-Target Bonus Minimum Bonus Maximum Bonus
--------------------------- -------------------------- ------------------------- -------------------------
Umang Gupta $180,000 $0 $360,000(1)
Donald Aoki 75,000 0 150,000
Andrew Hamer(2) 40,000 0 60,000
Jeffrey Kraatz 225,000 0 (3)
Johannes Reis - (4) 0 $227,515(5)
- ---
(1) If the corporate objectives described below for Mr. Gupta were exceeded,
Mr. Gupta could have received up to 200% of his target bonus.
(2) If the corporate objectives described below for Mr. Hamer were exceeded,
Mr. Hamer could have received a maximum bonus of up to $60,000.
(3) There was no cap on the maximum bonus amount to be paid to Mr. Kraatz. We
anticipated that any bonus amount be proportionately increased based on the
level by which we exceeded the target amounts.
(4) Mr. Reis did not have a specific on-target bonus for fiscal year 2007.
(5) Mr. Reis was eligible to receive up to 100% of his salary, which for fiscal
2007 was 160,008 Euros. Based on an exchange rate of 1.4219 (which was the
exchange rate as of September 28, 2007, the last trading date of fiscal
2007)), Mr. Reis' salary in U.S. dollars would have been $227,515.
For fiscal 2008, the on-target bonus amounts are 60% of base salary, in the
case of our Chief Executive Officer, 100% for Messrs. Aoki and Mr. Kraatz, and
30% for Mr. Hamer. The specific potential bonus amounts for Mr. Reis has not yet
been determined, although Keynote anticipates that the revenue and EBIT targets
will be similar to those of fiscal 2007, and the potential bonus amounts are
expected to be higher. The on-target bonus amounts for each of the named
executive officers for the fiscal year ending September 30, 2008 are as follows:
-- ------------------------- -------------------------- -------------------------
Name On-Target Bonus Minimum Bonus Maximum Bonus
- ---------------------------- ------------------------- -------------------------- -------------------------
Umang Gupta $198,000 $0 $396,000(1)
Donald Aoki 75,000 0 150,000
Andrew Hamer(2) 61,800 0 103,000
Jeffrey Kraatz 175,000 0 (3)
Johannes Reis - 0 $227,515(4)
(1) If the corporate objectives described below for Mr. Gupta are exceeded, Mr.
Gupta could receive up to 200% of his target bonus.
(2) If the corporate objectives described below for Mr. Hamer are exceeded, Mr.
Hamer could receive a maximum bonus of up to $103,000.
(3) There is no cap on the maximum bonus amount that may be paid to Mr. Kraatz.
We anticipate that any bonus amount would be proportionately increased based on
the level by which we exceed the target amount of revenues for fiscal 2008.
(4) Mr. Reis will be eligible to receive up to 100% of his annual base salary.
Based on the exchange rate, the amount in U.S. dollars may be higher or lower as
of the end of fiscal 2008.
15
Personal MBOs.
Each named executive officer, other than our Chief Executive Officer,
typically has a number of Personal MBO goals for the fiscal year. The specific
Personal MBO goals, and the relative weighting of each, is determined by our
Chief Executive Officer and confirmed by the Compensation Committee. Bonus
payments associated with Personal MBO goal achievement are based on the degree
to which each the objective is achieved, as determined by the Compensation
Committee, based on the assessments and recommendations of our Chief Executive
Officer.
For the fiscal year ended September 30, 2007, the Personal MBO goals for
our Chief Financial Officer, Mr. Hamer, were established and reviewed quarterly,
focusing on the management of his area of responsibility. For the first and
second quarters of fiscal 2007, Mr. Hamer's Personal MBO goals were maintaining
budgetary controls on general and administrative costs, and delivering monthly
financial packages. For the third quarter for fiscal 2007, Mr. Hamer's goals
were the finance and accounting organization achieving "an employee morale"
rating greater than the company average and achieving a building leasing goal.
For the fourth quarter of fiscal 2007, Mr. Hamer's goals were maintaining
budgetary controls for costs and enhancing investor relations. For the fiscal
year ended September 30, 2007, Mr. Hamer earned bonus payments of $15,933 in the
aggregate as a result of achievement of 50% of the goals for the first quarter,
100% of the goals in each of the second and third quarters and 66.6% achievement
of the goals for the fourth quarter.
For the fiscal year ended September 30, 2007, the Personal MBO goals for
our Senior Vice President and General Manager of Customer Experience Management,
Mr. Aoki, focused on maintaining and growing CEM worldwide revenues from the
sales of WebEffective licenses, Custom Research, Keynote Competitive Research CE
Rankings and Web Excellence services. Two-thirds of Mr. Aoki's target bonus of
$75,000 was payable if Keynote achieved a worldwide CEM revenue goal of
$12,600,000, or $3,150,000 per quarter. In addition, one-third of Mr. Aoki's
target bonus was payable upon the achievement of the targeted CEM Contribution
Margin, which consisted of CEM recognized revenue less cost of goods (consulting
personnel and directly attributable costs) engineering, sales and product
management allocated to CEM. For the fiscal year ended September 30, 2007, Mr.
Aoki earned cash payments of $19,944, in the aggregate as a result of
achievement of 26.7 % of the target bonus.
For the fiscal year ended September 30, 2007, the Personal MBO goals for
our Vice-President of Worldwide Sales and Services, Mr. Kraatz, were based on
Keynote revenue in North America and Asia Pacific. Based on the achievement of
revenue goals, Mr. Kraatz was eligible to receive a target commission of
$225,000. Mr. Kraatz was eligible to receive a specified percentage of
recognized revenue in a given quarter from the North America and Asia Pacific
regions. For the fiscal year ended September 30, 2007, Mr. Kraatz earned cash
payments of $82,828, in the aggregate as a result of achievement of 36.8% of the
target commission that is based on the North America and Asia Pacific revenue
goal.
For our President of Keynote-SIGOS Gmbh, Mr. Reis, the Personal MBO goals
focused on Keynote SIGOS revenues and earnings before taxes (EBIT) achieved
under German generally accepted accounting principles during calendar year 2007.
Based on the achievement of revenues above (euro)14.0 million ($19.9 million
based on the exchange rate of 1.4219 at the end of fiscal 2007) and EBIT above
(euro)1.4 million ($1.99 million), Mr. Reis was eligible to receive up to 100%
of his base salary, depending on the amount of revenues and EBIT. For calendar
year ended 2007. Mr. Reis earned cash payments of (euro)67,938 ($96,601).
For the fiscal year ended September 30, 2008, the objectives for Mr. Hamer
focus on maintaining budgetary controls on general and administrative costs, and
delivering timely financial packages. The objectives for Mr. Aoki focus on
maintaining and growing worldwide revenues from the sales of WebEffective
licenses, Custom Research, Keynote Competitive Research CE Rankings and Keynote
Scorecard. The objectives of Mr. Kraatz are directly related to worldwide
revenues of Keynote while the objectives of Mr. Reis are directly related to
revenues and EBIT of Keynote-SIGOS Gmbh.
Corporate MBOs. For fiscal year ended September 30, 2007, the Compensation
Committee selected operating cash flow goals and revenue goals for the corporate
goals because it believed that these measures are strongly correlated with
stockholder value creation, improvement in these measures aligns with our
overall growth strategy, we and our investors see these measures as among the
most critical of our financial information, and these measures balance growth
and profitability. The Compensation Committee also selected these measures to
establish appropriate checks and balances among our financial objectives and to
provide the strongest composite of indicators of our overall annual performance.
The operating cash flow goals and the revenue goals were set at levels intended
to reward our Chief Executive Officer and our Chief Financial Officer for
achieving results that met our expectations. The Corporate MBOs were initially
established for the Chief Executive Officer and the Chief Financial Officer, as
it was believed that they had the most company-wide perspective in their roles,
whereas the other named executive officers had a narrower, more domain-focused
responsibility.
The Compensation Committee believes that to provide for an appropriate
incentive effect, our Chief Executive Officer and our Chief Financial Officer
should only be rewarded for achievement of at least a minimum threshold of a
particular Corporate MBO goal, with the opportunity to receive more as the
performance levels increase. With respect to operating cash flow, 50% of the
Corporate MBO for fiscal 2007 service was payable if Keynote achieved operating
cash flow of $11.0 million. A linear payout of 0% to 200% (of such 50% of the
Corporate MBO) was payable upon achievement of such operating cash flow goal,
within a range extending from 80% of the operating cash flow goal (0% payout) to
120% of the operating cash flow goal (200% payout). With respect to revenue, 50%
of the Corporate MBO was payable if Keynote achieved the revenue goal of $72.0
million, as calculated under generally accepted accounting principles of the
United States or Germany, depending on the jurisdiction in which the revenue was
generated. A linear payout of 0% to 200% (of such 50% of the Corporate MBO) was
payable upon achievement of such revenue goal, within a range extending from 80%
of the revenue goal (0% payout) to 120% of the revenue goal (200% payout).
Accordingly, our Chief Executive Officer and Chief Financial Officer would not
have received a payment for the portion of the 2007 target bonus that was based
on a company performance goal if the minimum achievement threshold level (80%)
of a particular goal was not met. Conversely, if the achievement threshold of a
particular goal was exceeded, our Chief Executive Officer and Chief Financial
Officer would have received a payment amount that exceeded his respective target
bonus associated with that goal, with a maximum bonus of 200% of the target
amount for such Corporate MBO.
16
For the fiscal year ended September 30, 2007, Messrs. Gupta and Hamer
earned cash payments of $293,710, and $32,634, respectively, as a result of
achievement of goals related to company performance, representing 200% of the
target bonus that was based on the operating cash flow goal and 126% of the
target bonus that was based on the revenue goal.
For fiscal year ending September 30, 2008, the Compensation Committee has
adopted EBIDTA goals instead of operating cash flow goals (in addition to
revenue) as the second corporate financial performance objective. The rationale
for substituting operating EBIDTA for operating cash flow was because Keynote
had operated the business of SIGOS for over two years, allowing for
normalization between bookings and revenues from the SIGOS business. A linear
payout of 0% to 200% (of such 50% of the Corporate MBO) remained payable upon
the achievement of such EBIDTA goal, within a range extending from 80% of the
EBIDTA goal (0% payout) to 120% of the EBIDTA goal (200% payout). However, the
specific revenue goal amount was changed for fiscal 2008, and although the
linear payout of 0% to 200% (of such 50% of the Corporate MBO) remained payable
upon the achievement of the new revenue goal, the range has been modified to
90.9% of the revenue goal (0% payout) to 109.1% of the revenue goal (200%
payout).
Because our Compensation Committee views cash bonuses as a reward for
strong performance, we generally set company performance objectives at levels
that would only be achieved if we improved on our past levels of performance.
Accordingly, we generally believe that these targets are difficult to achieve
and require a high level of execution and performance by our executives.
We do not have a formal policy regarding adjustment or recovery of awards
or payments if the relevant performance measures upon which they are based are
restated or otherwise adjusted in a manner that would reduce the size of the
award.
Long-Term Equity Awards
Each named executive officer is eligible to receive equity awards, which
the Compensation Committee believes will reward the named executive officers if
stockholder value is created over the long-term, as the value of the equity
awarded increases with the appreciation of the market value of our common stock.
Accordingly, the primary purpose of our long-term equity awards is to align the
interests of the named executive officers with those of the stockholders through
incentives to create stockholder value. Equity awards also improve our ability
to attract and retain our executives by providing compensation that is
competitive with market levels.
Our equity compensation plan provides for awards of: stock options,
restricted stock, and stock bonuses, although to date we have only issued stock
options. We use stock options to link executive officer compensation directly to
increases in the price of our common stock, which reflects increases in
stockholder value. Stock options therefore compensate our executive officers
only if our stock price increases after the date of grant and the executive
officer remains employed for the period required for the stock option to vest
and become exercisable. The Compensation Committee thus considers stock options
a particularly effective incentive and retention tool because it motivates our
executive officers to increase stockholder value and remain with our company.
Stock option grants are typically awarded to executive officers upon hiring
or promotion, in connection with a significant change in responsibilities, or
sometimes to achieve additional ownership in the Company. All stock options
granted to executive officers are granted with an exercise price equal to the
market closing price of our common stock on the date of grant. Each year, the
Compensation Committee reviews the equity ownership of our executive officers
and considers whether to make an additional award and takes into account our
company-wide stock option refresh policy. In order to qualify for an additional
option grant, the employee must have a strong performance evaluation rating. In
making determinations as to additional grants of options to executive officers,
the Compensation Committee remains sensitive to the potential dilutive impact
and accounting expense of stock option grants, and also takes into account, on a
subjective basis and on the advice of the chief executive officer, in the case
of other named executive officers, the responsibilities, past performance and
anticipated future contribution of the executive, the competitiveness of the
executive's overall compensation package, as well as the executive's existing
equity holdings, accumulated realized and unrealized stock option gains, and the
potential reward to the executive if the market value of our common stock
appreciates.
17
During fiscal year ended September 30, 2007, Mr. Kraatz was our only named
executive officer to receive options to purchase shares of our common stock, and
received an award of options to purchase 60,000 shares. Mr. Kraatz received his
option award in connection with his promotion to Senior Vice President,
Worldwide Sales and Services. This specific amount was recommended by our Chief
Executive Officer to reflect Mr. Kraatz' promotion to an executive officer
position and to increase Mr. Kraatz' amount of unvested stock options to help
provide an additional retention incentive. The option vests and becomes
exercisable over a four year period as to 25% of the shares subject to the
option one year from date of grant and as to 2.083% of the shares each
succeeding month. The Compensation Committee selected this vesting schedule for
this grant as it is consistent with our standard vesting schedule for all grants
to new employees, and our understanding of competitive market practice. Details
of the option granted to our named executive officers in fiscal year ended
September 30, 2007 is disclosed in the Grants of Plan-Based Awards table below.
During fiscal 2008, after consulting with Compensia, the Compensation
Committee granted, with ratification by the Board, an option to purchase 400,000
shares of our common stock to our Chief Executive Officer, subject to vesting
over two years. The Compensation Committee considered the fact that Mr. Gupta's
previous option grant would be fully vested in December 2007 and took into
account our overall performance in fiscal 2007 as well as Mr. Gupta's overall
compensation package.
We also have an employee stock purchase plan that enables eligible
employees to periodically purchase shares of our common stock at a discount.
Participation in this plan is available to all executive officers on the same
basis as our other employees.
We do not have any program, plan or obligation that requires us to grant
equity compensation on specific dates and we have not made equity grants in
connection with the release or withholding of material non-public information.
Other than the equity plans described above, we do not have any equity
security ownership guidelines or requirements for our executive officers.
Employee Benefits.
All of our named executive officers are eligible to participate in our
401(k) plan (which includes our matching contributions), health and dental
coverage, life insurance, disability insurance, paid time off, and paid holidays
on the same terms as are available to all employees generally.
Severance Arrangements.
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.
Pursuant to an offer letter dated March 21, 1997 with Don Aoki, our Senior
Vice President and General Manager of Customer Experience Management, if we
terminate Mr. Aoki without cause, we must pay Mr. Aoki's base salary for up to
12 months or until Mr. Aoki finds new employment, whichever occurs first.
Pursuant to a promotion letter dated December 21, 2005 with Andrew Hamer, our
Chief Financial Officer, if we terminate Mr. Hamer's employment with or without
cause, we must provide Mr. Hamer with either three months notice or must pay Mr.
Hamer three months of his base salary. Pursuant to a promotion letter dated
April 4, 2006 with Jeffrey Kraatz, our Senior Vice President, Worldwide Sales
and Services, if we terminate Mr. Kraatz's employment with or without cause, we
must provide Mr. Kraatz with either three months notice or must pay Mr. Kraatz
three months of his base salary plus his average incentive compensation as
averaged over the previous year. Pursuant to an addendum to an existing
employment agreement effective as of April 3, 2006, if we terminate Johannes
Reis, our President of Keynote-SIGOS with or without cause, we must pay Mr.
Reis' 12 months of his base salary.
Change in Control Arrangements.
Under Mr. Gupta's employment agreement, as amended, all shares subject to
Mr. Gupta's options, 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.
18
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. All shares subject to
options held by Messrs. Aoki, Hamer, Kraatz and Reis, and any options granted in
the future to these executive officers, would accelerate under these
circumstances. With respect to these options, 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. Cause is defined to mean (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, with respect to Mr. Hamer, at the level of Chief Financial Officer or
above); 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.
The intent of these arrangements is to enable the named executive officers
to have a balanced perspective in making overall business decisions, and to be
competitive with market practices. The Compensation Committee believes that
change in control benefits, if structured appropriately, serve to minimize the
distraction caused by a potential transaction and reduce the risk that key
talent would leave the company before a transaction closes. We do not provide
for gross-ups of excise tax values under Section 4999 of the Internal Revenue
Code. Rather, we allow the named executive officer to reduce the benefit
received or defer the accelerated vesting of options to avoid excess payment
penalties.
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 and
fully vested upon a transaction that results in a change of control.
Details of each individual named executive officer's change in control
benefits, including estimates of amounts payable in specified circumstances, are
disclosed under "Potential Payments Upon Termination or Change in Control -
Other Change in Control Arrangement" below.
Limitations on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code limits Keynote to a deduction
for federal income tax purposes of no more than $1 million of compensation paid
to our Chief Executive Officer, our Chief Financial Officer and the next three
most highly compensated executive officers in a taxable year. Compensation above
$1 million may be deducted if it is "performance-based compensation" within the
meaning of the Code. The Compensation Committee has considered the requirements
of Section 162(m) and believes that stock option grants made to our Chief
Executive Officer, our Chief Financial Officer and other applicable officers
satisfy the requirements for "performance-based compensation" and are,
therefore, exempt from the limitations on deductibility. However, deductibility
is not the sole factor used by the Compensation Committee in ascertaining
appropriate levels or manner of compensation and corporate objectives may not
necessarily align with the requirements for full deductibility under Section
162(m). Accordingly, we may enter into compensation arrangements under which
payments are not deductible under Section 162(m). The Compensation Committee's
present intention is to comply with Section 162(m) unless the Compensation
Committee believes that these requirements are not in the best interest of
Keynote or its stockholders.
19
Summary Compensation Table
The following table presents compensation information for the fiscal year
ending September 30, 2007 paid or accrued to our Chief Executive Officer, Chief
Financial Officer and our three other most highly compensated executive officers
who were serving as executive officers as of September 30, 2007 (the "named
executive officers").
Non-Equity
Incentive
Fiscal Option Plan All Other
Name and Principal Position Year Salary Bonus Awards(1) Compensation Compensation(2) Total
- --------------------------- ---- ------ ----- --------- ------------ --------------- -----
Umang Gupta 2007 $ 300,000 $ $ 879,435 $293,710 $ 2,566 $1,475,711
Chief Executive Officer
Andrew Hamer 2007 201,500 151,309 45,134 2,366 400,309
Vice President of Finance and
Chief Financial Officer
Donald Aoki 2007 200,000 107,543 19,944 2,386 329,873
Senior Vice President and
General Manager of Customer
Experience Management
Jeffrey Kraatz 2007 162,500(3) 116,501 82,828 2,201 364,030
Senior Vice President,
Worldwide Sales and Services
Johannes Reis 2007 227,515 96,086 53,944 21,707 399,252
President of Keynote-SIGOS
Gmbh(4)
- ---------------------
(1) The amounts reflect the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended September 30, 2007, in
accordance with FAS 123(R), of stock option awards issued pursuant to the
1999 Equity Incentive Plan and thus include amounts from outstanding stock
option awards granted during and prior to fiscal 2007. Assumptions used in
the calculation of these amounts are included in the notes to our audited
consolidated financial statements for the fiscal year ended September 30,
2007, as included in our Annual Report on Form 10-K. The amounts shown
disregard estimated forfeitures related to service-based vesting
conditions. These amounts reflect Keynote's accounting expense for these
awards, and do not correspond to the actual value that may be recognized
by the named executive officer.
(2) To the officers in the U.S., the amounts disclosed in the All Other
Compensation column consist of Keynote's matching contributions under our
401(k) plan and 2007 long-term disability insurance premium the company
paid for the officers. For Mr. Reis, this amount consists of the tax value
of Company Car Allowance and ESPP sale.
(3) The annual base salary of Mr. Kraatz was increased from $150,000 to
$175,000 in connection with his promotion to Senior Vice-President,
Worldwide Sales and Services effective April 1, 2007.
(4) Mr. Reis' base salary for fiscal 2007 was 160,008 Euros. Based on an
exchange rate of 1.4219, which was the exchange rate as of September 28,
2007 (the last trading date of fiscal 2007), Mr. Reis' salary in U.S.
dollars would have been $227,515.
Grants of Plan-Based Awards
The following table presents the grants made to each of our named executive officers:
- ------------------- ------------ ---------------------------------------------- -------------- ----------------- ----------------
Estimated Future Payouts Under Non-Equity
Incentive Plan Awards(1)
Number of
---------------------------------------------- Shares Exercise Price Grant Date
Threshold Target Maximum Underlying of Option Awards Fair Value of
Name Grant Date ($) ($) ($) Options ($/Share) Option Awards ($)
- ------------------- ------------ -------------- --------------- --------------- -------------- ----------------- ----------------
Umang Gupta $ 0 $ 198,000 $ 396,000
- ------------------- ------------ -------------- --------------- --------------- -------------- ----------------- ----------------
Andrew Hamer $ 0 $ 61,800 $ 103,000
- ------------------- ------------ -------------- --------------- --------------- -------------- ----------------- ----------------
Donald Aoki $ 0 $ 75,000 $ 150,000
- ------------------- ------------ -------------- --------------- --------------- -------------- ----------------- ----------------
Jeffrey Kraatz 4/1/07 $ 0 $ 175,000 - 60,000(2) $13.42 $141,763
- ------------------- ------------ -------------- --------------- --------------- -------------- ----------------- ----------------
Johannes Reis $ 0 - $227,515(3)
- ------------------- ------------ -------------- --------------- --------------- -------------- ----------------- ----------------
(1) Represents bonuses payable pursuant to the bonus plans for fiscal 2008
described in "Compensation Discussion and Analysis.
(2) Option is exercisable as to (i) 25% of the total shares as of April 1,
2008, the first anniversary date after the grant date, and (ii) 2.083% of
the total number of shares each month thereafter. The option has a term of
10 years and is subject to acceleration as described under "Severance and
Other Change of Control Arrangements."
(3) Mr. Reis was eligible to receive up to 100% of his salary, which for fiscal
2007 was 160,008 Euros. Based on an exchange rate of 1.4219 (which was the
exchange rate as of September 28, 2007, the last trading date of fiscal
2007), Mr. Reis' salary in U.S. dollars would have been $227,515.
20
2007 Outstanding Equity Awards at Fiscal Year-End
The table below summarizes outstanding equity awards held by each of our
named executive officers at September 30, 2007:
Number of
Securities Number of
Underlying Securities
Unexercised Underlying
Options Unexercised
(#) Options Option Exercise
Exercisable (#) Price Option Expiration
Name (1) Unexercisable ($) Date
- ----------------------------- ---------------- --------------- -----------------
Umang Gupta 300,000 0 $70.00 1/17/2010
-------------- ---------------- --------------- -----------------
700,000 0 7.52 11/12/2011
-------------- ---------------- --------------- -----------------
437,499(2) 62,501 11.68 2/3/2016
-------------- ---------------- --------------- -----------------
Andrew Hamer 7,291 17,709 10.31 7/1/2016
-------------- ---------------- --------------- -----------------
31,249 43,751 12.85 1/1/2016
-------------- ---------------- --------------- -----------------
28,125 21,875 11.61 6/20/2005
-------------- ---------------- --------------- -----------------
Donald Aoki 16,250 13,750 11.98 7/1/2015
-------------- ---------------- --------------- -----------------
19,791 5,209 13.01 7/16/2014
-------------- ---------------- --------------- -----------------
7,291 17,709 10.31 7/1/2016
-------------- ---------------- --------------- -----------------
120,000 0 9.02 7/18/2011
-------------- ---------------- --------------- -----------------
35,000 0 7.27 7/1/2012
-------------- ---------------- --------------- -----------------
40,000 0 10.73 7/18/2013
-------------- ---------------- --------------- -----------------
17,707 7,293 12.76 11/16/2014
-------------- ---------------- --------------- -----------------
13,750 0 8.00 6/28/2009
-------------- ---------------- --------------- -----------------
30,000 0 35.87 8/11/2010
- ----------------------------- ---------------- --------------- -----------------
Jeffrey Kraatz 23,020 41,980 11.00 4/4/2016
-------------- ---------------- --------------- -----------------
20,000 20,000 12.98 9/1/2015
-------------- ---------------- --------------- -----------------
0 60,000 13.42 4/1/2017
- ----------------------------- ---------------- --------------- -----------------
Johannes Reis 0 80,000 11.00 4/4/2016
-------------- ---------------- --------------- -----------------
0 25,000 10.31 7/1/2016
- ----------------------------- ---------------- --------------- -----------------
(1) Unless otherwise noted, all options vest as to 25% of the shares of common
stock underlying it on the first anniversary from the date of grant and as
to 2.0833%of the underlying shares monthly thereafter until fully vested.
(2) Vests as to 4.1667% of the shares of common stock underlying it on a
monthly basis after the date of grant until fully-vested.
21
2007 Option Exercises
The table below summarizes the options exercised by each of our named
executive officers for the fiscal year ended September 30, 2007.
Number of shares
acquired on Value realized on
Name exercise exercise
- ----------------- ----------------- ----------------------
Umang Gupta 600,000 $3,344,954
- ----------------- ----------------- ----------------------
Donald Aoki 45,000 290,250
- ----------------- ----------------- ----------------------
Equity Compensation Plans
As of September 30, 2007, we maintained our 1999 Equity Incentive Plan and
1999 Employee Stock Purchase Plan, both of which were approved by our
stockholders. The following table information about equity awards under those
plans as of September 30, 2007:
(a) (b) (c)
- --------------------- --------------------- --------------------- ----------------------
Number of Shares
Remaining Available
for Equity
Number of Shares to Compensation Plans
be Issued Upon Weighted-Average (Excluding Shares
Exercise of Exercise Price of Reflected in Column
Plan Category Outstanding Options Outstanding Options (a))
===================== ===================== ===================== ======================
Equity compensation
plans approved by
stockholders 5,722,813 $14.21 1,246,819(1)
- --------------------- --------------------- --------------------- ----------------------
Total 5,722,813 14.21 1,246,819
- --------------------- --------------------- --------------------- ----------------------
(1) Of these, 1,119,946 shares remained available for grant under the 1999
Equity Incentive Plan and 602,727 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 issues as restricted
stock, although we do not currently intend to do so.
22
The following table summarizes the value of benefits payable to each named
executive officer pursuant to the arrangements described above:
Termination Termination following
a Change of Control
------------------------------ --------------------------------------
Name Severance Acceleration Severance Acceleration of
of Equity Vesting(1)
Equity Vesting
- -------------------------- -------------- --------------- ------------------ -------------------
Umang Gupta $ 150,000 (2) -- $ 150,000 (2) $ 121,897 (3)
Don Aoki $ 200,000 (4) -- $ 200,000 (4) $ 91,057 (5)
Andrew Hamer $ 51,500 (6) -- $ 51,500 (6) $ 137,108 (7)
Jeffrey Kraatz $ 58,333 (8) -- $ 58,333 (8) $ 126,557 (9)
Johannes Reis $ 227,515 (10) -- $ 227,515 (10) $ 293,400 (11)
(1) Calculated based on the termination in connection with a change of control
taking place as of September 30, 2007, the last day of our most recent
fiscal year; the closing price of $13.73 per share is used which was the
closing price of Keynote common stock on September 28, 2007, the last
trading day of our most recent fiscal year.
(2) Reflects continued base salary for 6 months following termination.
(3) Reflects value of 100% acceleration of unvested options to purchase 62,501
shares of common stock as of September 30, 2007, if Mr. Gupta is not the
Chief Executive Officer of the combined company following the change of
control.
(4) Reflects continued base salary for 12 months following termination.
(5) Reflects value of 100% acceleration of unvested options to purchase 43,961
shares of common stock.
(6) Reflects continued base salary for 3 months following termination.
(7) Reflects value of 100% acceleration of unvested options to purchase 83,335
shares of common stock if Mr. Hamer is not the Chief Financial Officer of
the combined company following the change of control.
(8) Reflects continued base salary for 3 months plus quarterly incentive
compensation as averaged over the previous year, following termination.
(9) Reflects value of 100% acceleration of unvested options to purchase 61,980
shares of common stock and 25% acceleration of unvested options to purchase
15,000 shares of common stock.
(10) Reflects continued base salary (in U.S. dollars converted from Euros based
on an exchange rate of 1.4219, the exchange rate as of September 30, 2007)
for 12 months following termination.
(11) Reflects value of 100% acceleration of unvested options to purchase 105,000
shares of common stock.
23
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of Keynote has
reviewed and discussed the Compensation Discussion and Analysis required by Item
402(b) of Regulation S-K with management and, based on such review and
discussions, the Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this Proxy Statement.
COMPENSATION COMMITTEE
Jennifer Bolt
David Cowan
Deborah Rieman
24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than the compensation arrangements that are described above in
"Director Compensation" and "Executive Compensation", since October 1, 2006,
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 $120,000 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.
The charter of our audit committee adopted by our Board of Directors
require that any transaction with a related party, other than compensation
related matters, must be reviewed and approved or ratified, by our audit
committee. The committee has not yet adopted policies or procedures for review
of, or standards for approval of, these transactions.
STOCKHOLDER PROPOSALS FOR THE 2009 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at our 2009 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
September 30, 2008. 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 2009 Annual Meeting, such notice must be received
between December 20, 2008 and January 19, 2009. 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 Global 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 the
following filing was late this year:
Mr. Cowan failed to file a Form 4 related to a gift of 470 shares of
common stock to a non-profit organization.
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.
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